This investor prefers hospitals to offices in $28m Hunters Hill buy
Real estate investment manager April Group has snapped up Hunters Hill Private Hospital for $28 million, banking on resilient healthcare demand and the long-term value of scarce metropolitan land despite broader headwinds facing the private hospital sector.
The seller, mutual group Australian Unity, offloaded the property on a capitalisation rate of about 6 per cent. Akin to an investment yield and loosely correlated to bond yields, a rise in cap rates typically signals falling asset values, and vice versa.
The deal marks a strategic shift for April Group, which has historically focused on office assets in inner-city Sydney. But with rising construction costs and surging leasing incentives challenging the commercial sector’s fundamentals, the group is turning its attention to assets underpinned by long-term leases and potential for increasing land values.
The acquisition comes despite private hospital operators facing a wave of challenges post-COVID-19, including rising wage costs, inflationary pressures on supplies, and constrained insurance revenues.
Healthscope, the country’s second-largest hospital operator, has put itself up for sale and is looking to streamline its hospital footprint due to rapidly rising medical costs and struggles to make rental payments as a result.
Healthscope has been working to hand over its Northern Beaches Hospital into public hands, but the NSW government has so far refused to enter negotiations to buy back the asset
Despite those headwinds within the private hospital sector, April views the hospital as a strategic land bank due to it being in tightly held blue-chip location and having Ramsay Health Care as its tenant.
Ramsay, Australia’s largest private hospital operator, has the lease at Hunters Hill Private Hospital, where it is paying over $2 million a year in rent, until 2035.
The near-3650-square-metre freehold site is also among the largest non-heritage landholdings in the exclusive Sydney north shore enclave of Hunters Hill, which is one of the oldest and wealthiest suburbs nationally. In Hunters Hill, deaths outstripped births by 113 in 2022-23, which was the fourth-highest in Sydney.
“This acquisition was in response to strong investor demand, focused on a prime landholding with a secure income profile,” April Group capital head Jim Robertshaw said.
“Considering the current challenges being experienced in the private health sector, we spent a significant amount of time analysing the local demand for healthcare services, which we anticipate will grow given the ageing demographic of the Hunters Hill population.”
April joins other investors in eying the healthcare sector for its perceived resilience and demographic tailwinds. April’s acquisition follows a series of similar moves by other players, including Barwon Investment Partners, which secured $150 million for its $1.5 billion Barwon Institutional Healthcare Property Fund last month.
The deal was brokered by Chris Veitch of Stanton Hillier Parker.
