Donald Johnson

Healthcare REITs: Still Doing Well, But Will That Trend Continue?

Economic conditions undoubtedly are making docs and medical groups about expanding and leasing new space, and some may be facing cash flow problems.

This is because states are cutting their Medicaid budgets where they can. Rising unemployment means fewer privately-insured patients. Rising premiums means higher deductibles and more consumer concerns about spending on tests, office visits, etc. Insurers are negotiating tougher deals with docs, cutting their revenue streams.

If I were looking at health care reits, I would look for those that have no or few new projects in the works, because winning new tenants is going to be tough, even in good markets. Docs and medical groups are no more likely to grow during a financial crisis and recession than other professionals and businesses.