Owners, developers see silver lining in health care real estate

Health care real estate isn’t immune to the ravages of the recession, but it has survived the nation’s weak
economy better than most sectors, and some owners and developers of commercial space think it’s positioned to thrive.

Among them is Healthcare Trust of America, a Phoenix-based real estate investment trust that owns more than 960,000
square feet of health-care-related real estate in the Indianapolis market. The figure represents about
13 percent of HTA’s 7.4-million-square-foot portfolio.

HTA bought the bulk of that portfolio—almost
700,000 square feet— in June 2008 from Long Beach, Calif.-based Health Care Property Investors,
one of the country’s largest publicly traded health care real estate investment trusts. About 64
percent of the space is leased to Clarian Health Partners, said Scott D. Peters, HTA’s chairman,
president and CEO.

“We like to affiliate with strong providers. Clarian has significant mass and a strong
balance sheet. We align with health care systems that dominate or will dominate their market,” Peters said.

HTA isn’t alone in seeing large hospital systems as the key to stability for health care real estate.

based Duke Realty Corp. also is bullish on the health care sector and the facilities needs of large providers. The company
told analysts in a conference call last fall that the sector is a bright spot for the company. “We are well positioned
to grow this business…we have an excellent team with strong relationships with leading hospital systems,” Duke
executives said.

At year-end 2009, Duke’s local portfolio of more than 472,000 square feet of medical office
space was 92 percent leased. And its health care division, locally based BremnerDuke Healthcare Real Estate, said it expects
to grow its health care portfolio by $1 billion over the next five years.

Even smaller developers are getting in
on the act. Last month, the development and construction firm Shiel Sexton confirmed it’s working on what could be a $50-million
mixed-use development anchored by Clarian Health near 16th Street and Capitol Avenue.

“Occupancies and rent
structures are more stable in the medical sector,” said Abbe Hohmann, a senior vice president at the local office of
St. Louis-based Colliers Turley Martin Tucker. Some of the demand for space, such as Clarian’s new 31,000-square-foot
bariatric surgery center at Intech Park, is technology driven, she said.
As for health care reform, it’s too soon
to know how that will affect demand for medical space, Hohmann said.

HTA, the REIT with big holdings here, sees
reform as one of the positives. Regardless of what reform ultimately looks like, it should result in more people being insured,
said Mark Engstrom, HTA’s executive vice president of acquisitions.

Rather than seeking treatment at a hospital
emergency room, those people will have a relationship with a physician and receive treatment in a more conventional setting.
That means more demand for medical offices and clinics, Engstrom said.

The trend toward preventive medicine will
continue as well, causing health care systems to outsource preventive medicine practices, he said. “We want to be where
those new facilities are," he said.

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