Demand Will Soon Outpace Supply for Health Care Properties

http://www.reit.com The demand for health care facilities is approaching a point where it will outstrip supply, according to Jay Flaherty, chairman, president and CEO of HCP Inc. (NYSE: HCP).

In a REIT.com video interview at REITWeek 2011: NAREIT's Investor Forum at the Waldrof=Astoria in New York, Flaherty discussed the latest developments with his company and the health care real estate sector in general. He said the aging baby boomers will continue to drive demand in the space in the long term.

"There's virtually nothing that would stop that demand driver - not for this year, not for the next decade, not for the next several decades," Flaherty said. "At some point, there's not enough supply to absorb that demand."

Within HCP's five property types - medical office buildings, hospitals, life science facilities, senior housing and post-acute properties - Flaherty said his company is seeing more opportunities in the senior housing and post-acute sub-sectors. He also noted that HCP currently has development or redevelopment efforts going on in every sub-sector except hospitals. Flaherty said HCP is using the programs as test cases for how it will operate when demand really heats up.

"If you add all these up, they're very fine development and redevelopment opportunities, but they're not of a scale in the aggregate that is really going to move the needle for our company," he said. "To a certain extent, we're doing this as a little bit of an experiment. They will have very fine returns on the dollars invested by our shareholders, but we're really looking to fine tune what our actual strategy will be over the next couple years."

Flaherty also pointed out that the share of health care properties in the United States owned by REITs is actually quite small. Instead, private equity funds and non-profit health care institutions own the majority. As these owners seek out liquidity and partners, it should help drive transaction activity in the sector, according to Flaherty.

Flaherty also discussed the impact of REITs' inclusion in the S&P indexes.

"If you think about some of the investors in the publicly traded REITs today that weren't investors 10 years ago, they are high-quality, blue-chip college endowments, pension funds - investors that have very long-dated time horizons that demand transparency and liquidity but want to have attractive returns."

By Matt Bechard

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News & Politics

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