Scott Peters: Impact of Affordable Care Act on Healthcare Real Estate

Above: Scott D. Peters is chairman and CEO of Healthcare Trust of America. Real Estate | 20 Nov, 2013 |

Healthcare Trust of America, Inc., is a leading owner of medical office buildings in the U.S. with more than 13MSF of MOBs in 27 states. HTA has 1.2MSF of MOB in Arizona, making the company the largest manager in the state. Chairman, CEO and President Scott Peters sat down with AZRE to discuss the Affordable Care Act, its possible effects on healthcare real estate and how investors can benefit from the changes.

(Full interview transcription below the video.)

Video edited by Michael Gossie

Q Healthcare is changing in the U.S., led by the implementation of the Affordable Care Act. HTA has a front row seat as one of the largest dedicated owners of medical office buildings in the U.S. What are the biggest changes you are seeing?
A The biggest change we’ve seen, certainly over the last two or three years, is that from a commercial real estate perspective now on-campus or medical office buildings that are across the street are really becoming core critical. That’s a key location now for (physicians’ and healthcare systems’) efficiency and for their ability to be cost effective when they deliver their services to patients.

Q  How will the ACA affect the delivery of care in healthcare facilities?
A Hopefully, everyone will get better care, but from our perspective the Affordable Care Act has changed the way healthcare systems have looked at their real estate. It’s changed the way physicians and physician practices have begun to adapt to the future under the Affordable Care Act. Healthcare systems need to be more cost effective. They’re looking for 30M to 40M more folks who are going to be coming for services; (MOBs) need to make it effective from a cost-perspective. Physicians want a place where it’s most effective and they have their privileges, so they like the synergy. This is a very exciting time for us, when you think about medical office buildings as real estate.

Q How are owners of medical office buildings investing to meet these changing needs?
A Our view, as an owner, is that we’d like to double the amount we own today. We own about $3B in assets, and I’d love to say that in three to five years from now, we will have twice as much because we think it’s just going to continue to get better in value. The big thing you have to make sure of is that when you buy something you’re looking at the long-term. You want to make sure it’s cost-effective, meaning the rents are at market and the buildings aren’t too antiquated. Again, healthcare is changing and the owners have to change with it. The other big thing we’ve found is it’s become more traditional real estate. The healthcare system, the physician and the practices that are occupying the space care about asset management. We do our own asset management, so that’s a very big part of our platform: Come to our building, have a relationship with us and we’ll try to manage this asset in the most effective way we can.

Q Are there things that operators of medical office buildings are not doing that they need to do to prepare for the ACA?
A The tremendous cost efficiency and burden that is going to come to the healthcare systems and physicians, that we’ve all read about, are going to come back to where can I

HTA's Banner Sun City portfolio consists of 18 properties totaling 641,445 SF and includes Banner Del E. Webb Medical Center in Sun City West, Ariz.

HTA’s Banner Sun City portfolio consists of 18 properties totaling 641,445 SF and includes Banner Del E. Webb Medical Center in Sun City West, Ariz.

get the best location, most efficiency for how I operate and then who and where can I be that I get the best service. That goes back to asset management, the property management, making sure the relationships that we as the owner of the asset has is directly with the physician and healthcare system so you can always have that communication. Historically, over the last 25 years, physicians don’t want to move, patients know where they are and healthcare systems can’t move. When you have a hospital, that’s $2M to $3M a bed. Physicians want to practice in hospitals or have privileges because the infrastructure to do what they do, which is cure people, is in those locations.

Q HTA is the largest owner of medical office buildings in Arizona. How is the changing healthcare landscape impacting your local operations?
A We like Arizona. Obviously, our corporate offices are here. I’ve lived here for the last eight years. We like the fact that Phoenix is projected to be one of the fastest growing cities in the United States over the next five years. One of the things we haven’t talked about that I think is a tremendous benefit of the Affordable Care Act is employment. It will mean a tremendous amount of new jobs. If you look at some of the projections, healthcare is supposed to be the leading employer over the next five or 10 years, almost 50 percent greater than any other sector from an employment perspective. That’s great for Arizona. That’s great for us. If you have a growing economy, if you have more and more folks coming to Phoenix and we’re already the fifth largest in the country, if you’re located on campuses with Banner or with some of the other healthcare systems I think that bodes very well for us.

Q What are you seeing in your other markets that you are not yet seeing in Arizona?
A We’ve seen a push for on-campus locations. We’ve seen healthcare systems have brought physicians to the campuses to make it more efficient, more localized. We haven’t seen that yet as much in Arizona. We’ve been in a recession, some would say a depression, and I think most recently Arizona adapted the exchanges and that’s going to help folks get signed up with the new Obamacare. I think over the next two to three years, you’ll see a more gravitation to the healthcare campus.

Q How has the ACA impacted HTA as an investor-owned REIT?
A Before the Affordable Care Act, as a company when you said what are the significant macro-economic trends for owning this type of real estate you would have the agent and then you would have said well, as people get older they go to physicians more, but the Affordable Care Act changed it all. Healthcare systems are selling their assets, they need to be more efficient, and you’ve got the tremendous amount of employment coming through so you now have healthcare educators. We recently leased some space to some of the colleges that need to educate. The employment is not going to come from the doctors. It’s going to come from the physician assistants, the technicians, the nurses, the folks who are going to service these 30M to 40M more folks who are going to be seeking healthcare.
 
Q What kind of investment opportunities will come out of healthcare reform?
A Investment for us, again, I go back to the real estate side. If you find a sector with such strong trends in it — the aging population, employment, the fact that healthcare systems need to look for other folks to make it more efficient for them — however one decides to invest, from a periphery perspective of healthcare, I think it’s a very strong opportunity. We know real estate, so obviously we’re going to focus on owning the assets in critical locations on-campuses across the country.

Q 10 years from now, what will be the ACA’s biggest impact on medical office buildings?
A That they’re just core critical. Everyone goes to a physician. When I started this company in 2006 and started selling to financial advisors and shareholders, I would talk to folks and everybody’s been to a medical office building, everybody’s been to a physician, everybody’s been to a healthcare campus, but the Affordable Care Act really changed the focus. Now, everybody knows about it. Everybody reads about it. They see what the changes are supposed to be, which is more and more folks getting access and more preventive medicine. Anyone under 35 now will start seeing a physician or healthcare system much more. The healthcare system, for us, as owners in this space, I think we have great opportunities to generate continued income and profits for our shareholders.

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