Sale and leaseback anyone?
The cheapest way to finance the renovation of public hospitals may be sovereign debt. But increasingly that is no longer an option. And that is a huge opportunity for institutional investors.
Take Belgium. The average public hospital is 24 years old. Yet access to public funds for renovation is being severely reduced and curtailed. Sebatian Berden at property REIT Cofinimo says: “After they apply, hospitals face a ten year wait to even find out whether they will receive funds.”
ZNA, a big hospital in Antwerp has already struck a PPP deal to cover renovation with pension funds. He says that others will follow.
The big question is how far can public hospitals turn to PPPs or sales and leasebacks as a source of finance. How far is this a real alternative to some form of privatisation?
That depends to some extent on the underlying plight. Berden says three large Belgian hospitals are close to bankruptcy. He thinks that the Flemish parties on the right are starting to think about privatisation, although he admits that it is not yet part of the political debate.
Dutch public hospitals are also being encouraged to think about property commercially. The value of their estates are now included in funding calculations.
The problem is that elsewhere laws need to change before sale and leaseback is allowed. This is true for public hospitals in Spain, for instance. And privatised hospitals in Germany can not be sold and leased back by the operators.
Catalonia recently looked at changing laws so as to enable sales and leaseback on public sector property (not hospitals however). It eventually decided that the returns were too low to warrant the move.
Vincent Moulard who runs the healthcare side of listed property fund Gecina says he is sure that France will eventually see sale and leaseback deals of public hospitals, but says there is a lot of resistance from the public sector. “I went to a conference in the autumn and a guy just stood up and said that it should change. But it will have to. There really is no alternative.” He suspects that it will take at least another 2-3 years.
There are, of course, alternatives. Phil Hall at Jones Laing Lesalle says that many hospitals should consider letting in cafe franchises and the like. He suggests that if they haven’t got room for them, they should add the extra space.
English NHS is sitting on unused property of over 2 square kilometres – with the same floor space as the supermarket retailers Morrisons and Sainsbury combined according to consultancy EC Harris. That is how much could be saved if it sold all mothballed facilities and introduced hot desking for doctors. But that calls for a change in mindset towards property assets.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
