Sponsor Spotlight: Get to Know MedCore Partners

Nick Farris:

My name is Nick Farris. I'm one of the founding principles of MedCore Partners. My partners and I founded MedCore about 10 years ago in 2014, with the idea of specializing and focusing specifically on the niche asset classes of healthcare and senior living real estate assets.

Well, first and foremost, we feel like the fundamentals are undeniable. People are always going to get sick, injured, they're going to have elective procedures done, and most significantly, everyone's going to age. So we feel really bullish on the fundamentals and are excited about that. Also, specifically for our firm, we specialize and have spent our entire careers in healthcare real estate, which is a fairly niche asset class. And our team has decades of experience in brokerage, healthcare development, operations, asset management, acquisitions, and data analytics. And all we've done for our entire careers are healthcare. So what that means is we've got an extensive network of clients that we get a lot of referrals from.

We've got capital partners. And because of our robust experience, we have research and analytics capabilities that we're excited about. It allows us to have guided advice for all of our clients. We can utilize the axiomatic principles that make a successful healthcare practice or a seniors housing facility and be able to get very targeted and proactive about where we look at in the market. So a number of different reasons why we feel excited about health care and seniors housing assets.

CrowdStreet I think is a perfect combination of a team that has financial acumen, an impressive and deep bench of sophisticated investors, and we feel like they operate like a true partner in this endeavor. And so we're excited to work together with CrowdStreet and have enjoyed the relationship in the past and look forward to it in the future.

Inpatient rehabilitation facilities, commonly referred to as IRFs or IRFs are designed to care for patients that have gone through a severe medical event or have a serious medical condition that requires time to recover while receiving intensive rehabilitative services in order to resume normal activities of daily living. The patients are primarily comprised of 13 categories of medical conditions, including stroke, spinal cord injury, amputation, hip fracture, brain injury, neurological disorders, and so on. They'll most often start in a short-term acute care hospital to receive life-saving and stabilizing care. And once they're stabilized, after a few days they'll be discharged. So they'll either go home, which unfortunately often leads to their condition deteriorating dramatically, or they'll go into what's called a post-acute care facility. A rehab hospital is a post-acute care facility. So IRFs provide physical therapy, occupational therapy, and speech therapy among other services to promote independence. The typical stay at an IRF is around two weeks, because the time that it takes and the care that it takes, these stays can dramatically improve outcomes for those patients.

We've seen the healthcare sector of real estate be very resilient in trying times for our economy over the years, and we're seeing the same thing now. The inherent reason is that the demand for healthcare services almost certainly will never go away. You pair that with the fact that we have a significant aging population that is living longer. And as they age, they need more healthcare services, so the demand will continue to grow. That's why we see these asset classes as being recession-resistant.

There are a couple of primary reasons that we find IRFs compelling and exciting. Firstly, the fundamentals of these types of facilities continue to get better as the baby boomer population ages. The leading edge of the baby boomers is hitting their mid-seventies, which is squarely in the age range of the typical IRF patient. ClearSky, for instance, reports that roughly 70% of their patients are age 65 plus, which means they are Medicare patients. Secondly, in the last couple of decades, the focus on quality of care regulations and value-based purchasing programs for the Center for Medicare & Medicaid Services, or CMS, have incentivized hospitals to reduce readmissions. Now, readmission is when someone is discharged from a hospital and then has to go back to the same hospital because that increases what is called Medicare Spending Per Beneficiary or MSPB. And MSPB is determined on three days prior and then 30 days after an inpatient stay. Therefore, the hospitals are incentivized to improve outcomes and thus utilize IRFs to accomplish that goal.

We had known about the ClearSky team for years. They achieved tremendous success in their Ernest Health days. So we were very excited when we met them and had the opportunity to work together. They built a reputation as pioneers in the industry, and we felt that a relationship could be mutually beneficial with our team's acumen in real estate and their operating prowess. Since day one, our teams have meshed extremely well together, and we admire the way they operate and how they comport themselves as partners. Furthermore, they're really mission-driven and they provide much-needed high-quality care to communities they serve.

Well, the ClearSky business model revolves around finding markets outside of urban centers in secondary and sometimes tertiary markets. So the focus is in an area with an underserved population. In essence, the idea is to bring rehab to where it's needed. Cleveland, Wisconsin, the Lakeshore market is one that fits that bill. And that it's between two major counties, Sheboygan and Manitowoc in Wisconsin that contain a population greater than 200,000 residents and have no rehab beds within nearly 50 miles. This means that patients have to travel to either Milwaukee or Green Bay to receive these services. So a significant patient base as well as a labor source and the newly opening Center for Health Care Excellence at Lakeshore College provides some positive indicators for the market. So that's what we were looking at initially.

Then once the opportunity gap was discovered, the bed need calculation is based on the population that lives in the service area and what their propensity is to need rehabilitation. The service area in this case is considered conservative as it includes just Sheboygan and Manitowoc counties, although ClearSky believes they can capture patients outside of just these two communities, considering there are no other beds in the immediate area. And there'll be a dedicated marketing team that will be reaching out to local hospitals and creating awareness around the newly built facility here. The need is heavily weighted on age of the population, what are considered Fee-For-Service Medicare lives or FFS Medicare lives due to the fact that 70% of ClearSky patients are FFS Medicare lives. There are over 20,000 of these between the two counties which is driving the significant need for beds and a supply of zero beds to detract from that demand. So therefore an opportunity and need was identified.

Sure. Well, there's a multitude of variables that factor into the markets that we seek for investment. We're, of course, interested in demographics, what are the age groups that we're targeting for the type of asset that we're looking at, what is the affluence and the growth of those age groups. In healthcare you look for very disparate KPIs or pediatrics versus gastroenterology or dermatology versus orthopedics, whereas many of the factors that make a good seniors housing market also make a great market for rehabilitation hospital, which we're heavily involved in, and that's the senior population and their adult children. So we like to carve up the markets to understand the demographics, and that's part of what we really look for in markets.

But we're also interested in psychographics and patient propensities, how likely is it for a patient in that market based on their age and gender cohorts to be able to have the propensity to utilize a project that we might see in the future, and what types of medical healthcare characteristics are they going to be utilizing in a market. So if we're proposing to add a new facility, we want to understand that as well. And then also the supply and demand in the market, has there been a glut of development in that particular market by the specific asset classes that we're looking at. And then finally, it depends on who we're working with, if we have an operator that has a geographic presence or preference in a specific market and where are the referral sources and other elements like that.

A great deal of that has to do with the market, do we think the asset can be successful with the patient base or resident base with the current projected supply in that market. There's also different unique factors that we look for and try to identify. And it depends on what type of action that we're taking. So is it an acquisition, is it off-market? Do we have an operator that specializes in that type of asset? Do we have an operator that fits with the asset? And then for ground-ups, similar type factors, but can we find land that's in an optimal location, can we tailor the service specifically for that patient base. So there's a number of different factors, and those are cheap amongst what we're looking for.

Now, we feel like there's a great deal of opportunity in the current market. As we all know, there have been so many owners that have gotten really pummeled by the various economic and market factors. That if you can be connected enough to identifying these opportunities, then there's a lot of places that you can go and a lot of opportunities. So we're extremely discerning as far as the operators that we choose to partner with on our deals, but we think that there's a lot of room in the market to be able to be opportunistic, and we look forward to finding more opportunities as we scale and grow.

So at a macro level, we're drawn to healthcare and seniors housing because of the fundamental demographics, the aging and growing of the population. So we're constantly monitoring our portfolio level data as well as market and MSA and state and national data trends as well. Now, that includes supply and demand, occupancy, but what we also look for is the regulatory environment. So we need to understand elements like changes in reimbursements. A lot of those come from the Center for Medicare & Medicaid Services, CMS. So we're keeping an eye on a lot of those macro trends very specifically.

The process has been very thorough, which is a great thing because it requires us not to only be buttoned up in our approach internally as we always want to be, but to be able to express and memorialize our thesis in a fluent manner. So we've really appreciated CrowdStreet's approach to making sure that we have all our T's crossed and our I's dotted. And the CrowdStreet team has been great to work with. They're extremely thorough and professional, but continuously helpful and accommodating. So they know exactly what their investors demand of their sponsors in terms of information and detailed analysis. And they've really helped shepherd this process for us. So we're greatly appreciative and we hope to do many more deals in the future.