Real Estate Strategy

Why We Buy Healthcare Facilities in Places Others Won't Go

The contrarian real estate strategy that's creating sustainable competitive advantages

Bob Crants III
Bob Crants III Founding Partner & CIO, Pharos Capital Group

I was explaining our real estate strategy to another investor, telling him we were buying a dialysis center in a small Tennessee town. He looked at me, confused, and asked, "Why would you limit yourself to such a small market?" I believe that's the wrong question. He was thinking about major metro areas like Boston or Dallas, where competition is fierce. Our strategy for the last seven years has been the exact opposite. We invest in the small towns that have been overlooked. And it's turned out to be one of the best-performing strategies in our portfolio. Rural healthcare real estate isn't about small markets; it's about monopoly markets.

The Proof is in the Portfolio

Our properties may be in small towns, but they share powerful traits that lead to exceptional returns: At our 14 Sanderling Renal Services dialysis centers, the nearest competing facility is often many miles away. When you are the only option for a life-sustaining treatment, your occupancy rate remains consistently high[41]. In rural Arizona, THEMA Health Services holds exclusive service territories for hospice care covering large geographic areas. These aren't just buildings; they're essential community infrastructure[42]. Our Baroco Corporation facilities for disability services have over four decades of operating history, often in the very same buildings. They are so deeply woven into their communities that relocation is nearly impossible[43].

The Unbeatable Advantages

Urban medical offices have to compete. Rural healthcare facilities operate under a different set of rules. Geographic Monopolies: When you own the only dialysis center for many miles, the building itself is a competitive advantage. Regulatory Barriers: In many states, Certificate of Need laws make it impossible for a competitor to build a new facility, effectively granting a government-enforced monopoly. Mission-Critical Tenants: Our tenants have nowhere else to go. Their businesses depend on these specific locations, which means turnover is virtually nonexistent. The financial model is just better. We acquire these properties for far less per square foot, which gives us better initial yields. With monopolistic tenants, we get predictable, long-term rent increases. This isn't about accepting lower-quality assets. It's about finding higher-quality investments in places others aren't looking.

References

  1. Sanderling Renal Services dialysis centers, https://pharosfunds.com/sanderling.php ↩
  2. THEMA Health Services service areas, https://pharosfunds.com/thema-health-services.php ↩
  3. Baroco Corporation history, https://pharosfunds.com/Baroco-Corporation.php ↩