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Unlocking Stable Returns through Medical Real Estate with Health Wealth Capital Fund · Go Big with Gib Podcast

• 0:00
  Speaker 1: Welcome to the Go Big With Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins.
• 0:06
  Speaker 1: Hey guys, and welcome to this episode of Go Big With Gibb.
• 0:16
  Speaker 1: Today I wanted to talk a little bit about the Medical Real Estate Fund that we launched about a month ago.
• 0:23
  Speaker 1: As you may recall, we did a full episode on the medical real estate fund featuring the lead sponsor, aj Peek, a couple of weeks ago, but today I just wanted to talk in general terms and kind of give you a high-level overview of what the fund is and what the projected returns are, and why I love this asset class so much.
• 0:44
  Speaker 1: As you may recall, the name of the fund is Health Wealth Capital.
• 0:48
  Speaker 1: We're doing a series of funds.
• 0:51
  Speaker 1: Right now we're doing Fund 1, and Fund 1 currently consists of four properties that we have under contract, and one thing that I really love about this asset class is that most of these acquisitions are sale leasebacks.
• 1:05
  Speaker 1: What we're doing is we're seeking out dentists and other medical professionals that own their own building and are willing to sell that building to us, and then they are turning around and signing a triple net lease with us.
• 1:18
  Speaker 1: Oftentimes these leases are absolute triple net leases, and what that means is the tenant is responsible for taxes, insurance, maintenance and, oftentimes, capital improvements.
• 1:29
  Speaker 1: Capital improvements would be things like replacing the roof or any damage to the walls.
• 1:35
  Speaker 1: This is a very, very predictable asset class in terms of the returns.
• 1:40
  Speaker 1: So, if you think about it, when you invest in multifamily real estate, a lot of times the expenses are unknown.
• 1:46
  Speaker 1: When we underwrite a multifamily deal, we do the very best that we can to determine what are the taxes going to be.
• 1:53
  Speaker 1: We also have a lot of unknowns with things like insurance.
• 1:56
  Speaker 1: With this medical real estate fund, the tenant is responsible for the taxes and the insurance, so we don't have to worry about those costs increasing exponentially in such a manner that it could deplete the potential returns.
• 2:09
  Speaker 1: I still love multifamily real estate and I still intend to raise a significant amount of money in 2025 for multifamily real estate acquisitions, but I decided to pivot at this particular time and based on this particular economic cycle, for a number of reasons, the main one being the predictable returns of absolute triple net lease investments.
• 2:32
  Speaker 1: The first thing I want to talk about is downside protection.
• 2:35
  Speaker 1: The most important thing is the triple net leases that we've already discussed.
• 2:39
  Speaker 1: Just to go a little bit deeper.
• 2:40
  Speaker 1: These are long-term triple net leases and what that means is that we're locking the tenant in for at least 10 years, but oftentimes the lease duration is 15 years.
• 2:50
  Speaker 1: Another thing that really protects us on the downside is these healthcare professionals are oftentimes in very large groups and there is a corporate guarantee where the larger corporation will come in and guarantee the rent payments.
• 3:05
  Speaker 1: In some instances we've even had the healthcare professionals sign personal guarantees, where they're personal, guaranteeing that the lease payments will be made in a timely manner.
• 3:14
  Speaker 1: Another thing that we really love about medical real estate is that the NOI, the net operating income, is already predetermined.
• 3:21
  Speaker 1: For example, in fund one, we're acquiring four buildings.
• 3:25
  Speaker 1: They're located in Tucson, arizona, independence, missouri, which is essentially Kansas City, wayland, pennsylvania, and then we have another property in Chatham, illinois.
• 3:34
  Speaker 1: We've already negotiated triple net leases and in year one we already know that our net operating income is going to be $799,025.
• 3:45
  Speaker 1: We also know, based on debt quotes, that our breakeven spot is going to be about $510,000.
• 3:50
  Speaker 1: What that means is that we've got this delta between our net operating income and our breakeven point based on our debt obligations, and all of that money can be distributed, or a large portion of that money can be distributed to the investors in the form of cash flow distributions.
• 4:05
  Speaker 1: Really, medical real estate has a ton of downside protection.
• 4:09
  Speaker 1: This is one of the most secure investments that you could make.
• 4:12
  Speaker 1: The second thing that we love about this fund is the potential upside.
• 4:16
  Speaker 1: So we are acquiring most of these medical offices at an eight cap.
• 4:21
  Speaker 1: What we have here is an opportunity for arbitrage.
• 4:25
  Speaker 1: So if we acquire a medical office at an 8% cap rate, if we're able to get our net operating income above 10 million or maybe even better, 15 million, then we could potentially sell the entire portfolio to a healthcare REIT and that's called KPI cap rate compression or cap rate arbitrage where we could make a tremendous amount of money.
• 4:46
  Speaker 1: If that occurs, we could very likely exceed our base case returns by a very large margin, and I'll talk more about that in a little bit.
• 4:54
  Speaker 1: The third thing that I love about this medical real estate fund is the distribution waterfall.
• 4:58
  Speaker 1: Most multifamily real estate investments are doing something along the lines of maybe a 70-30 split.
• 5:05
  Speaker 1: With this medical real estate fund, we've got a very investor-friendly distribution waterfall.
• 5:11
  Speaker 1: We're doing an 8% preferred return and then, once the investor gets 100% of his or her capital back, then we're doing a 90-10 split up to 15% IRR and once we get to a 15 IRR, we're going to do a 70-30 split.
• 5:26
  Speaker 1: And we're doing that because we want to be able to raise investor funds as quickly as possible and scale this portfolio up to $10 to $15 million so that we can exit to a health care REIT.
• 5:37
  Speaker 1: Now let's talk a little bit about the projected returns.
• 5:39
  Speaker 1: We have underwritten this deal as a five-year hold.
• 5:43
  Speaker 1: However, at the current pace that we're going, based on the velocity of our acquisitions, it's possible that we could exit this opportunity in as little as three years.
• 5:54
  Speaker 1: But even if we do it in four or five years, we're still going to achieve excellent returns.
• 5:58
  Speaker 1: Obviously, the faster that we can exit this opportunity, the higher the returns will be.
• 6:04
  Speaker 1: So we're expecting 8% to 10% cash on cash.
• 6:07
  Speaker 1: Our base case IRR is 20% and if we are able to sell to a healthcare REIT, then the upside scenario could be more like a 25% to 30% IRR.
• 6:19
  Speaker 1: There aren't many deals out there right now in multifamily that I feel like can achieve this substantial upside return.
• 6:27
  Speaker 1: So the fifth and final thing I want to talk about that we love about this asset class and this fund is the depreciation.
• 6:34
  Speaker 1: We're expecting a 50% year one depreciation on this investment.
• 6:39
  Speaker 1: So, in other words, if an investor invests $100,000, we expect that investor to receive approximately fifty thousand dollars in depreciation in year one.
• 6:48
  Speaker 1: Because we intend to close on these properties in January of 2025, you would be able to take the depreciation in 2025, in the year that we place the asset in service.
• 6:59
  Speaker 1: Those are the five quick reasons why we love this medical real estate fund.
• 7:03
  Speaker 1: If you have any questions, please reach out to me.
• 7:05
  Speaker 1: I'm going to include my calendar link in the description.
• 7:09
  Speaker 1: Ask me any questions you've got about this medical real estate fund and I look forward to talking to you soon.
• 7:15
  Speaker 1: See you next time.
• 7:16
  Speaker 1: Thank you for listening to this episode of Go Big with Gibb.
• 7:23
  Speaker 1: If you haven't already, go follow us on social media at Gibb Irons.
• 7:27
  Speaker 1: We'll see you next time.