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Hennie Bezuidenhoudt is the CEO and founder of The Benchmark Group, and chairman and co-founder of OrbVest, the specialists in investments in medical office buildings (MOBs) in the US, with offices in the US and South Africa. In this interview, he discusses how and why he started his career in MOB investing, why he selected the US as an investment destination, and how OrbVest has managed to carve its niche in an intensely competitive market.
What stimulated your interest in MOBs?
One of the important lessons I learnt is that if you want a person to accelerate and perform, get him to love what he does. I developed an interest in genetics, nurtured and mentored by Professor de Lange, and it made me realise how important, complex but fascinating is the genetic code that makes us each unique. This is also the basic building block of our health.
In 1998 I got involved in the health insurance industry and started to analyse problems and opportunities in healthcare delivery systems and funding in SA.
It is a huge industry, with a lot of problems, but there is a lot that we can solve.
Here are just some facts that illustrate the complexity.
- Globally, about 450 million-plus lifesaving surgeries are performed every year, and 6 million people die within 30 days of that surgery.
- Almost 5 billion people in the world lack access to basic surgical treatment.
- About 60% of the reasons for deterioration in health are individual behaviour and social circumstances.
- The time between a person’s expectation of treatment and affordability is normally vague. A person needing treatment will seek out the best available and find ways to pay for it.
Another interesting facet of the industry is that the patient and the doctor agree on the treatment method, but the payment is often by a third party, creating an inherent conflict between service provider, patient and funder. We have to solve this to find a service level that is acceptable to everyone.
But there’s another player – government, who frequently attempts to intervene, to ensure fair treatment for everyone and for the cost of treatment to be fair and reasonable.
All these different interests have to be balanced to provide the patient with comprehensive treatment.
Why did you focus on MOBs in particular?
Originally, I was involved in providing management services to health funders in South Africa. I bought my first MOB in Centurion in 1993 to accommodate my own business. Then we moved to other premises and I realised the value of MOBs adjacent to a hospital. A hospital provides core services and treatment, but it also needs a lot of supporting auxiliary services that it does not want to supply directly.
How did you make the leap from local to offshore investing?
My first motive for investing in MOBs in the US was personal: I wanted to diversify into an industry that I trust and with people I understand.
Just after the global financial crisis of 2007/8, asset prices in the US fell at the same time as South Africans were increasingly looking to externalise their savings. I was looking for opportunities elsewhere to which I could bring my experience and knowledge gained in SA.
I examined opportunities overseas and realised that I needed to partner with other high-net-worth individuals as co-investors to raise sufficient funds to buy an asset of value, which would be able to generate a long-term, stable, reliable income. Initially my partners were similar high-net-worth investors wanting to diversify into other currencies, but this investment opportunity is now attracting a wider audience. More and more people are seeking steady income, and there are not many choices at the moment. Interest rates are low globally, and in hard currencies they are zero or negative. Investors in South Africa are looking for stable returns of about 6-8% on their investment per year.
We are now starting to attract interest from institutional investors, such as unit trusts and family offices, but we are not yet ready for that. We will need to ensure we can provide a product that complies with their investment mandates and can address their structural and tax issues.
Why did you choose the US?
The private healthcare systems in SA and the US are very similar. These are the only two countries where there is such a strong private healthcare insurance sector. In SA, about 20-30% of families have private health insurance; in the US it is 93-95%. In most of Europe and developed markets there is a national health system provided by government, with some supplementary insurance. Private insurance is very important in the MOB sector, because professionals providing services to those individuals are guaranteed payment.
But if it is an attractive market, isn’t it highly competitive?
Yes, especially after Covid-19. Healthcare assets are performing well. But there are three main pillars of our success. The first is that it is quite a complex industry, making the barriers to entry higher than for other asset classes. Investors need to understand the fundamentals of real estate, what is happening on the funding side, and what is happening with the service providers and the main trends in healthcare. The second is that my 35 years of experience and the strength of the OrbVest investment committee has delivered over time. We have signed purchase and sale agreements and closed the deals, creating a profile that people follow.
The third pillar of our success is that we are able to source off-market deals. In a number of deals, privacy is vital and the deals are not advertised on any public platform. You need to know the right people. One of our initial requirements for investing in the US was that we had to have a local partner with a history in healthcare and dominance in the market. In all our deals, our partners have co-invested with us and signed for the debt. OrbVest takes a stake in every building alongside our investors and my personal wealth is tied up with OrbVest.
Read also:
- Hennie Bezuidenhoudt: How Orbvest hedges risk when investing in US medical properties
- International healthcare trends – Hennie Bezuidenhoudt
- Property investing: Medical buildings take the pain out of investing in US real estate
