Healthcare is currently facing a number of major challenges, each of which has an impact on real estate. Yet John Hoven, financing expert at SME intermediary Credion in Apeldoorn, still sees opportunities for investors who want to invest in this type of real estate. ‘It is important to be smart, flexible and have patience. Healthcare real estate is truly a long-term investment.’
The demand for healthcare real estate is still high, but at the same time this sector faces a considerable number of challenges that investors must take into account. ‘Healthcare and real estate are going through a number of major changes. This makes it an interesting investment, especially for medium-sized investors, as part of a diversified portfolio,” says Hoven. According to him, investors must be patient when it comes to achieving healthy returns. The entire real estate market is currently struggling with rising interest rates, which are expected to stabilize in the last quarter and will probably decline slightly thereafter. In healthcare, there are additional headaches, such as lower reimbursements that healthcare providers receive from insurers and the staff shortage. Investors who focused on healthcare real estate for a quick return are also in for a rude awakening. ‘Investors cannot of course pass on their increased costs to the tenant without limits; there is often a legal maximum,” says the financing expert.
Sustainability pays off
But it’s not all doom and gloom. According to Hoven, there are still opportunities within healthcare real estate; one just needs to walk the right paths and be patient. ‘We advise anyone purchasing healthcare real estate to also focus on sustainability. Actually as much as possible,” Hoven explains. In addition to the fact that the value of the real estate increases, there is another financial advantage to sustainability, namely depreciation.
Hoven explains: ‘On Budget Day it was announced that the depreciation of real estate would be restricted. In the past, depreciation could be unlimited, but nowadays this is only possible until the land value has been reached. With the new measure, it will not be possible to depreciate more in the future than up to the WOZ value. But you can write off the sustainability measures. So it is certainly an interesting option, which offers advantages in several areas.’
Another piece of advice that Hoven likes to give is to purchase healthcare real estate that also has the option to easily be transformed into another function if necessary.
Expect some problems here and there with refinancing
Does Hoven foresee problems for owners of healthcare real estate who will soon have to refinance? ‘Yes, I expect some problems left and right. But this too can usually be adjusted. If you borrowed five years ago at a very low interest rate, you may now have a harder time with a refinancing.’ Hoven’s advice is to also talk to another financier. New business is also interesting for them and new financing often translates into a lower interest rate compared to a new interest term with the existing financier. ‘Always look further than the end of your nose,’ is Hoven’s motto.
Another option that is being offered by more and more financiers is to partially pay the interest due in advance. Hoven: ‘You actually pay a premium for a lower contract interest rate. This arrangement is particularly popular when financing real estate where people are already at the top of the possibilities.’
The fact that Credion is a major player in the field of SME financing is evident from the fact that the intermediary now has an agreement with several major banks, which refer their smaller customers to Credion. Due to its size, the intermediary also has its own financing desk at these banks for applying for loans.
The advantage of doing business with alternative financing parties
Are lenders still willing to participate in the purchase or refinancing of healthcare real estate? Hoven, who is in contact with around 125 different financiers within Credion, including various real estate financiers, sees a retreat from the major banks but still plenty of opportunities with alternative financiers. ‘The interest rate with alternative financiers may often be slightly higher than with traditional banks, but you can obtain financing more quickly. If one even gets a foothold for SME financing from a bank, it can take weeks or sometimes months before it is decided whether the loan will be granted. Alternative parties can sometimes do this within a week.’
The market for alternative financing has grown significantly in recent years and offers many opportunities for Credion’s customers. ‘The existence of alternative real estate financiers is pleasant for our customers, especially because the short lines make it possible to quickly obtain a decision on a loan. Having a well-designed IT infrastructure at those financiers certainly contributes to this.’