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Show Summary
In this episode of the Real Estate Pro Show, host Erika interviews Christian Catron, a medical real estate investor with a compelling personal story. Christian shares his journey from a challenging childhood in the Philippines to becoming a successful entrepreneur in the medical real estate sector. He discusses the advantages and challenges of investing in medical properties, the importance of relationships in real estate, and the vision behind his new fund, which incorporates a social impact component focused on suicide prevention. Christian emphasizes the rigorous evaluation process for medical properties and the unique aspects of medical real estate that set it apart from traditional commercial real estate.
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Investor Fuel Show Transcript:
Christian Catron (00:00)
It all starts with me being born on a dirt floor in a third world country. If you can believe that. So was born in Philippines. My father was a US sailor. My mother was a local gal. He wasn’t part of my life. I was born into poverty. God saw fit for me to come to the United States and because of that experience coming here at the age of six right before I turned seven, I learned to speak English by the way ⁓ watching cartoons.One was called fat Albert. I don’t know if you remember that at all. The other was Garfield and friends at any rate Because of my experience coming to the US as a first-generation immigrant. I was I was called I felt called to serve this country in some capacity and fortunately did well athletically academically and got a Scholarship to West Point everybody who gets accepted there is on a full ride scholarship.
Erika (02:24)
Hey everyone, welcome to the Real Estate Pro Show. I’m your host, Erika Today I’m thrilled to be joined by Christian Catron. He’s carving out a powerful niche in medical real estate investing. Christian, it’s awesome to have you here.Christian Catron (02:40)
Thanks for having me, Erika. I’m super excited to talk with you and just share what we’ve got going on. so, yeah, very excited. Thanks for having me.Erika (02:48)
Yeah, yeah, I’m excited too. We gotta, you know, jump on in. for our listeners, Christian, you know, tell us your story. How did you get into real estate and what led you to, you know, the medical side of, you know, of real estate?Christian Catron (03:02)
⁓man, how much time do we have?
Well let me give you the fast forward version.
It all starts with me being born on a dirt floor in a third world country. If you can believe that. So was born in Philippines. My father was a US sailor. My mother was a local gal. He wasn’t part of my life. I was born into poverty. God saw fit for me to come to the United States and because of that experience coming here at the age of six right before I turned seven, I learned to speak English by the way ⁓ watching cartoons.
One was called fat Albert. I don’t know if you remember that at all. The other was Garfield and friends at any rate Because of my experience coming to the US as a first-generation immigrant. I was I was called I felt called to serve this country in some capacity and fortunately did well athletically academically and got a Scholarship to West Point everybody who gets accepted there is on a full ride scholarship.
And so played army football Was injured a lot playing football and playing so
soldier
ultimately incurred lot of injuries, which is part of the story of how I got into medical real estate, because it was through that experience that I was prompted to pursue a career in healthcare when I got out of the military and did that for 20 years or so.
and tried buying real estate right when I got out. ⁓ The investment really didn’t work out well. I bought a fourplex in Niagara Falls, like unseen, and then ultimately backed out of real estate for the next 15 years just to focus on my real estate, I’m sorry, on my corporate career that then ended up ⁓ working out really well because I kept getting increasing levels of responsibility and earning potential, but Uncle Sam kept taking more and more of my money. And so I did some research and it all brought me back to real estate. And that’s when I got back in, my wife and
I said, okay, we got to do this right way. And we bought into a real estate education program, started doing fixing flips, wholesaling, and then shifted quickly to commercial real estate in 2019. Started by buying apartment buildings, shifted to ⁓ office buildings that were vacant and underutilized during COVID. And then, and then even dabbled in hospitality prior to landing back in medical. And so my career has sort of come full circle back into the medical space, but on the real estate side of things. And so that’s what
we’re doing now.
Erika (05:26)
Yeah, that’s really awesome. also Christian, thank you so much for your service. What an incredible story.Christian Catron (06:22)
My pleasure. It’s certainly a privilege and my hope is that more more folks who were born in this country and get to benefit from the freedom that we have get to recognize that and thank other soldiers as well and other service members.Erika (06:36)
Yeah, and you know, that’s a crazy, crazy journey to be on to, you know, from where you started and where you are now. You know, when you started to get into the medical space, you know, was it kind of early on that you knew that this was gonna be your focus or did it take a little bit of time?Christian Catron (06:56)
You know, it took some time and it’s funny that you should ask because ⁓ folks have asked me, Hey, if you could do it all over again, would you just jump right into medical? And I think I’m tempted to say yes, because of how, ⁓ how much of a quality asset it is and how lucrative it can be at the same time impacting the community in a positive way. But absent of the experience that we had in multifamily and in office and in hospitality, I don’t think I would value.as much the medical play as much as I do now. And so I can talk about some of the facets of that if you like, but it’s just ⁓ the type of, how do they say, not all real estate is created equal, right? And this is certainly a niche that we’ve discovered that I hope other people get to learn about that has just been a really, really sweet spot for us.
Erika (07:49)
Yeah, yeah, tell us more about some of the advantages of it and maybe some of the challenges too, because it’s very unique.Christian Catron (07:55)
Yeah. Yeah.Yeah. ⁓
So advantages, first let me just start with like any piece of real estate, it all comes down to what is the demand for that? What makes it attractive, right? And so what we have going on in the US as well as other countries right now is an aging population. ⁓ The term that’s commonly used is the silver tsunami, right? So you have a lot of baby boomers that are coming into that ⁓ age where they’re just getting older, all right? And so what we know is ⁓
The older we get, the sicker we get, ⁓ and the more care needs that we have. And so that’s driving a lot of demand for healthcare, as well as the places where they’re administered healthcare facilities.
In addition to that, there are things happening in the healthcare space, one of which is called site neutral payment policies. So these are health insurance plans, which as you know in America, dictate sort of where care is administered and whether you receive care or not. ⁓ And ⁓ what’s happening is…
Insurance companies that used to pay a large amount for a certain type of treatment to be provided in a hospital for example and a lower amount in an outpatient clinic or surgical center, they’re now saying, hey, we’re gonna pay the same no matter where it’s done. So site neutral, right? What’s happening then is a lot of volume is being driven out of hospitals into the outpatient settings. Well, guess what? We own surgical centers, that’s where cases are now shifting to. So there’s a lot of demand for that and there’s a lot more that’s needed in the community.
So that’s what we’re doing is we’re partnering with healthcare operators to help them grow and expand so that patients can have more and more access to care, is an issue in the US, unfortunately. So in that way, we’re actually providing sort of a social impact component inherent and built into what we’re doing.
So those demand drivers are essential. The other things I like about it is, as I mentioned before, is these tenants, healthcare tenants, these are essential services. They’re not gonna shut down, you know, because of a COVID scare or some other pandemic. If you have a significant toothache, you’re not gonna go to the dentist, you know what mean? So you’re gonna be seen and you’re gonna receive the care that you need. These healthcare tenants pay their rent, they pay via ACH, you don’t have to go chase after them.
They pay by the first of the month and once they’re established and rooted they just don’t move.
They don’t relocate. Patients know where they are, those referral patterns that are established in that community. These are some of the facets that we like in terms of advantages. As far as disadvantages, ⁓ unless you have the type of upstream relationships that my company does and has formed with healthcare operators, what someone might get if they see a medical real estate property is, ⁓ I can buy this property. The owner is selling it.
four
or five years remaining on the lease there might be a renewal option there might not well at that point that buyer has to determine what do I do with that property the way that we do it is we engage with health care operators who are either owner occupied and now they want to sell the real estate and then lease back from us for the next 10 15 20 years or so or we build ground up built a suit for a particular health care tenant so that way we
know part of that arrangement is a long-term lease, right? And so the way our strategy and the way we do it is unique and different than someone who might not have the advantage that we have. And so those are some of the nuances but by and large medical real estate I highly recommend because of the things I mentioned in terms of the tenant, the long-term lease, the other not only is the lease long-term by the way Erika, these types of leases within the medical space are typically ⁓ what’s called net lease.
properties.
Ours in particular, we like to have absolute triple net lease properties. What that means is not only are we not responsible for the operating expenses because the tenant is, but any type of capital improvements, roof, HVAC, structural foundation, they also are responsible for those things. So the risk from an operational standpoint and the risk of having to cough up money to fix the property or any aspect of it, that’s not something that we as a landlord have to bear. So that is different than our
experience and other asset classes within commercial.
Erika (13:05)
Yeah, wow, there’s like so many different things to think about, you know, with with medical real estate. Are there any misconceptions about medical real estate that you love to clear up?Christian Catron (13:08)
You⁓ absolutely. So listen, the fund that we’re launching, we named it in a specific way, in a certain nomenclature so as to not be confused with other asset classes within commercial. So we’re calling it the Redemption MRE Income Fund. MRE because ⁓ it stands for Medical Real Estate. Okay. But we also like to have fun with our naming convention of our funds and our properties. ⁓ MRE for those who might be an Army soldier or veteran.
Stands for meals ready to eat those those things that we used to eat out in the field and prepackaged and all that ⁓ But we named it that instead of MOB Income fund because MOB has in it medical office buildings And so when someone hears office in this day and age they usually tuck tail and run because they think That’s an I don’t I don’t do anything with office. Well Okay, it’s it’s it’s a medical real estate building. We stopped calling it medical office building
so as to help with that confusion because most folks, especially post COVID, they think of office, they think of traditional office, which implies a lot of ⁓ variability in terms of demand. ⁓ In some cities, there are buildings that are still completely vacant, for example. And so that’s not what medical is. So we’re calling it medical real estate as opposed to medical office at this point.
Erika (14:45)
Yeah, I think that’s a really brilliant shift in marketing by changing what it’s called.Christian Catron (14:53)
Yeah, and it’s not only us, I think that generally the medical community and those in the space have also shifted in that regard. And we’re just sort of adopting that shift.Erika (15:04)
Yeah, yeah. know, Christian, when it comes to the medical properties that you’re looking at, how do you evaluate if it’s a good fit? You know, like, do you have a process for evaluating?Christian Catron (15:59)
We do, in fact, we have a pretty rigorous lead filtering process, ⁓ both looking at the physical property as well as the tenant that is to occupy it, and it’s either met or not met, and if they don’t meet those criteria, we simply pass on the property, right? So some of those things include, for example,Is it a medical real estate property as opposed to a Wendy’s restaurant, right? Okay, clearly we’re only doing medical real estate. That’s a no-brainer Are we are we able to establish a lease? I’m sorry. Are we able to purchase a price? With with above an eight cap, right so an 8 % capitalization rate. So Example that would be if the building cost a million dollars and we want to exceed an eight cap That means that the amount of rent
that we’re getting is $80,000 per year. And so if we’re not able to get that, then we’ll simply pass because the whole play for us is to buy it above an 8 cap knowing that these properties are readily trading in the 6 to 7 range. So when we buy it, we know there’s equity built into that and as long as we can then sell it at market rate leases, which is possible, especially when you’re aggregating a bunch of these together, then we can exit at that price point.
That’s one of the criteria. Now once a property meets the criteria ⁓ and passes that, then we go to a lead scoring system where based on different attributes of the building, the geography, the tenant, the lease structure, various other things, it will produce a certain score and based on that score, we’ll make a decision as to whether to buy that property or not. So there’s many different factors involved in that certainly. Not every piece of medical real estate,
you’re going to go out and buy. It has to be the right price for sure. Some of the other criteria, for example, for us is like most other commercial real estate, you want to buy below replacement costs. And so, you know, we’re not going to buy a property for, you know, $500 a square foot that we can build for $400 per square foot. That doesn’t make sense. However, one of the properties we have under contract, for example, seven operating rooms in the surgical center.
it
would typically cost anywhere between $800 to $1,000 per square foot to build that. All in between the purchase price, project cost, everything were under $400 a foot.
So significantly below replacement cost. That same building, typically the market rate lease rate is $40 a foot and the lease rate we’ve negotiated with the tenant is $35 a square foot. Someone might say, well, wait a second, you’re leaving $5 a foot on the table. Well, if we’re already, if we’re buying it and we’re already buying it at a 10 cap, which is what we’re doing in that case, I’m okay with leaving money on the table because from my lender,
partner standpoint, they like that because the releasing risk is diminished. If we know that, if for one reason or another this tenant ⁓ blows out, then we can release that property to another tenant at the same rate or at the market rate and we wouldn’t struggle to release it because we’re not leasing it at above market rate and now we’re trying to get that same rate as before.
only to land at the market rate lease and now you have a variance there in the opposite direction. So there’s different things like that.
Erika (19:40)
Yeah, that’s a you know, I’m sure all those things make a make a difference with, you know, pick it picking out an awesome deal.Christian Catron (19:48)
They really do. Yeah, they really do.Erika (19:51)
And, you know, I want to pivot a little bit. This could relate a bit, but, ⁓ you know, you’ve you’ve done other things in real estate besides the medical world. Was there ever a moment that you had a challenge with the deal and forced a quick, quick pivot? Can you share one of those moments along your journey?Christian Catron (20:13)
Yeah, no, absolutely. ⁓ so the fund that we had right before the one that we’re preparing to launch now ⁓ was what the investment thesis was around this adaptive reuse strategy. And that simply implied being able to acquire buildings at a very low basis because they were ⁓ available for that amount, in part because they were vacant, like many buildings post-COVID or during COVID.And the idea is to convert them to a higher and better use, right? And so in one situation, for example, we bought a 10-story office building that we are turning into a courtyard Marriott Hotel. Well, it ends up it’s a historic building, so we were able to secure through a lot of work, a $10 million historic tax credits. We were able to work with the city to secure $4 million of a cash grant and other incentives.
and ⁓ it’s effectively shovel ready.
once we get to the permitting stage, but the challenge that we’ve had with that is ⁓ difficulty in sourcing construction financing because as I mentioned before, hospitality construction financing has all but dried up. so, you know, despite us having this really cool building that has the support of the city, that’s got a bunch of ⁓ subsidies and incentives available for historic tax credits and the preservation of the historic component of the building and things like that, you know, we’re having
shift now to actually selling that property to another developer who can come in and ⁓ may be able to pay all cash and not have to secure financing because they’ve got deeper pockets and then move the project forward. So that’s one of the challenges that we found within that fund and that investment thesis. Of course we also bought a medical office building within that fund.
that has been the best ⁓ property that we’ve ever purchased. In that one, Erika, we bought a three unit medical office building that used to be a Circuit City store that was converted into a medical office building. And we bought it from a medical group that had a surgical center in one unit and a pain clinic in another unit. And then third unit was vacant. Well, we bought it at a price for six and a half, I’ll just tell you for six and a half million dollars that ensured that our investors
would would still double their money within a five-year term even if we never leased that third unit. Well guess what we leased that third unit and now the new appraisal shows a value of 11.4.
I’m like, well, let’s keep doing that. Why don’t we just do more of that? And so that’s really what birthed this new fund that we’re launching that is entirely medical real estate because we found this one and said, hey, if we can replicate this model and do that time and time again, why, not waste, but why spend the energy and the time developing or redeveloping a project when you can buy an existing asset that produces cashflow day one
and has the upside potential that I just mentioned. And so that’s an example of sort of how we pivoted because we encountered some challenges there with some other strategies.
Erika (23:35)
Yeah. Yeah. Wow. That, that is really something. Christian, as I’m sure you know, the relationships that you build in real estate are so important for our listeners who are looking to grow their own network. What’s been the dip, the biggest difference maker for you and building relationships that drive your business forward.Christian Catron (23:56)
Well, I’ll tell you that, mean, relationship focused is really, is literally one of our core values. And we selected it because it speaks to just how this game is played, really, and understanding the value of that. ⁓makes all the difference in the world. think absent of the strategic relationships that we formed, we wouldn’t have gotten that third tenant in that unit that I just mentioned. ⁓ Absent of the relationship we formed ⁓ that had become sort of programmatic in nature, we wouldn’t be able to buy some of these properties at the price points that are pre-negotiated and…
help ensure that there’s built-in equity. ⁓
And so, I mean, that’s really the nature of the beast, if you will, having those relationships ⁓ intact in place ⁓ so that you can be effective. And the fact of the matter is it takes time to develop those. And you have to actively pursue those types of relationships. And then once you’ve established them, to then nurture them. Because absent of nurturing relationships, then it becomes sort of transactional.
when you need something, right? And so, you know, there is a lot of effort into maintaining those relationships, checking in with different people, offering to provide assistance, hey, how can I help you with no expectation of anything in return? ⁓ And so that’s sort of how we approach those relationships. And as often as we can to try to offer something of value prior to seeking and sourcing anything. As an example today, I had a call earlier with someone who I met.
probably four years ago, we’ve had certain touch points along the way. And he’s launching a new business, which I’m like super excited. I’m saying, hey, who can I get this in front of? How can I help you? And then it came to mind afterwards. hey, this is something new that I’m doing. He’s like, dude, I can introduce you to this family office, or a buddy of mine who runs a family office. They’ve got $108 billion assets under management. I think this is something he’d be interested in, in your new fund. And I’m like,
I wasn’t even going to ask about that, but thank you for the offer. Absolutely, please make the intro.” And now I’m speaking to that guy tomorrow morning. yeah, mean those types of relationships ⁓ matter, but I think the thing that matters most is ⁓ nurturing those relationships and not only pulling on them when you need something.
Erika (26:36)
Yeah, absolutely. Christian, you you talked about your fun on the horizon, which is so exciting for you. What’s the vision behind there and what are you most excited about solving or scaling with that?Christian Catron (26:52)
Well, so the funny thing is, as you ask that question, the thing that comes to mind is not the fact that we’re able to provide 8 % cash on cash returns, cash distributions from the jump, which typically other projects take years to be able to provide something back to investors. Not the fact that it’s got a target of 13 to 15 % internal rate of return, but has upside to go up to 25%, which is nuts to think about.this type of asset because of the quality of the product. Typically these types, if you were to compare it to like the stock market, you’ve got your core, your core plus, you’ve got your value add and opportunistic type of investments. This is typically what’s called ⁓ core plus in terms of the level of returns it’s able to produce and the level of risk associated with it. And yet the types of returns are actually significant as if it’s like a value add or opportunistic. So it’s sort of
asymmetric in that way. But those aren’t the things that come to mind when you ask the question. The things that come to mind is number one, how we are helping to create greater access to care for ultimately the people that are most important as part of this ecosystem, which are the patients. And that’s something that I carry with me for my health care days. And then secondly, the other thing I’m most proud of with this fund is we’ve incorporated an investing with impact component ⁓ that we haven’t done before. And essentially what that means is we’ve created
our own foundation called, the name of my company is Redeem Investments, the name of our different properties that we’ve had have been redemption something, so redemption tower, sweet redemption, redemption square, those types of things, but the foundation we created is called the Redemption Foundation. And what we do is we take a portion of our profits as a general partnership and we put it into that foundation so that we can then donate it to various organizations.
but particularly in organizations that are dedicated to suicide prevention. One of our advisory board members, sadly, his son, 12 year old son committed suicide during COVID and he’s very passionate about spreading the word about how conversations matter and I’m supportive of him.
And really, ⁓ it’s in part because of his experience and my desire to provide some solidarity there and just support of him that we then expanded to be on his organization, to also other organizations on our platform, all of whom and all of which are committed to suicide prevention. you know, while we’re not taking profits from our limited partners, our investors, and putting it into that fund, we’re only taking our GP profits and doing that, we are inviting anyone, including
our investors to come alongside us so that they can donate ⁓ funds to go to those same organizations. So that’s something I’m really proud of and kind of a unique thing that we’ve now incorporated into our investment structure.
Erika (29:55)
Yeah, wow, I really love that. ⁓ with your track record with what you’ve done so far, it’s ⁓ exciting to see, you know, on all the different levels where this could go Christian.Christian Catron (30:08)
Yeah, I know, we’re super excited. And just to be clear, it really stems from…⁓ the desire to give back. I said, now, you now knowing sort of my, my origin story, like I, I, I feel very blessed to be where I am and I want to give back to the community around us, especially with that, that, that part of it that struggles with, you know, mental health that ultimately has led to suicide, many of which sadly have been veterans. So two of the four, two of the five ⁓ organizations we donate to are specifically for soldiers that struggle with that.
⁓ And here’s the thing is that we’re not doing it so that we can garner favor from large check writers that may be part of those organizations, but rather ⁓ we’re doing it because we care and we just want to give back. If as a byproduct of what we’re doing and the exposure we’re creating on their behalf, other people are drawn to us and what we’re doing, then amen, that’s sort of a byproduct of that, but that’s not the primary objective.
Erika (31:14)
Christian, before we let you go, if someone wants to connect with you, learn more about what you’re doing in medical real estate, what’s the best way for them to get in touch?Christian Catron (31:25)
Yeah, I know. So you can either go to our website, is redeeminvestments.com or send us an email at investors with an S at redeeminvestments.com and that’ll get you plugged in and we’ll start providing, we’ll start doing some webinars and things for the fund and other things that we’ve got going on and put you on our newsletter and just keep up to speed on, keep up to pace on what we’ve got going on. And so, yeah, we’re happy to share what we’ve got going on and the ways that we’re looking to impact the communities.Erika (31:56)
Yeah. Wow. Christian, your approach to medical real estate and how you’re raising capital is inspiring. And I know our listeners are walking away with a lot of great information. Thank you so much.Christian Catron (32:09)
Thank you very much, Erika. Appreciate it.Erika (32:12)
And for our listeners, if you love this episode, make sure that you’re subscribed to the Real Estate Pro Show. We’ve got more conversations with heavy hitters like Christian who are building incredible empires in real estate. We’ll see you on the next episode.
