Med-Surg Real Estate Developer Prevarian Companies Shifts Focus to Behavioral Health

As a developer of health care and senior living properties, Prevarian Companies is well-versed in the construction of facilities serving some of the nation’s most vulnerable populations. And if the real estate developer has its way, a significant portion of its future business will come courtesy of the behavioral health sector.

Founded in 2004, Dallas-based Prevarian has developed — or acquired and renovated — over 20 properties across Texas and Florida throughout its history. The company’s initial projects focused on surgical hospitals, ambulatory surgery centers and medical office buildings. Then in 2010, it also expanded into senior care.

Now, Prevarian has its eyes set on developing behavioral health properties with prospective business partners nationwide. The growing need for behavioral health services helped pique the company’s interest.

“Given the growth … and the profound need, we have leveraged the relationships that we have with hospitals and health systems around the country to introduce the idea that behavioral health might be a productive relationship for them,” Prevarian Co-Founder and Principal Allan Brown told Behavioral Health Business.

Prevarian is no stranger to the behavioral health real estate market, as it previously developed three Texas properties that it has since sold — Midland Behavioral Health Hospital in Midland, Reliant Rehabilitation Hospital in Abilene and Amarillo High Plains Hospital in Amarillo.

Currently, the company is looking to grow its behavioral health portfolio by developing, acquiring and repositioning three to five behavioral health hospitals per year. Among the first of those planned partnerships is with the Enola, Pennsylvania-based hospital and health care organization Post Acute Medical (PAM), for whom it will build a number of new hospitals for its behavioral health arm, Voyages Behavioral Health.

“[PAM is] known as being one of the best operators of post-acute care out there, [and] from a pure operation standpoint, they’re just exceptional,” Brown said. “They appreciate the opportunity to be introduced to people they may not know [to establish] … relationships that may result in a new hospital. And we appreciate the opportunity to work with them to build [the] real estate.”

As part of its overall behavioral health plan, Brown said Prevarian has been meeting with stakeholders across the country, bringing together parties such as health care organizations and third-party operators for prospective projects, such as community-based behavioral health hospitals.

“It’s more than just real estate development,” Brown said. “The initiation of an opportunity begins with bringing together interested parties — typically [a] community hospital and an outside behavioral health hospital operator — [to] see if there’s a potential for a relationship. As a result, we’ve had a lot of success in those discussions.”

Because of the pandemic, Brown said it would have been harder for Prevarian to have those conversations last year.

Amid COVID-19, Prevarian’s companywide construction schedule did not let up, as it proceeded with the building of its newest project, a senior living community in St. Petersburg, Florida. What proved difficult, Brown said, was trying to convince health care providers to build behavioral health facilities — when those same providers were consumed by the pandemic and the heightened need to provide medical care to patients.

“You could still get things built,” he recollected. “It was [more] about getting anybody’s attention to do anything other than to get through that disaster that COVID-19 brought to the industry. It was very difficult.”

While the delta variant of the coronavirus has brought about a resurgence of COVID-19 cases, Brown feels that the current behavioral health landscape is in a much better place than it was last year, in part due to the strain the pandemic has put on the nation’s behavioral health.

“I don’t know that [developing these partnerships] would have been anywhere near as expeditious, … and we wouldn’t have had the interest of anyone a year and a half ago like we have today,” Brown said. “The interest in … behavioral health on the behalf of acute care providers is pretty remarkable. I don’t know any of them that aren’t at least talking about it.”

The behavioral health market that Brown aims to navigate Prevarian into is a hot one. More and more real estate developers and investors are taking interest in the space, and M&A activity has reached new heights.

Despite last year’s pandemic-fueled economic downturn, the behavioral health industry saw a record 107 deals in 2020. These days, behavioral health M&A activity remains robust and is on pace to set another record in 2021, with 57 deals logged in the first half of the year, according to advisory firm Mertz Taggart.

Some of that delamking is attributable to providers wanting to sell off assets before the Biden administration raises the capital gains tax rate, which would take effect at the beginning of 2022, if the president’s proposed tax bill is passed. Biden’s plans notwithstanding, activity is also being driven by the increased demand for behavioral health services, which is expected to remain high post-pandemic.

At the same time, de novo activity is also currently widespread in behavioral health, with major players like Acadia Healthcare (Nasdaq: ACHC) reiterating throughout 2021 a commitment to opening new facilities. And Brown is seeing a similar attitude among the health care entities he’s spoken to.

“We’ve talked to folks …. in several states where we have relationships [with providers],” he said. “Regardless of the size of the hospital or the [health care] system …, they’re all almost universally interested in behavioral health. It’s certainly a bigger part of their delivery of patient care nowadays, and it’s becoming a heck of a lot more prevalent in what they’re seeing in their patients.”

Taking all that into consideration, Brown says he expects more real estate-focused companies like Prevarian to start striking in behavioral health while the iron is hot. To some degree, that’s already happened, with players like Sabra Health Care REIT (Nasdaq: SBRA) and Wellness Real Estate Partners recently upping their involvement in the space.

And according to Brown, that’s just the beginning.

“You have these large private equity firms now investing in inpatient behavioral health,” he said. “There’s a lot of money pouring into this and … recognition that it’s a real problem that needs to be addressed. Investors and developers are taking note and really starting to ramp up their understanding of the business and their investment in the business.”