The net lease sector of commercial real estate has seen increased attention and expansion over the past several years. Of particular interest, has been the healthcare/medical sector.
From the aging baby boomer generation, to the new technologies that change how we provide healthcare, this sector of the economy continues to grow and has become a favorite asset to investors over the past decade. With the mandated availability of healthcare to all, there is no doubt this industry will command our attention for quite some time. So just what is it about medical STNL (Single Tenant Net Lease) that fuels the interest of investors? Let’s take a look at DaVita and Fresenius Medical Care as both are leading providers in the STNL healthcare/medical sector.
- Investors take security from the tenant’s investment in the build-out of the property. They like the security that is inherent with the investment made by the tenant in the build out of the property and installation of specialty trade fixtures. Build-outs of $200 psf are standard when combined with equipment and trade fixture installation, dictate tenants remain in-place and are likely to sign longer term leases.
- Additionally, the very nature of DaVita’s and Fresenius’ business, kidney dialysis, requires clients to visit routinely and consistently, which in turn produces a reliable income stream for that location. It also makes it harder to move as patients become familiar with regular visits to the existing location.
- Both DaVita and Fresenius STNL assets typically trade at a price point that is attractive to private buyers. With typical sale prices ranging from $1M to $3M, they allow first time investors in addition to experienced investors looking to add to their existing portfolios.
- One of the biggest drivers commanding investors’ attention to medical STNL are the returns. According to Calkain’s in-house research, the average STNL cap rate for 2016 was 6.35%. The overall medical sector for STNL in 2016 came in higher at 7.01%. Already known as a passive investment with stable returns due to its NNN lease structure, the STNL medical sector typically offers an increase in returns slightly higher than other industry averages.
As the population ages and lives longer, there will be an increased need for facilities like DaVita and Fresenius Medical to satisfy the evolving health needs of this “baby boomer” population. The healthcare/medical sector will be a productive environment providing stable investor returns for generations to come.
Thanks to our friends and contributors from Calkain for their insight into medical STNL.