Tuesday, December 2, 2008

Guess What? We're Aging!

I bet it doesn't come as a surprise that the U.S. population is aging. "So what?" you ask.

Here's why this is important. For real estate investors, medical office development is hot. Lots of new facilities being developed for expanding medical practices and service providers for the needs of that aging population. As one writer put it recently, "Even with an ailing economy, this product type remains a sound long-term investment."

Specifically, with sustained demand expected for healthcare services, experts anticipate the sector to remain a perennial favorite. I concur.

Medical office leases typically are for long terms. Think 10 years or better. Physicians and other service providers build out, often, with expensive assets. Doctors rarely move. Frequently these are Triple-Net leases with renewal options. Another advantage of medical office as an investment? Cash flow, stability and best of all -- predictability. Finally, the cap rate on medical office is often higher than most other investments . . . for all of the aforementioned reasons.

The November 2008 edition of Real Estate Forum magazine notes that the U.S. Census predicts more than 85 million people in the U.S. aged 65 and older by the year 2050. Even between 2010 and 2020, the population projections show the number of people aged 65 and older will increase by 36 percent.

The downside, and it is minimal, is that there may be a leveling off of sorts on occupancy rates as so much new product comes onto the market. Still, medical office appears to be a strong investment for real estate investors looking for steady, stable growth. Plus, I believe they are a good choice for investors using IRS 1031 tax-deferred exchanges to move up and build larger portfolios.

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