FIRST PERSON: Michael Seton of Carter Validus
March 26, 2018 | Beth Glavosek | Blue Vault
Blue Vault recently had the opportunity to talk with Michael Seton, Chief Executive Officer (CEO) of Carter Validus, a private commercial real estate investment company, and President and CEO of Carter Validus Mission Critical REIT (CVMC REIT I) and Carter Validus Mission Critical REIT II (CVMC REIT II), two public non-traded REITs sponsored by Carter Validus that invest exclusively in data center and health care properties.
We asked him about the outlook for these ‘mission critical’ properties, as well as factors that can make such properties more valuable over time.
How do you define the term ‘mission critical’?
We consider ‘mission critical’ assets to be those that are absolutely essential to a tenant’s success and ability to do business. Usually, the tenant has made large initial and ongoing capital investments into these long-term properties that have a low obsolescence risk. Because the likelihood that the tenant will renew its lease is highly probable, we call these “sticky properties.”
We focus on the high-growth markets of data centers and health care. These sectors and the activities occurring in connection with mission critical properties are two of the largest segments of the economy right now, accounting for approximately 25% of U.S. GDP.
“These sectors and the activities occurring in connection with mission critical properties are two of the largest segments of the economy right now, accounting for approximately 25% of U.S. GDP.”
What does Carter Validus look for when investing in mission critical properties?
Access to technology is a key feature for both data centers and health care facilities. Optimal site characteristics include fiber and connectivity, access to adequate power facilities, and a low cost of energy. We also look at certain building attributes for data centers such as ceiling heights (computer equipment generates a lot of heat) and floor load capacities (the equipment is heavy.)
A health care facility’s age is a consideration in addition to proximity to population clusters. How well the property has adapted through its physical ‘build’ and technology contributes to its success. Also, in this age where name recognition is important, having a property affiliated with a larger, well-known health care provider is a benefit.
How do you improve or add value?
One example is a property that CVMC REIT I acquired in 2012 and sold in late 2017. At the time we acquired it, the building had already been converted from a historic building belonging to a retailer into a data center, and it housed six tenants. It just goes to show that an older property can be adapted to modern day use with the right amenities. While it was already an attractive asset, we saw some opportunities to add value in terms of blending and extending leases in the tenant mix and improving the parking situation, which had been problematic. A new parking operator was brought in under a management agreement, which created revenue opportunities.
What’s on the horizon for the data center sector?
We believe the demand for data storage and cloud usage is going to increase exponentially as the number of devices we use proliferates. It’s estimated that each family currently owns 15-20 connected devices. If you think about it, you alone may own a smartphone, tablet, and laptop. If each member of your family owns the same types of devices, you’re looking at 12 devices for a family of four. When you add in other technology such as smart watches, fitness trackers, and the like, you can see how this ‘Internet of Things’ is exploding. By 2020, it’s estimated that there will be 200 billion connected devices on the planet. By some estimates, that’s 26 smart objects for every human being on earth!
“It’s estimated that each family currently owns 15-20 connected devices…by 2020, it’s estimated that there will be 200 billion connected devices on the planet.”
What are some trends that are influencing growth in health care?
Health care reform has had a huge impact on how physicians conduct the business side of their practices. Compliance and paperwork requirements became much more burdensome. For this reason, doctors have migrated to larger systems, and we’re seeing large hospitals acquire physician-led practices. It’s good for the hospitals because these acquisitions drive volumes and revenue for the facilities; it’s good for the doctors because it gives them more stability and simplifies their compliance procedures.
Of course, the aging of America is driving health care growth as well. Older Americans’ health care needs are becoming more complex. They make more frequent medical visits, and acute procedures intensify in severity as we age. The greater frequency and intensity of visits contributes to hospitals’ revenue streams and profitability.
“Older Americans’ health care needs are becoming more complex. They make more frequent medical visits, and acute procedures intensify in severity as we age.”
In sum, Michael says that Carter Validus is simply committed to “investing in the path of growth.” In our increasingly technology-driven society, Carter Validus believes opportunity abounds for savvy real estate owners to take part in this growth.
More on Carter Validus
Formed in 2009, Carter Validus was started by a team of established commercial real estate professionals, drawing together four decades of combined experience in commercial real estate success. Carter Validus focuses on developing alternative investments that offer portfolios of net-leased mission critical real estate properties.
In addition to pursuing these investment opportunities, Carter Validus has dedicated itself to developing a culture that is committed to making the world a better place one day at a time.
As such, in 2017, Carter Validus raised over $64,000 for local charities, in addition to participating in more than 22 events with 11 different organizations throughout the year. Carter Validus supports employee volunteering by allocating each full-time employee with 24 paid hours of “give back” time.
For more information about Carter Validus, please visit www.cartervalidus.com.