Terravet and the future of veterinary real estate ownership

Photo courtesy of Terravet

Content sponsored by Terravet

In 2021, more than 23 million Americans adopted pets. A year later, the total annual spending on veterinary care has reached record highs. This increased demand comes on the heels of a decade during which institutional investors, including private equity funds, pumped billions into veterinary practices. Both trends have impacted veterinary practice operations in many ways, and both will continue to affect the sector for years to come. Notwithstanding the pace of change in the veterinary sector, most veterinary real estate continues to be owned by veterinarians. As the veterinary sector continues to evolve within the current volatile economic environment, veterinary real estate owners often find themselves considering alternative ways to manage their properties.

Terravet Real Estate Solutions is a leading real estate group that owns, manages, and develops veterinary real estate, including large general practices and 24/7 specialty emergency hospital buildings. The team at Terravet—comprised of real estate, legal, and finance professionals—has a decade-long track record of collaborating with veterinary operators to invest in their real estate and improve the quality of their facilities.

Terravet Real Estate Solutions and its veterinarian partners recently launched Terravet REIT Inc, a private real estate investment trust (REIT) to facilitate additional options for veterinary real estate owners to diversify their real estate holdings beyond the traditional binary choice of either selling or continuing to hold their property.

What is Terravet REIT?

Launched in July 2022, the REIT and its affiliated operating partnership began with a small group of top-tier veterinary buildings. Terravet Real Estate Solutions expects the REIT to grow to a portfolio of more than 20 buildings valued in excess of $100 million by Q1 2023, and to continue to grow thereafter. Terravet Real Estate Solutions acts as the day-to-day manager of the REIT, which is controlled by a separate Terravet REIT Board that includes veterinarians, practice-operators, and advisors with decades of veterinary and real estate experience, including:

• Randy Bimes, DVM, chair of the Community Veterinary Partners Medical Advisory Board and former co-owner of Quakertown Veterinary Clinic in Quakertown, Pennsylvania
• Hank Wright, DVM, founder of The Pet Hospitals in Memphis, Tennessee
• Neil Tauber, a cofounder of VCA Animal Hospitals
• Terry O’Neil, partner at Katz, Sapper & Miller, and head of their Veterinary Services Group

How does Terravet REIT work?

Terravet REIT operates through an Umbrella Partnership Real Estate Investment Trust (UPREIT) structure. Some single-property owners can contribute their facility to the REIT in a potentially tax-advantaged manner under this structure and reap the benefits of diversification. The UPREIT structure has been used for many years by private and public REITs to build diverse portfolios across different real estate asset classes. However, Terravet REIT is focusing its use of this structure on veterinary real estate, with a goal of building a portfolio of buildings that are diversified by geography and tenant but primarily leased to veterinary practices and hospitals.

As a perpetual life vehicle, Terravet REIT is focused on high-quality veterinary practice real estate with the average value of each property expected to be in excess of $2.5 million. Terravet Real Estate Solutions works to source appropriate real estate, focusing on purpose-built or thoughtfully converted facilities that best meet the needs of veterinarians and patients, most often in suburban and urban areas and housing practices with a strong operating history and reputation.

Terravet REIT expects to grow by referral, expanding through a network of entrepreneurial veterinarians nationwide, with the Terravet Real Estate Solutions team focusing on adding the strongest available properties to the portfolio.

How else does Terravet work with veterinary real estate owners?

In addition to its work on behalf of Terravet REIT, Terravet Real Estate Solutions continues to work with veterinary real estate owners who wish to sell their properties to an experienced veterinary real estate group that knows what veterinary operators require for success. These owners, like contributors to Terravet REIT, may want to relieve themselves of the ongoing responsibilities related to veterinary property ownership. Managing taxes, insurance, and lease renewals, and renovation and expansion requests can be time-consuming and expensive. After selling to Terravet Real Estate Solutions or contributing a property to Terravet REIT, these responsibilities are handled by Terravet’s professional team.

Looking to the future of veterinary real estate

Veterinary real estate has proven to be resilient time and time again. However, the veterinary sector is changing rapidly, and that has resulted in challenges and opportunities for veterinary real estate owners. At the same time, the commercial real estate market will continue to be impacted by changes in work patterns, the growth of e-commerce, inflation, interest rates, and various other factors. Terravet is excited to continue exploring avenues to best respond to the challenges facing veterinary operators and real estate owners, including now working to offer an alternative to the binary decision to sell or hold one’s real estate, enabling veterinary real estate owners to diversify while staying invested in veterinary real estate.