HREI Cover Story: IRA Capital Rises to the Occasion
Prior to the onset of the COVID-19 pandemic, Irvine, Calif.-based IRA Capital had been making a name for itself in the medical office building (MOB) and healthcare real estate (HRE) investment sectors.
After all, since its launch in 2010 by five principals and co-founders in order to capitalize on investment opportunities resulting from the dislocation in the capital markets during the Great Recession, IRA has invested more than $2 billion in acquiring more than 6.5 million square feet of commercial real estate in 26 states. About half of those acquisitions have comprised HRE facilities, with the company putting even more of an emphasis on the product type in recent years.
And yet, although the firm had been gaining recognition as an MOB investor, it has substantially increased its acquisition activity in 2020, continuing to make purchases since the onset of the COVID-19 pandemic. As a result, it is becoming even more well known at a time when sales of MOBs have slowed considerably and a number of investors are on the sidelines, most notably some – but certainly not all – of the publicly traded, healthcare-focused real estate investment trusts (REITs).
During the first month or two of the pandemic, IRA made six medical office acquisitions totaling about $150 million after many businesses were shut down, stay-at-home orders were issued in most states and elective surgeries were postponed, arguably making MOB purchases a bit more risky.
Perhaps even more impressively, the firm has, according to Amer F. Kasm, a cofounder and one of the five principals, plenty of acquisitions in the pipeline for the remainder of 2020.
“Taking into account our upcoming closings/pipeline and investor demand, we expect to acquire another $300 million of transactions in 2020,” Mr. Kasm says. “Kind of an odd time to be making big bets, but we are uniquely positioned given our current capital position. We feel strongly about our long-term investment thesis and feel that the current environment will create some interesting opportunities for our company.”
Those pending acquisitions and potential purchases are coming by way of discussions with a variety of MOB owners, as the firm typically makes about 60 percent of its investments in “off-market” deals or through “limited marketing offerings,” according to Mohannad S. Malas, another principal and cofounder.
With a good supply of equity to invest at a cost of capital that is “competitive relative to other institutional investors of healthcare real estate,” according to company officials, IRA is finding a healthy number of opportunities during – and even resulting from – hardships caused by the pandemic.
When it was founded in 2010, IRA invested funds raised from friends and family, but since then it has deepened its pool of investors, according to Samir M. Patel, another principal and cofounder who helps oversee the firm’s equity relationships. The investor pool now includes private family offices; institutions, including pension funds and life companies; and U.S. and international sovereign funds.
“We’re currently in discussions for sale/ leasebacks with several health systems and groups, and we are also talking to some REITs about acquiring some of their assets,” Mr. Kasm says. “Many of our tenants and partners are recognizing the importance of shoring up their balance sheets to better position themselves and to ensure their long-term viability and success. This is a trend that is likely to gain more traction, and we are happy to be a part of the solution during this critical time.”
Disposition freed up capital
It should also be noted that IRA’s higher level of investment activity has been driven by a disposition earlier this year of a portfolio of MOBs that it had accumulated, mostly in piecemeal fashion, over the years. That transaction involved the late January sale of 16 MOBs to Toledo, Ohio-based Welltower Inc. (NYSE: WELL), which started off 2020 making several large investments before slowing things down a bit.
According to information compiled from HRE data and research firm Revista, the sale price was $235 million and the MOBs have a total of 497,509 square feet of space and are in eight states, meaning the average price per square foot (PSF) came to $472.
“Our company has been more active than prior years, which has been largely driven by our capital position resulting from the sale of a 16-property portfolio to (Welltower),” Mr. Kasm says. “We have had some time to build up a solid pipeline knowing that we would be exchanging our capital fairly quickly.
“As you know, many of the larger public players have been on the sidelines during the pandemic, which has allowed private equity groups like ourselves the opportunity to fill a void,” he adds. “The current environment has highlighted our entrepreneurial culture and our ability to be nimble, flexible, and creative – and we have moved swiftly and aggressively on some sizable transactions despite the market fluctuations.”
That disposition to Welltower, according to IRA principals, is reflective of the firm’s ownership strategy.
“We typically invest for the long haul and assume a seven- to 10-year hold period on most of our investments,” says Mr. Patel.
“But we have sometimes sold in advance of that time frame due to certain factors, such as executing our business plan earlier than anticipated or other scenarios playing out that would warrant a sale. Given our investment thesis and long-term view, we generally seek opportunities to redeploy capital via a recapitalization event in lieu of a sale, which allows us to continue to build a portfolio of high-quality healthcare assets and maintain and grow our tenant relationships.”
As noted, IRA typically makes its acquisitions in smaller deals, as it has acquired “several portfolios,” according to principals, who note that the firm’s portfolio purchase over the years was of four “neighborhood” hospitals leased to Oklahoma City-based Integris Health.
Among IRA’s purchases so far in 2020 was its $39.85 million, or $533 per square foot (PSF), acquisition of the fully occupied, 62,969 square foot Magan Medical Clinic at 420 Rowland St. in Covina, Calif., in Los Angeles County.
According to Revista, the seller was Denver-based DaVita Inc. (NYSE: DVA), which was the previous tenant in the building. However, the building became available when the 100-yearold, 50-physician, multispecialty Magan Medical Clinic, which was founded in 1919 and which occupies the entire building, became part of Eden Prairie, Minn.-based Optum Health (part of UnitedHealth Group (NYSE: UNH) in June 2019.
Mr. Kasm says IRA competed for the Magan Medical Clinic MOB in a “limited marketing process,” with the opportunity being presented to a select number of potential investors.
The clinic building, according to Mr. Kasm, who is responsible for directing IRA’s investment strategy and overseeing the firm’s asset and portfolio management processes, “checked a lot of boxes for us.” Those include, he notes: “Strong tenant with long operating history, great location, long-term lease, diverse mix of services being offered, and the fact that significant dollars were recently invested into the facility.”
The purchase brought IRA’s total MOB portfolio to about 2 million square feet of space and a value of about $750 million, Mr. Kasm notes.
Focus on ‘moral responsibility’
Among IRA Capital’s purchases so far in 2020 was its $39.85 million, or $533 per square foot (PSF), acquisition of the fully occupied, 62,969 square foot Magan Medical Clinic at 420 Rowland St. in Covina, Calif., in Los Angeles County. The purchase brought IRA’s total medical office portfolio to about 2 million square feet of space and a value of about $750 million. (Photo courtesy of IRA Capital)
Like most real estate investors, IRA’s goal is to, “first and foremost, preserve investor capital and to deliver attractive risk-adjusted returns while making a positive impact on the communities and companies in which we invest,” according to the firm’s website. And that’s still the goal today, according to the principals.
“Myself and one of my business partners, Samir Patel, met in graduate school between 2007 and 2009, in the midst of the Great Recession,” Mr. Kasm recalls.
“The two of us got together with our business partners Mohannad Malas, Amer Malas and Jay Gangwal and formed IRA Capital in 2010 to capitalize on various opportunities arising from the dislocation in the capital markets at the time.”
The principals figured their skill sets would mesh well, and to this day they say that has indeed been the case.
“We each come from various backgrounds within finance and real estate – investment banking, debt and equity capital markets, development, asset management, brokerage, etc.,” Mr. Kasm says. “All of these backgrounds and various strengths have led us to be what we are today, a firm that is very nimble and can move extremely fast given our flat organizational structure. This allows us to make quick decisions. We are also very flexible and creative in structuring complex transactions to make them work for all parties involved.”
Although the firm’s real estate investments are mostly focused on the MOB space, it also invests in life science facilities. Its portfolio totals three life sciences campuses with about 500,000 square feet.
Regardless of the type of investment, IRA’s principals say the firm has a mission of, as noted on its website, “having a positive impact on the communities and companies in which we invest.”
“We view it as our moral responsibility to make a positive impact through the many resources we have at our disposal, including through our investment and management of assets,” says Mr. Gangwal, one of the principals and cofounders. “In our medical facilities, we strive to provide a safer environment for our tenants and their patients, and our ultimate goal with the majority of our assets is to make healthcare more accessible.
“We’ve also provided significant capital to our tenants, which in many cases has made their business/operations viable, often resulting in job creation. We’ve also made our assets more efficient by implementing green measures, and by being a more proactive asset manager.”
In addition to real estate, IRA has invested in companies in the consumer retail, technology, healthcare and entertainment media sectors, as well as a hedge fund. Some of those ventures have included Hollywood movies and upscale brands, such as Privé Revaux eyewear.
However, Mr. Kasm says IRA focuses on investing in entities that help it fulfill that mission of having a positive impact on society. He says the firm has invested a total of $50 million in “operating companies across a variety of sectors … in companies that are making a significant social and economic impact.
“We believe leveling the playing field is a moral responsibility, and many of the companies we have capitalized are led/ founded by women and minorities.”
One of IRA Capital’s many non-real estate venture capital investments is Privé Revaux. In 2017, the eyewear firm celebrated the launch of its new line in Los Angeles with Hollywood celebrities including (from left to right) Jeremy Piven, Ashley Benson, Privé Revaux co-founder David Schottenstein, Hailee Steinfeld and Jamie Foxx. (Photo by Billy Farrell/BFA, courtesy of IRA Capital)
“We’ve also invested in a number of consumer brands that donate food, hygiene products and other profits to underprivileged populations around the globe,” Mr. Kasm notes. While those investments contribute to the better good, they also “help us in our investment and decision-making on the real estate side of our business,” he says.
“For example, we’re a major investor in a company called Heal, a technology based doctor house call and telemedicine service that is changing the delivery model for primary care services,” he says. “The company strives to provide better healthcare while cutting costs and implementing live monitoring for patients, and it also makes healthcare available to individuals that would typically not have access.”
It has also invested in a startup medical device company, ExThera Medical, which has developed a “first-of-its-kind blood filter designed to reduce pathogens during bloodstream infections, and the company’s blood filter is now in the forefront of the battle against COVID,” Mr. Patel notes. “We’re also able to incorporate some of the technologies we invest in by making them available to our tenants, which helps in optimizing their practices and operations and making them more efficient,” he says. One such company is OnCallPeople, a new healthcare technology firm that provides scheduling software and programs for doctors and nurses, which according to Mr. Kasm results in “fewer errors and enhanced patient safety.”
HRE is still the focus
Yet, the heart of the firm remains in investing in medical real estate.
“We’ve been buying medical office since the company’s inception in 2010, and we have always been big believers in the space,” says Mr. Kasm. “In 2017, we decided to take a more defensive approach to our portfolio and have been focusing almost exclusively on healthcare real estate since that time. We have been cautiously deploying our capital during this time of uncertainty, knowing that our economy will be experiencing some pain and also understanding the downside and likelihood of a second COVID-19 wave hitting.”
When it comes to making MOB investments, IRA focuses on aligning itself “with financially sound tenants and health system partners that are likely to thrive irrespective of the pandemic and any recession,” Mr. Kasm says, noting that the firm has been more heavily focused on “core” deals with stable tenancies as opposed to “value-add” purchases. “It has been critical, more than ever lately, to really understand the operations of our tenants and to focus on the real estate fundamentals.
A good example includes a recent purchase of four MOBs in the Chicago and Milwaukee suburbs that are occupied by Advocate Aurora Health, the 10th largest health system in the country. IRA paid about $36.9 million for the portfolio, which has a total of about 108,907 square feet. The capitalization (cap) rate, or first year estimated return, was 6.1 percent, according to data from Revista.
“Although very few sectors have been immune to the impacts of the pandemic, we feel strongly that healthcare real estate will continue to outperform other asset classes. A number of forces make us feel this way, ranging from the demographic trends, the limited supply and the abundance of capital that continues to flow into the space.” ❏