Welltower CEO: Health Care Replacing Retail as Anchor of Mixed-Use Developments

With the pursuit of wellness becoming pervasive not only in senior housing but for people of all ages, health care-related buildings are replacing retail locations as the anchors of mixed-used real estate developments — and Welltower (NYSE: WELL) is pursuing projects to accelerate this trend.

“Twenty-five years ago, if you said to someone, why don’t you live in this luxury apartment building that’s next to an outpatient medical building, people would look at you funny and think, that’s not a good idea,” Welltower CEO Tom DeRosa said Wednesday at the J.P. Morgan Healthcare Conference in San Francisco. “In a world where wellness has to become part of our lives, health care has to move much more into our everyday life.”

There are a variety of reasons for this increased focus on wellness. One is an ongoing paradigm shift in U.S. health care. To achieve better outcomes while lowering costs, health care providers have to move away from treating disease and instead foster and maintain wellness, DeRosa said.

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To this end, Toledo, Ohio-based Welltower is working with its operating partners to create a portfolio of wellness-focused senior living properties. More than 321,000 people live in senior housing owned by the real estate investment trust (REIT).

“We care for them by ensuring they live in an environment of wellness as they age,” DeRosa said.

Welltower CEO Tom DeRosa standing in the company's headquarters RoboToaster for AMN
Welltower CEO Thomas DeRosa

However, Welltower has been diversifying its portfolio away from senior housing of late. In 2017, about 70% of the REIT’s in-place net operating income (NOI) came from senior housing, with 17% coming from outpatient medical buildings. Following some recent deals, Welltower’s Q3 2018 pro forma showed 64% of NOI coming from senior housing and 26% coming from outpatient medical and health system properties. And the REIT just recently announced a $1.25 billion investment in a medical office portfolio.

Expect the health system share of NOI to increase in the future. U.S. health care real estate represents a $1 trillion opportunity, DeRosa noted on Tuesday, and about 51% of that real estate today is owned by health systems, with 14% owned by physician groups or other providers.

“A lot represents acute care real estate that is not viable today or the future,” DeRosa said. “We see a huge opportunity for Welltower, that these health systems will see they need to transition out of acute care … and take capital tied up in ambulatory and acute care and partner with institutions like Welltower to redeploy that capital into technology, into newer ambulatory care networks — we think we’re just starting to see that transition.”

In painting a picture of what the future will look like, DeRosa highlighted two projects.

One project will reinvent a former shopping mall adjacent to an acute care campus of Atrium Health in Charlotte, North Carolina. Welltower is helping to bring ambulatory care buildings to anchor a mixed-use development on that site.

In the other project, Welltower is working with Providence St. Joseph health system to bring a 110,000-square-foot cancer patient wellness center to a shopping center in Mission Viejo, California.

Health care … is moving to the high street.

Welltower CEO Tom DeRosa

“Now, when you bring someone with you to chemo, they can actually walk across the street and bring you back a Frappuccino or buy themselves a pair of shoes,” DeRosa said.

This is an example of how health care can create a sense of community that previously stemmed from retail, he argued.

“Health care delivery is moving to the high street,” he said.

In his remarks at the J.P. Morgan conference, DeRosa did not explicitly state that senior housing properties might be part of mixed-use projects anchored by health care. However, that stands to reason, and such developments are being created around the country. One example is the Peninsula Wellness development in the Bay Area.

Interested in learning more about integrating senior housing in mixed-use developments? Click here to access SHN’s deep-dive report on the topic.

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