Healthcare developments: A great investment
Monday, 28 August, 2017
BE THE LANDLORD!
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 US Economy, Australia performs then as a stable and always growing economy for local and internal 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 and long term.
The 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. The asset class is typically less cyclical than other real estate classes, providing attractive risk-adjusted 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 average lease term for core commercial real estate sectors is circa 6 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. The 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 increasing appetite for healthcare real estate sale and leaseback opportunities in Australia. This brings an opportunity to secure quality assets from public or private operators with strong leases and yield.
What to us?
The diversity of the Health and Aged Care assets that the Australian economy offers to investors, starting from private practice facilities to big scale hospitals, are good opportunity for investors in Australia or internationally. This opportunity is also in your hands. Hospital, Health and Aged Care professionals have the capability to become their own landlords by generating an alternative model to develop their own practices or even bigger projects to host multiple healthcare disciplines. There are multiple factors that will benefit Australian practitioners to become more active on the development field if they understand the advantages and facilities to develop their own projects.
Let’s start from the beginning
Developing a business case is the key. Even if you want to start from a small project to build your Private Clinic or become a bigger Landlord with a Day Surgery, Private Hospital or Aged Care Facility 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 a developer requires 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 advisors and always take only one step at a time.
The process at a glance:
“Those who fail to plan, plan to fail” — Winston Churchill. Churchill clearly understood the importance to invest time in planning and so should the 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.
Early engagement of your consultants here 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 on your project. Approximate 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, Australia
- 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, carparking, accessibility and the right use are only some of the items to confirm before taking the decision to acquire your development property.
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 on the planning, design and construction with a reputable experience in health and aged care developments.
Your finance broker should be your aligned partner to represent you in front of the lender and get the best result for you. Even for bigger investments, there are available facilities in the market for health and aged care professionals with good rates and attractive packages to facilitate your investment. You just need to be aware of the options in the market to take the best decision and a good broker is essential.
For bigger investments, there are multiple opportunities for venture capital, foreign and local investors as well as partners interested on equity on the business to support your business case. The company you partner with for the development of the project should be aware of these options, and capable to present some alternatives for the best approach to develop your project.
There will be a lot more 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 more suitable property based on your business plan. Make sure that he has a neutral position in the market and it’s 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 he puts forward work on your best interest.
Qualify all the sites with your project manager before taking any decisions. The project manager should qualify all aspects of compliance and viability of the site. 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 decided on short listed properties, your project manager should get test fits done on the space with alternative designs, budgets and proposed planning time. With these items on hand, you will be able to start the process on your preferred location and get started to prove your business idea on the market.
Qualify the idea
The type of development you build on the 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.
If the market response aligns to your business plan and shows a positive response, a good due diligence has been done in qualifying the site and making sure it will meet regulations and you have accomplished to set up a good team of professionals to take you here, you will be in good hands to move forward to the finalisation of your design, approvals and construction of your facility.
With 27 years’ experience in delivering healthcare projects, Space for Health provides the assistance 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 is a stress free and smooth process.
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