Healthcare Business International 2023 interview: Mr. Stéphane Pichon


In anticipation of the ‘Investing in Health Care Property’ panel at HBI 2023, we catch up with Stephane Pichon to discuss the dramatic changes of the past year and how this has impacted healthcare real estate investment, as well as the long term outlook for the health care sector.

Pichon tells us that changing macroeconomic and market conditions have meant deal activity in health care real estate has plummeted over the past year: “What we’re seeing is that there are less deals, across all types of health care real estate. For over ten years valuations were going up. Interest rates were going down, there was huge market consolidation across various parts of health care, backed by PE companies that were mostly very keen on refinancing through sale-and-leasebacks. Everything was rosy. In less than one year the picture has completely changed: interest rates are up, valuations are down, market consolidation is still happening but many things have changed.

“With valuations falling, there is a fear that they will fall further, so investors hold off purchasing. The lack of demand then leads to prices to fall further, so it becomes a self fulfilling prophecy. Before when prices were going it made more sense to buy now than in six months, but now it might be the opposite. Investors are now demanding higher cap rates because of high interest rates. Sometimes it clearly doesn’t match the prices that we’re used to, and doesn’t match sellers’ expectations.

“Also, with higher interest rates there is now an alternative to investing in real estate, which is to buy (low risk) bonds with high yields, which hadn’t been possible for 10+ years. So now to invest in real estate you have to prove risk-adjusted returns are worth it (in some countries there is a mark-to-market, i.e. valuations will have adjusted downwards because of this – e.g. the UK and Netherlands – but in other places, such as Southern Europe, prices are much slower to adjust). So it’s quite a big challenge for institutional investors to collect money now.”


Nursing homes is one sector that has been particularly heavily impacted by the events of the last year. As well as changing macroeconomic conditions, the sector has faced possibly the biggest scandal it has ever seen in Europe, after the publication of a book accusing France’s largest provider, Orpea, of widespread mistreatment of residents.

“The nursing home scandal in France has had an impact outside of France as well,” says Pichon. “Orpea has released figures showing only 80% occupancy. I’m not sure if it will be able to make any money at that level. In Germany five nursing home operators have filed for insolvency, due to cost inflation not matched by tariff increase, including Dorea Family (a subsidiary of Maison de Famille), Convivo and Curata. Real estate investors who have them as tenants are trying to find new tenants. So it is a big risk for real estate investors. A lease with the wrong operator is just not worth it. The market has changed a lot.”

Hospitals are faring better according to Pichon, particularly in countries where there are still subsidy schemes in place left over from Covid (in particular France). And health care property overall is still viewed as healthier than some other categories of property, particularly office real estate (because of the move to working from home post-Covid). Residential housing is suffering in countries such as France, where there is a lack of buyers because of high interest rates.

But deal activity, both in terms of property sales and in terms of M&A in REITs which have a health care focus, is down: “The biggest deal that has been announced recently was Primonial’s acquisition of Icade Sante, which is supposed to close mid-July. But this is the only major on-going deal in the sector, it’s really bucking the trend.

“We need to find a creative way to revive the market. But the ECB/Fed have the last say with interest rates.”


The long term outlook


The long term outlook is, however, more positive: “Taking a more long-term view the demand will be there; it’s going to keep growing because of the ageing population. The birth rate is declining so that has a negative impact on maternity care but could have a positive impact on fertility clinics. Also, the supply of health care facilities is quite limited in most countries, except perhaps the UK.”

However, Pichon has serious concerns about the long term financial sustainability of health care: “How do we collectively finance this? It’s very expensive. In most countries pensions and health care are the two top spending items, ahead of education and the army. And with the ageing population and increasing disease burden, how can you finance it in the long run?

“The Netherlands has made some predictions that health care spending would really spiral in the long run and is trying to take measures today so that in 15 years it will still be financeable. But The Netherlands is a bit of an outlier. Germany is increasing the social contribution slightly. But most European countries are neglecting to think seriously about the long term sustainability of financing health care. The impact for real estate investors is that tenants may not be able to pay their rent because the government is not increasing tariffs.”

One possible solution that has been touted is to move more activity to the outpatient sector. But according to Pichon Covid has made this option appear less viable: “Before Covid the sector was leaning towards reducing hospital beds and keeping people at home as much as possible, but Covid showed there’s a benefit to having a high level of hospital capacity.

“Another avenue that’s being explored is prevention, through promoting healthier nutrition, exercise, relaxing etc, better health outcomes at a lower cost could be achieved. This could help make the financing of health care given more sustainable.”

Pichon is also concerned about the workforce crisis: “In France and Germany, many municipalities have very low levels of clinicians. And young doctors are working less than previous generations, so their productivity needs to be increased. The challenge is how to use software, tech, robotics etc. to relieve health care professionals from the burden of admin tasks, so they can spend more time with patients. Another part of the solution is delegating more tasks from doctors to nurses and pharmacists.”Pichon believes one of the biggest opportunities in the sector is what he calls ‘medical office buildings’, i.e. real estate for new larger networks of primary care or multidisciplinary outpatient clinics: “There is a trend across a lot of Europe that these are replacing the traditional model of a GP or specialist working in their own individual practice. The UK may be a bit ahead of France and Germany on this. There is a benefit for doctors working as part of a team, that they can work three or four days a week, rather than six. For patients it can be more convenient as it’s a one-stop shop. Also if equipment or tech are expensive, it can be shared within several professionals, giving them a cutting edge over competitors.”