- Health care real estate is distinct from other commercial real estate.
- Health care is an industry that still needs physical space.
- The valuation of an operating business includes many factors.
Health care real estate is much different from other commercial real estate for several reasons. Discussing those and current trends in the space, Weaver Beyond the Numbers Real Estate Edition hosts Howard Altshuler, Partner-in-Charge, Real Estate Services and Rob Nowak, Partner, Tax Services, spoke with their colleague, Corey Palasota, Managing Director for Health Care Valuation.
First, Palasota explained his role. “I spend about 60% of my time in the valuation of operating businesses, and the other 40% consulting on various things including helping them understand the real estate market.”
In differentiating health care real estate, Palasota noted that the buildings are typically single purpose and specialty. However, he has seen some changes in the industry around spaces having more flexibility. “There is more consideration around the services to include in the footprint.”
While many businesses are downgrading or eliminating commercial space, health care isn’t, as it’s an in-person service. This makes it a “safer asset class,” according to Palasota.
The hosts asked Palasota about what’s impacting valuation. “The stronger the operating business, the more valuable it can be. Other factors are the competitive advantages of the operator, what the payer mix is of commercial versus Medicare, and the reimbursement. It’s anything that demonstrates there’s enough revenue to pay the lease.”
In looking at new trends, Palasota noted that there was a lot of horizontal integration and consolidations in previous years. As of late, he’s seeing more vertical integration, which offers a competitive edge.
“Business valuation is a pie, and it’s carved up into various divisions, with real estate one of the biggest. The lease rate pushes value in one direction and risk in the other. Overall, developers want the lease rate to be viable and operations to be successful,” Palasota said.