Northpoint Enterprise Park has long supported the development of a community focused precinct with the development initially through the custom built, state-of-art medical centre, the Epping Medical Centre. More recently the Eclipse Childcare Centre has been built. Epping Gardens, an aged care home is currently under construction by Heritage Care, and most recently Mantra announced their plans for a brand new $70 million hotel to be built opposite the Epping Medical Centre.
This week an exciting plan has been revealed, for the development of a $250 million private hospital of up to 360 beds, built on land adjoining the Epping Medical Centre. This announcement sees the fruition the long term objectives of the Northpoint Enterprise Park development team to create a comprehensive, facility focused community precinct for the rapidly expanding population that calls the north of Melbourne home.
Below is an extract from an article written by Nick Lenaghan that appeared in the Australian Financial Review about the private hospital development. The full article can be read here.
Generation Healthcare REIT will partner with Healthe Care Australia, the country’s third-largest private hospital operator, on a $320 million medical campus at Epping in Melbourne’s north.
The venture underscores the rapid maturing of healthcare property as an asset class and will be the first major new development by Generation since it was bought out by Canada’s NorthWest Healthcare Properties earlier this year.
The development will proceed in two stages after Generation took an initial $29 million stake last October in the Epping Medical Centre.
The investment – a debt-structured deal involving a put-and-call option – was an opportunity with considerable upside for Generation, led by Miles Wentworth.
Population in the catchment is expected to grow by two-thirds over the next 20 years. Now joining that opportunity is Healthe, which is led by Steve Atkins and has a powerful owner, China’s Luye Medical, which absorbed the Australian operator after gaining FIRB approval last year.
The centre was only 52 per cent occupied when Generation came in. It sits in an underserviced zone, within one of Melbourne’s fastest-growing urban corridors.
In the first stage, Healthe will take up much of the vacancy in the centre after a refurbishment comprising four operating theatres and 30 beds. Then comes the bigger stage, a $250 million new private hospital of up to 360 beds, built on land adjoining the centre, on which Generation put its foot through an option in the original deal.
The Epping centre is close to a public hospital, a benefit that should help drive further demand. For Mr Wentworth, the Epping project follows a model Generation has used successfully on other sites – Frankston and Casey on Melbourne’s outskirts and at the Epworth hospital – across its $760 million portfolio.
“It’s about creating significant, integrated health campuses,” he told The Australian Financial Review.
Population in the area is expected to grow 64 per cent over the next 20 years, a big drawcard for Healthe, which is rapidly expanding with the backing of its Chinese owner.
“That catchment area has been under-bedded from a private perspective,” Mr Atkins said. “People have had to leave the area to get services. As we have seen the public hospital get bigger and bigger, our belief is the private opportunity presents itself.”
Partnering with a property trust, such as Generation Healthcare, has been a key element in Healthe’s expansion over the past decade. With Epping, it will have 36 hospitals, but only one of them is held on the balance sheet and the rest held in third-party trusts.
“It’s one of the things that’s allowed us to grow so well,” Mr Atkins said. “It’s a prudent manner in which to deploy capital. In the last seven years, we’ve spent close to $500 million on brownfield expansion of our existing hospitals.
“There would be few in our market who have done anything close to that. Having that REIT relationship has certainly supported that.”
Institutional investment into healthcare real estate is surging. Yields are being squeezed. Emerging players and existing platforms are accumulating bigger portfolios.
Even Australia’s largest listed office landlord, Dexus, is getting into the scene. In June it unveiled plans for an unlisted $760 million healthcare property fund.
Another rapidly growing manager is Barwon Investment Partners which is investing out a $500 million institutional healthcare property fund it launched last year.
“The maturity of the asset class will create more opportunity,” said Generation’s Mr Wentworth.
Firming yields and the demand to free up capital to fund services will give pause for thought for healthcare operators owning real estate, which will “consider doing some sale and leaseback or using the partnered capital” to assist their growth, he said.