However, like other corporate investors, they had little appetite for acquiring the properties where care is delivered, leaving thousands of clinic and hospital buildings in the hands of individual doctors. Enter Terravet.
“Fifty years ago, this opportunity wouldn’t really have existed,” says Eisenstadt, a lawyer by training and self-described pet lover. “You could have bought veterinary practice buildings, but the tenant would not have had the creditworthiness of a corporate entity.”
“What makes this opportunity interesting from a REIT perspective,” he adds, “is that you go from mom-and-pop credit to corporate credit as this evolution happens in multi-site health care broadly and veterinary medicine specifically.”
Growth in Pet Spending
What attracted Mars and other deep-pocketed investors to the pet care business? The U.S. pet population, particularly the number of dogs, has grown meaningfully over the last two decades, pushing up spending on veterinary services.
In 2023, an estimated 66% of all U.S. households owned a pet, which represented a slight decrease from the prior year, but a roughly 10% increase from 1988. Currently, some 65 million U.S. households own at least one dog, making them the most widely owned type of pet.
As most pet owners know, furry friends can come with a hefty price tag. Spending on veterinary services (about $37 billion in 2023) has grown at a compound annual rate of about 9% over the past five years, according to Eisenstadt. It’s projected to grow at a roughly 7% compound annual rate over the next five years.
Demographic and societal trends have contributed to the growth in pet ownership. For instance, many newly-married millennials and Gen Zers are adopting cats or dogs long before they take the plunge into parenthood.
“You see more people getting married later in life and having a dog as a young married couple, or you see singles with dogs or cats. You also see a lot of empty nesters who will get a dog when the kids go off to college,” Eisenstadt says.
Advances in veterinary medicine, including pharmacology and diagnostic solutions, and a greater emphasis on preventative care have also contributed to the growth in services spending.
Sizing up the Market
Eisenstadt estimates that there are roughly 20,000 veterinary practices in the U.S., and that the number of actual clinic and hospital buildings that would appeal to institutional buyers is about half that number.
Growing demand for higher-quality buildings, he notes, is expanding the universe of investment opportunities. In some markets, Terravet has purchased and renovated existing veterinary buildings to accommodate start-up practices or established local practices that outgrew their previous locations. In other markets, the company is developing new buildings to replace aging facilities on the same site.
“There is regular development of new general practice buildings and specialty and emergency hospitals,” Eisenstadt says. “Long gone are the days when younger veterinarians want to work in a converted house. Just like in human medicine, veterinarians, as well as pet owners, increasingly want facilities where good health care can be delivered in true medical facilities.”
Casting a wider net
Despite its origins, Terravet isn’t hitching its star only to veterinary real estate. According to Eisenstadt, institutional investors are increasingly acquiring practices in other highly specialized areas of health care, from ophthalmology to fertility treatment. As corporate ownership in such sectors growths, Terravet is eying new opportunities to acquire the underlying real estate, with a continued focus on single-tenant net lease properties.
