A Bala Cynwyd real estate investment firm founded a dozen years ago to buy buildings used in veterinary care has grown to include 175 properties in 35 states worth about $500 million.
Now the privately held company is expanding into healthcare facilities where people are treated, focusing on buildings used by doctors in ophthalmology and reproductive medicine.
With the strategy shift, the company changed its name on Tuesday to Terramed Real Estate Solutions from Terravet.
Founder and CEO Dan Eisenstadt picked those two medical specialties because, like veterinarians, the physicians in these fields tend to be deeply passionate and are likely to stick around longer and be dependable tenants.
Why should a real estate investor care about renting to “high-passion” healthcare providers? “I would like to know the passion of that lead doctor is going to help the transition and help stabilize it into the future,” he said.
Other factors that are attractive to Eisenstadt — with veterinary buildings and ophthalmology and fertility-treatment properties — are proximity to residential communities and the significant amount of specialized build-out needed for such practices.
That ensures what Eisenstadt called “sticky” tenants who can’t easily move.
Fertility and ophthalmology clinics also get a significant amount of their revenue directly from patients who pay out of pocket, rather than through insurers. That reduces what Eisenstadt called “reimbursement risk.”
Evolution of a niche business
Before moving into real estate, Eisenstadt cofounded Community Veterinary Partners, a Philadelphia company that consolidated veterinary hospitals. Eisenstadt and other founders sold it to a private-equity firm in 2015. It is now owned by the private-equity arm of Ontario’s public employee pension system.
He started Terravet in 2012 with the purchase of a veterinary building in Aston, Delaware County.
Eisenstadt’s expansion into what he calls “human medicine” was driven both by investor demand for niche real estate and the desire to work in a broader market. “It’s a bigger amount of space for us to be thoughtful and selective about which buildings we want to buy,” he said.
Terramed specializes in buildings occupied by a single operator.
That makes it much easier to make the tenant responsible for all expenses: property taxes, insurance, and maintenance.
Investors, such as pension funds, like that so-called triple net lease structure because it gives them protection against rising insurance, property taxes, and other costs, Eisenstadt said.
If a building has more than one tenant, the landlord has to take responsibility for common areas.
Following a wave of private-equity consolidation
Terramed has acquired so far 10 properties used by ophthalmology practices in California, Connecticut, Florida, and Texas. Most of them specialize in cataract surgery and collect extra revenue from patients willing to pay for special lenses that insurance typically doesn’t cover.
When a medical practices sells to a private-equity firm or consolidates with another system, the doctors sometimes keep the real estate and rent it to the practice’s new owner. But several years later, the doctors are usually ready to sell the real estate, too.
Even though the wave of medical practice consolidation has slowed, Terramed is still finding plenty of opportunities, Eisenstadt said.
That’s where Terramed steps in.