By a long way, German acute hospitals represent the largest healthcare property portfolio in Europe. So far, they have been off-limits to property investors. But will it stay that way? We explore some of the issues ahead of the Healthcare Europa 2015 conference, where we have a special session on healthcare property.

Until very recently, the belief was that the 100+ large private hospitals in Germany could not be sold off by their operators – groups like Sana, Asklepios, Helios and Rhoen. When we asked why, we were always told that, as the properties had been privatised, were they to be sold, the state would have first option to buy them back thus blocking a deal.

Now that US REIT Medical Properties Trust has bought the property of reha groups Median and RHM, that argument looks flawed.

Indeed, German property lawyer Elmar Bickert at Squire Patton Boggs has confirmed that “the situation with acute hospitals is the same as reha”.  he adds: ”There may be a pre-emptive right in some cases, but it does not mean that it is impossible in Germany to do sale and leaseback schemes. Even if there is a pre-emptive right, the entitled local authority is not obliged (and in most cases not inclined to) exercise those rights.”

So will such deals happen? Possibly. The problem is that margins in acute hospitals, even in the large groups are low.  Helios managed just % , that compares to for RHM and Median.

Whilst a sales and leaseback deal would give hospital groups a massive cash lump sum (quite easily several billion euros) it could seriously damage long-term profit margins.  Aggressive and highly acquisitive management teams might be tempted to use such a cash pile to buy abroad. But “aggressive and highly acquisitive” is not a description you could apply to any of the big German hospital chains.  Smaller groups such as Ameos, Germany’s largest psychiatric chain, which is said to be looking to sell, might be interested.

The smaller but higher margin acute sector in Spain and Italy looks more interesting as margins are much higher and we now have a couple of groups, Quiron in Spain and San Donato in Italy with sales of well over €1bn. Certainly there is huge demand. CBRE tells us that investors from around the world including institutional and sovereign funds are keen to invest. We will be covering the property sector in much more detail at Healthcare Europa 2015 – click here to see agenda.