NURSE SHORTAGE? MOB INVESTORS SHOULDN’T WORRY

April 25, 2023

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As many news readers know, there is a significant shortage of nurses. What is going on?

There are multiple reasons why demand for nurses is exceeding supply. It’s a tough job with pay that might not match the stressful conditions. Turnover is high.

It’s also a very local profession, without much room for outsourcing, teleworking, or other tech-enabled solutions.

Clearly, this shortage is going to have a continued impact on the medical industry. Should medical real estate investors be worried? We don’t think so.

For Alliance, the nursing shortage isn’t even a top ten issue. Our investment performance mostly depends on timely rent payments go-forward, and a nurse shortage is very unlikely to impact that.

The medical businesses that occupy our properties are highly profitable, even when short a few nurses from optimum capacity. And the majority of our tenants are in more glamorous service lines, with higher discretionary spending… which tend to be easier, higher paid nursing positions than elsewhere, e.g. emergency rooms.

A nursing shortage does impact tenants P&L, in the sense that they could be even more profitable. That will eat into tenants’ margins and reduce their return on equity, but they’re still going to pay their rent bills.

In other words, our focus on signing long term deals with highly creditworthy tenants insulates us from minor fluctuations in those tenants’ revenue upside. We keep track of trends in the medical industry, and this one has minimal implications for our counterparty risk.

It is going to take some time, but this shortage won’t last forever. Healthcare providers and nursing schools are working hard to expand their training and education pipelines. Nurses’ wages may need to rise. And medical businesses are finding ways to shift some tasks from nurses to administrative staff, and leverage technology better.

This shortage matters for the healthcare industry, and especially for hospital networks. But Alliance is relatively unaffected. Our business of buying and operating medical office buildings is still needed and still profitable.

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