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DD report helps manage the risks of real estate business in care properties

DD report helps manage the risks of real estate business in care properties

14.4.2023 – As a result of the health and social services reform, the ownership of care and public sector properties is increasingly shifting to professional investors. At the same time, the need for DD (Due Diligence) reports has increased, and the taxonomy assessment carried out for the reports is becoming a requirement before any deals can be closed.

Themes
Productivity, Property management
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“More and more care and public sector properties are being acquired by investors. This trend started about a decade ago, but it is now seeing faster growth due to the health and social services reform,” says Susanna Sairanen, Director, Sales and Accounts at Granlund.

The change stems from the need of municipalities to free up their resources for other activities as well as the fact that the ownership and management of public sector properties is not part of municipalities’ core duties.

The year 2022 saw unprecedented growth, and the same trend can be expected to continue for the next few years. The number of special mutual funds investing in real estate has increased significantly in recent years.

More and more care and public sector properties are being acquired by investors.

Susanna Sairanen

“Investors from Finland and abroad specialising in health, social and rescue service sector properties, such as insurance companies, have set up more and more proprietary funds for care and public sector properties,” says Business Segment Director Ritva Rissanen.

Real estate business and DD reports require expertise

Interest in municipal real estate remains high among investors as it is seen as a relatively safe investment regardless of what is happening around the world. However, Sairanen emphasises that not all municipal real estate is marketable as is. Sometimes, investors are not willing to pay the price the municipality is hoping to get out of the property.

An impartial expert with understanding of real estate in the specific sector is a great asset to have when aiming for a mutually beneficial real estate transaction. In recent years, Granlund’s Due Diligence (DD) team has prepared reports for dozens of care properties, hospitals and fire stations.

Sometimes, investors are not willing to pay the price the municipality is hoping to get out of the property.

DD reports are made for both existing and new properties. The technical challenges of the sites can vary considerably according to the purpose of the building. When it comes to special facilities, the DD team is supported by all of the experts at Granlund Group.

“For example, Granlund has its own hospital design department that the team can turn to for more in-depth insight on hospitals,” says Sairanen.

DD reports include proposals for action

The experts at Granlund help the municipalities analyse the condition of their real estate and find ways to improve the value and marketability of the premises from both technical and sustainable points of view.

“The measures may sometimes be quite minor, but they reduce the investor’s risk and help close the deal,” says Rissanen.

If the municipalities choose not to carry out the proposed measures, there are other ways to promote the marketability of real estate. According to Rissanen, these include various certification assessments or roadmaps for taxonomy alignment, technical operability, long-term repairs and ensuring that any official and periodic inspections are up to date.

Interest in taxonomy as part of DD reports

DD reports are prepared for both sellers and buyers. At the moment, buyers are particularly interested in additional reports related to sustainability, such as ESG and EU Taxonomy.

“If the property is not taxonomy-eligible or cannot even be made eligible through reasonable measures, the deal may fall through,” says Rissanen.

More information

Health and social services reform

What’s it about?

The responsibility for organising public healthcare, social welfare and rescue services is transferred from municipalities to 21 wellbeing services counties. The reform does not apply to Helsinki.

In recent years, real estate used for social welfare and healthcare services have been renamed care and public sector properties. The range of care properties is extensive, from nursing homes to daytime activity centres, health centres, hospital and assisted living facilities for special groups, such as residential care homes. Public sector properties include fire stations, for example.

Objective:

  • To ensure equal, high-quality healthcare, social welfare and rescue services in the wellbeing services county.

When will the reform enter into force?

  • On 1 January 2023.

What will happen to the real estate?

  • The possession of municipally owned healthcare, social welfare and rescue service properties will be transferred to the wellbeing services counties under a lease. The lease will be valid for at least three years during the transitional period and the wellbeing services counties will have the right to extend the lease by one year. After that, the municipalities will not be allowed to directly own these properties.

References and additional information:

The measures may sometimes be quite minor, but they reduce the investor’s risk and help close the deal.

Ritva Rissanen

Ritva Rissanen

Business Director
Granlund Oy

Susanna Sairanen

Director, Sales and Accounts
Granlund Oy

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