Be the landlord

Be the landlord

Monica Benavides, Space for Health explores the increasing demand for Healthcare Real Estate which has created an opportunity for doctors to become their own landlords. 

Australia’s resilient economy combined with the strategic location in proximity to Asia, makes this country one of the best opportunities on the planet for investment. Due to the economic changes and constant instability generated in Europe by Brexit and with Donald Trump altering the stability of the US Economy, Australia boasts a stable and continuously growing economy for local and international investors.

Even further to the above stability, the healthcare sector in Australia is one of the growing areas in our economy and “crisis proof” in the mid to long term.

Australian Healthcare Real Estate Report, developed by Emerge Capital, states that Healthcare Real Estate has one of the highest returns and lowest volatilities as a real estate investment asset class in Australia. It is typically less cyclical than other real estate classes, providing attractive risk-reduced returns for investors.

Long leases and low vacancy rates are a key attraction of Healthcare Real Estate, providing investors with relatively secure income compared with other real estate sectors. While the average lease term for core commercial real estate sectors is circa six years, healthcare assets typically have 10 – 20+ year leases. Furthermore, the average vacancy rate for healthcare real estate is only circa 2%.

In addition, the sector stands to benefit from the long-term drivers of the healthcare industry. Healthcare expenditure is largely a mandatory, not discretionary spend, and demand for healthcare services continues to grow due to an ageing population, increased life expectancy and advances in medical technology, providing further opportunity in the sector.

There is an increasing demand for Healthcare Real Estate from a sale and leasing in Australia. This brings an opportunity to secure quality assets from public or private operators with strong leases and yield. 

What’s in it for us? 

The diversity of Healthcare assets that the Australian economy offers to investors ranges from private practice facilities to large scale hospitals and a good opportunity for investors in Australia or internationally. This opportunity is also in your hands. Doctors and surgeons have the capability to become their own landlord by generating an alternative model to develop their own practices or even bigger projects to host multiple healthcare disciplines. There are many advantages for Australian practitioners who are considering development opportunities within the Health Care Property sector.

Australian practitioners and clinicians are much savvier these days, and recognise that leasing a property for 20 years doesn’t make much sense when you can develop the project on your own. There are many facilities in the market to make your project viable and the capital from lenders is available for medical practitioners and healthcare professionals. 

Let’s start from the beginning 

Developing a business case is the key. Even if you want to start with a small project to build your Private Clinic or become a developer for a GP Super Clinic or Day Surgery, the business case and feasibility is the key. Understanding the services you will provide, as well as the capital required to develop your project are only some of the aspects to consider before moving ahead. 

Becoming a landlord and developer require vision, determination and having the right team surrounding you. It is a new world for you and the risk is quite high if you end up in the wrong hands. Make sure you partner with the right advisers and always take only one step at a time. 

The process at a glance: 

1. Feasibility. 

“Those who fail to plan, plan to fail” Winston Churchill 

Churchill clearly understood the importance to invest time in planning and so should property developers. The feasibility study is the best investment you can make on this new journey and will guarantee the success of the project at the end. You should consider as many facts and variables as possible at this stage. 

Gavin Taylor, a director of Metropole Projects, says becoming a property developer is like being a movie producer. “Successful property developers are a bit like movie producers,” he explains. “They assemble a highly talented team of people and skillfully lead them to develop a profitable outcome. Developers need to be proactive and make things happen. They must also be creative, flexible and responsive to take their project through the development maze, not to mention all of the bureaucratic red tape that’s involved with council applications, zoning restrictions and the like.” 

Taylor says you also should not overlook the importance of hard work and focus. “As a developer, you need to work hard, have patience, remain focused, and have a burning determination to succeed.” Firstly, begin by asking yourself these questions: 

  • Would you provide a one stop facility for a community or a highly-specialised environment that caters for operating theatres and specialists’ rooms? 
  • Is the project the house of your practice or would you consider it as an additional investment to host more practitioners and service providers? 
  • Who are you going to do this project with? Other medical colleagues? 
  • Which market would you like to cover? Etc. 

Most of the times, doctors don’t have any answers to the above questions. Early engagement of your consultants is the key. A lot of the work can be outsourced and doesn’t require your direct involvement. Be mindful of your business and don’t stretch too much. 

Once you have a clear starting idea, refine your search and start asking specific questions about your project. Determine investment, timing, area, location, and qualify each of the variables to make sure the project is viable. Consider the following items when starting your feasibility study and business plan: 

  • Business description and point of difference in the market 
  • Industry Overview – area, state 
  • Location – access, demographics 
  • Gap Analysis – Areas of opportunity in your preferred location/ target market 
  • Design Complexity – Treatment Rooms, Operating Theatres, overnight stay 
  • Service Analysis – single specialty – multi specialty – consulting 
  • Compliance and Regulations, Considerations 
  • Property analysis – lease, buy, hybrid 
  • Marketing Plan 
  • Establishment Plan 
  • Operating Plan 
  • Financial viability 

Do not commit yourself to any land, property or site without getting the right advice beforehand. Compliance with the zoning, car parking and accessibility are only some of the considerations. Only after this, you make the decision to acquire your property for development. 

2. Build your team 

The success of your development project will be based on the right appointment of your team. Start with a good Project Manager that could take your hand throughout the process. The Project Manager should be able to get the permits on your behalf, manage all consultants and deliver the project smoothly during the construction stage. Make sure you get someone with proven experience in the planning, design and construction with reputable experience in healthcare developments. 
At a glance your team should have a: 

  • Real Estate Agent 
  • Lawyer/Legal Adviser 
  • Town Planner 
  • Finance Broker 
  • Accountant 
  • Project Manager 

Alternatively, look for a firm that could manage the process entirely for you minimising the risk and providing proven consultants in the field that specialised in the healthcare industry. Having a mentor in this process is invaluable and by having a leading hand you can minimise the time invested from your side but also make sure that the process to the end is a success. 

Your Finance Broker should be your allied partner to represent you in front of the lender and get the best result for you. Even for bigger investments, there are finance products available for healthcare professionals with good rates and attractive packages to facilitate your investment. You just need to be aware of the options in the market to make the best decision. A good broker is essential to this process. 

There are many consultants required during the development process, and your Project Manager and the above team will engage and manage them on your behalf. 

3. Get ready, set, go!! 

After you have appointed the right team, and finalised your feasibility study you should be ready to go. 

Start by getting your property sourcing specialist or Real Estate Agent to look for the most suitable property based on your business plan. Make sure that they have a neutral position in the market and they are not aligned to any of the major leasing companies in Australia. Even if it’s a small investment, it’s better that this person gets paid by you and not the landlord to make sure the options they put forward work in your best interests. 

Qualify all the sites with your Project Manager before making any decisions. The Project Manager should get the Town Planner involved to cover all aspects of compliance and viability of the site. This is the biggest investment on the project and you need to make sure that it suits the business plan and regulations. Understand the future plans of the area, infrastructure and growth related to the different zones. Most of the Councils have a Strategic plan that covers 5 to 10 years of planning on the area, population, investment and innovation initiatives. Look at State Planning as well, to understand the impact of adjacent neighbourhoods and greater infrastructure. 

Once you have a property shortlist, your Project Manager should get test fits done for the space with alternative designs, budgets and a proposed planning timeframe. With these items in hand, you will be able to make an educated decision on your preferred location and move towards getting started on your development project. 

Qualify the idea 

The type of development you build on your preferred site, will be dictated by the market. Once you have secured your space, and you have your results from the feasibility study it’s time to test the real market. 

With a minimal investment upfront, you can develop a generic Information Memorandum, which is a marketing document that is used by leasing agents to test the market. It shows the design perspectives of your new building/practice and it will be used to approach potential tenants that may be interested in the project. 

For small projects, it’s as easy as approaching your colleagues and other doctors to determine their interest in your project. The new trend in the healthcare industry is to provide a one stop facility for patients that centralise all medical services for convenience. Checking with pathology providers, allied health clinicians and other specialists as well as your closest hospital or large healthcare provider for their overflow on patients will be a good starting point. This analysis should have been done at your feasibility study with a clear gap analysis of the areas that you will provide at your new medical facility, so make sure that this reflects the results of the feasibility. Real Estate Agents will gladly do this on your behalf with a set fee and provide the result to refine the idea of your services mix at the building. Once again, make sure that your agent is specialised in the healthcare industry and speaks the same language as clinicians and healthcare professionals do as this will provide the professionalism to the building that you want for your project. 

This will also test the expectations on the proposed leases and return on investment for your project. A feasibility study clearly sets the business plan based on demographics and data used on previous projects, but it’s important to qualify the response from the market. If the market response aligns to your business plan and shows a positive response, then good due diligence has been achieved in qualifying the site and making sure it will meet regulations and you have accomplished a good team of professionals, you will be in good hands to move towards the finalisation of your design, approvals and construction of your facility. 

With 27 years’ experience in delivering healthcare projects, Space for Health helps throughout the complete process from the development of your business plan to completion and leasing of the project. With a specialised team of Architects and Health Planners, Project Managers and a national network of consultants and providers, the process to develop your facility will be a stress free and smooth process.

The Private Practice Magazine

This article featured in our
Winter 2017 Edition

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Become your own landlord

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