An Interview With Greg Appelt On How His Company, Appelt Properties, Navigates The Growing Healthcare Real Estate Market

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Below is our recent interview with Greg Appelt, the CEO and President at Appelt Properties:

Q: Can you tell us a little bit about how you came up with the initial idea for Appelt Properties?

Greg Appelt: It was born out of necessity. I had been practicing as a physician at the time and we had outgrown our clinic space. And I wanted to own, not rent. So I pulled a couple of colleagues together. We moved our practices into a new building which we developed, and it turned out quite well. I saw an opportunity to share that experience with other physicians who also wanted to have equity and develop their own medical buildings. That new opportunity soon became more exciting and lucrative for me than my own practice, so I started Appelt Properties and we were off to the races.

Q: What would you say are some of the key differences between healthcare real estate and other sectors?

Greg Appelt: The differences center around the specific function you’re providing for the tenants and their patients. The delivery of healthcare sets up several practical differences from traditional commercial or residential real estate. The parking requirements are more extensive, for one thing. You have to consider every aspect of the patient experience, many of whom may have impairments or serious health issues – what are the accessibility issues, and comfort issues? The vendors to develop the facilities have their own unique costs and quirks. There’s no way to foresee all the specific needs of these kinds of properties without just going through it yourself, which is how I learned.

Q: What are some of the major challenges you’ve faced in your career?

Greg Appelt: The biggest challenges in real estate are the cycles. We’ve gone through a couple of them as a company, and we’re in another cycle right now. These cycles always bring specific capital challenges, cost, and debt challenges that you have to work through as a company. However, we have found that our focus on healthcare real estate has helped us weather a lot of these cycles. The tenants are generally a lot more stable. So we’ve been able to continue to thrive through the cycles we’ve faced so far.

Q: For prospective doctors/entrepreneurs who may be interested in following a similar path as you –  what advice would you offer them?

Greg Appelt: It’s a huge risk for sure, to switch careers and jump into an industry in which you have little experience. You have to realize that and accept that risk, and the only way to mitigate it is to do your best to develop expertise in the field, in the same way that you’ve done in your career as a physician. So my advice would be to accept the risk and that it will take a lot of work to be successful. There’s no easy path here to success, just because the market appears to be booming.

Q: Can you walk us through a specific medical real estate development that you’ve worked on? What were some of the technical challenges you faced, and how did you address them?

Greg Appelt: That’s a good question, and I’ve got a good example for you. So Appelt Properties purchased a 125,000-square-foot medical building in Toronto. It was 30% occupied, it was mismanaged, and in receivership. It had a lot of different deferred capital expenses. So we purchased the building in this semi-desperate state, and we made an honest assessment of the capital it would require to turn it around. We compiled all of our expertise and we came up with a great plan that I’m very proud of – and now that building is nearly full and best in its class in Canada. It has over 70 physicians, it’s beautiful and it’s thriving. I think facing those specific challenges showed our team what we’re all capable of when we have that kind of shared focus and determination.

Q: How do you keep up with industry-specific regulations and standards, such as those set by health authorities or medical associations?

Greg Appelt: You just have to develop a deep knowledge of the code. It’s all based on code, and the code varies from province to province. So you have to ensure that you’ve considered the cost of every code in the province you’re in.  And then certain tenants and tenant classes will have their own additional requirements. For example, a psychiatrist’s office will have a very different requirement than a surgical center.

Q: In what ways do you ensure the adaptability and scalability of your developments to accommodate future advancements in technology and changes in healthcare practices?

Greg Appelt: The healthcare in this country is very interesting. The population is increasing dramatically due to immigration, and at the same time, there’s an aging demographic with higher healthcare demands. There’s a lot of pressure on the government to deliver health care more efficiently and affordably. The natural course for them in the face of these increasing challenges is to decentralize. The relative cost of delivering outpatient care is so much lower than that of a hospital stay. So you’re getting this redistribution of health care delivery, and that’s largely being done through these kinds of medical buildings. The advancement of healthcare technology has paved the way for this evolution. Just a few years ago, if you needed a hip replacement, you’d be in the hospital for five days. And now, if you’re the right candidate, you can have that operation in an outpatient setting. That technological advancement has taken what used to occur in a very expensive hospital setting and pushed it into a community medical building.  As medical real estate developers, we need to understand the fiscal pressures the governments face and provide the community with facilities that can accommodate the changing way healthcare is delivered in this country.