Huge Portfolio Trades Confirm Increasing Interest in Medical Office Investment
The healthcare sector is increasingly on the radar of institutional real estate investors as the amount of capital pouring into the medical office building sector is robust. The interest in medical office investment has steadily increased in recent years and appears to be intensifying based on the number of large medical office building portfolio sales announced so far in 2017.
The Wall Street Journal reported yesterday that CBRE Global Investors has purchased a 95% stake in a portfolio of 25 medical office buildings in a deal estimated in the range of $510 million to $590 million. This transaction is just one of several recent high profile medical office building portfolio sales.
Just last week, Healthcare Realty Trust Incorporated announced it had executed definitive agreements to purchase fifteen medical office buildings located in Atlanta, Georgia for a purchase price of $612.5 million.
Earlier this year Healthcare Trust of America acquired all the remaining medical office building assets of Duke Realty for $2.75 billion who exited the medical office building sector in the largest medical office portfoilio transaction in history.
2016 also saw some large health system monetizations through MOB portfolio sales, including Catholic Health Initiatives sale of a $700 million, 52-building medical office portfolio to Physicians Realty Trust.
The medical office subtype delivered explosive growth in deal volume for in the second quarter of 2017, up 109% year-over-year on sales of $5.3 billion according to real estate research firm, Real Capital Analytics.
Prices of medical office buildings have been appreciating with increased interest from institutional investors. Nationally, the overall average cap rate for outpatient medical buildings has trended downward to 6.5% in the fourth quarter of 2016, after holding steady at 6.7 percent for the three previous quarters, according to the latest information from Revista.
Medical Office Buildings – Average Cap Rates
Healthcare specific REIT’s have been among the most active investors of medical office buildings in recent years who have capitalized on a number of healthcare trends.
- As health systems increasingly face financial constraints they have looked to monetize their real estate assets through sale-leaseback transactions of their medical office portfolios.
- As healthcare delivery continues to shift to an outpatient setting, the volume of new medical office development continues to expand. A total of 35.7 million square feet of medical office buildings (MOBs) and other outpatient projects were started or completed last year, according to a recent survey from Revista.
- The total number of outpatient visits has grown by 1.9 percent per year from 1994 to 2014. Over the same time period inpatient admissions declined at an annual rate of 0.64 percent.
Outpatient Care Centers are the fastest growing sector of Healthcare Employment.
- Despite the uncertainty regarding swirling around the “Affordable Care Act” strong demand for medical office buildings (MOBs) pushed the national vacancy rate to an all-time low of 7.4% at year-end 2016.
As the consensus that the commercial real market cycle is at or near peak for office, industrial, retail and multi-family property, institutional property investors including foreign investors who view medical office as more recession proof, may look to increase their capital allocations in the healthcare sector providing more competition for the Healthcare REIT’s in securing investment grade medical office. Should this trend continue we may see additional cap rate compression for medical office buildings.
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