Martin Freeman is the Co-Founder and CEO of OrbVest, a global real estate company that invests in US income producing medical commercial real estate. Within seven years, OrbVest has assembled a portfolio of over 1.4 million square feet representing >$360m real estate under management (REUM) with a 65% reinvestment rate.
Martin Freeman has overseen the growth of the strategy and the portfolio, leading an executive team that has grown distribution channels to over 10 countries internationally, and is driving OrbVest towards a $1bn plus portfolio and a listing on the Nasdaq by 2025.
We recently had the opportunity to talk to Martin Freeman and learn a little more about his vision for OrbVest, and why now, as the world recovers from a deadly pandemic, is a particularly favorable moment for international investors to consider opportunities in US healthcare real estate.
What real estate assets are you targeting and why?
OrbVest has a hyper-focus on the healthcare niche only, and in particular medical office buildings.
The rationale is simple: think about your doctor or dentist and how many times they have moved in the past 10 years. The answer anywhere in the world is always the same...once or never. These types of medical tenants are generally intertwined within their surrounding communities, they are profitable, well-known and don't like to move. They therefore sign long leases and are great tenants for owners of buildings.
OrbVest seeks to acquire multi-tenanted medical office buildings, as diversification of tenants also reduces associated risk.
Lastly, all our buildings are income-producing on day one and are able to meet our goals of producing cash-on-cash annual dividends of around 7.5% to 8% and total returns after 5 years of 11% to 17% per annum. (This includes the capital gain when we sell the building.)
What are the factors driving growth in healthcare real estate assets?
Our deals always have similar characteristics, which enables them to pass our independent investment committee. They are located in areas of large, stable populations or projected population growth, as this is a key driver of real estate values. In addition, the weighted average lease term (known as WALT) needs to be around 5 years or longer. Leases need to be either market-related or below and contain an annual escalation of two percent or more.
The US is also experiencing significant change within the older age groups, as the 'baby boomers' and technological enhancements are extending lifespans. The age group of 65 years and older continues to grow exponentially.
The number of Americans aged 65 and older is expected to double over the next 40 years and reach 80 million by 2040. Adults aged 85 and older may quadruple by 2040.
It is widely accepted that older populations visit medical practitioners 5 to 6 times more often than younger age groups.
The above factors are driving demand for healthcare and medical facilities, which creates stability and resilience within our niche.
Healthcare real estate should grow as demand for life science facilities, medical offices, and senior housing increases.
Since the beginning of the pandemic what changes are you seeing in the medical office sector?
OrbVest has been saying for the past six years that if and when the next correction or recession arrives, you'll want to be invested in healthcare.
Covid-19 tested, and validated, our strategy, demonstrating the resilience of healthcare assets. OrbVest collected on average above 95% of rentals owed by all our tenants in our buildings. Furthermore, Covid created winners and losers.
Data from Colliers showed vacancy rates for medical office space may have climbed slightly to 8.9% in 2020, but contrast that to the 13.6% vacancy rate for traditional office space.
During the Covid crisis medical office space owners on average collected rent from more than 90% of tenants. This vastly outpaced other sectors, such as multifamily which remains a higher risk for investors as government stimulus and forbearance programs draw to a close.According to a recentRealtyTrac Rental Property Risk Report, landlords in 48% of all counties in the US remain at an above-average risk of defaulting.
The healthcare commercial real estate sector has held up extraordinarily well throughout.
How do you see the sector going forward?
The healthcare sector in the US continues to play a dominant role in the economy and has displayed year-on-year growth for many decades. From an economic and political perspective, the Biden administration is strongly in favor of expanding healthcare services and benefits and we remain bullish on the sector going forward.