How specialisation is driving growth for this healthcare property fund
Originally appeared in Live wire
Many businesses are focusing on specialisation, to set themselves apart from their competitors – Real Asset Management is no different
More and more businesses these days are turning to specialisation.
When a business specialises, it can provide its target market with a superior value proposition compared to competitors. This is not lost on Real Asset Management, which has taken the concept and run with it in the healthcare property space.
The concept underpins the RAM Australia Healthcare Opportunity Fund, and I recently sat down with development director, Adam Thompson, to understand just how specialised RAM has become and what it means for partners and investors.
Thompson shared with me the many elements of the investment process, including data collection, cost management, external consultation, and regulation management.
But, sitting above all of those factors is the strong relationships with healthcare operators that RAM prides itself on. As Thompson explains:
“Partnering with operators is critical to adding value and ensuring strategic growth for our sites. Without the operator, we don’t have development at all.”
“So partnering with them is critical in understanding their business, who we’ve got going into our developments, and ensuring the viability of the development,” he says.
What are the key factors and considerations for selecting a suitable site for healthcare development?
Adam Thompson: There aremany factors. One of them is accessibility, so that’s the location of the site, access for people to get to it, public transport, airports, universities, and public transport network. Demographics is a big player in site selection. Population growth, population density, and also percentage of population that have public health insurance.
How do you make these decisions? Do you rely on data or have your own secret recipe?
Adam Thompson: A bit of both. That’s a good question, Chris, we do have a secret sauce. We do have many factors we pump into our special model, and our special feasibility model, and our experience in delivering healthcare property over the last 15 to 20 years is our secret recipe.
Rising construction costs – how are you guys managing them, particularly in commercial healthcare development?
Adam Thompson: It’s a bit of a hot topic at the moment with all developers.
We’ve got a good set of strategies to mitigate cost escalation and fight that inflationary environment that we’re currently in.
Specifically in healthcare, it’s very expensive building healthcare developments. Some of the strategies we put in place, we get contractors in early so during the design phase, even before we’ve lodged our development application, we’ve got them in there doing a check price.
Concurrently, we get a quantity surveyor involved, so they’re an external consultant to come and evaluate our design and give us an accurate number on what the likelihood is to construct that two years into the future. So yes, we do all our budgets, we get a builder on board, and then we know exactly how much it’s going to cost at the end.
You’ve talked a little bit about relationships. Why is it so important to develop relationships with your operators?
Adam Thompson: Partnering with operators is critical to adding value and ensuring strategic growth for our sites.
Without the operator, we don’t have development at all.
So partnering with them is critical in understanding their business, who we’ve got going into our developments, and ensuring the viability of the development.
What are some of the more unique requests you’ve had from operators over the journey?
Adam Thompson: Some of them like to develop themselves. Some of them like to construct their own fit outs. We allow them to do that in certain instances as long as they’ve got the experience and the knowledge to do so, and then we set up our agreements, and our contracts, and our AFLs, and our leases to cater for that.
Can you talk us through an investment that you’ve made recently that crystallises what we’ve been talking about?
Adam Thompson: We had a great investment in Nundah, in Brisbane, where it was an existing half through construction Class Five building, which is an office. This opportunity came to us. We came along, had a look at it and evaluated the Class Five for a conversion into a mental health hospital. One of the buildings suited a mental health hospital very well. We went then out and got one of our key tenants. They had a mandate for in that location, so then we procured them, and then they’ve entered into an AFL to fit out a mental health hospital.
What does it take in a day-to-day, practical sense to get one of these projects up and running?
Adam Thompson: Planning is a very important regulation to analyse for each site, so each individual site be under a different planning scheme. It’ll have different zoning controls, it’ll have different overlays. That can include heritage, flood, fire, all those sorts of things. Some opportunities don’t have the ability to convert to hospital, as an example, or a mental health facility or a medical facility.
On top of that, you’ve got the building regulations, which are even more stringent for healthcare development. And, on top of those, there’s a third layer, which not many people understand: the Australasian Health Facility Guidelines, which each individual hospital operator has to comply with for their fit out. It’s over and above the building regulations and the planning scheme, so it’s quite complicated. Analysing each site with all those regulatory bodies is very, very difficult.
