Investors Are Flocking To MOB And HRE Space

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Currently in the growing and highly visible medical office building (MOB) space, a couple of questions seem to be garnering most of the attention.

One of those is: Will the influx of new capital, including large amounts from deep-pocketed institutional investors and investment managers, slow down in the near future?

The other is: Will capitalization (cap) rates, or first-year expected returns, stop their unprecedented compression to historic lows, even amid rising inflation and potentially higher interest rates, anytime soon?

The answers seem to be “no” and “no,” according to a panel discussion that took place at BOMA International’s 2021 Medical Office Building + Healthcare Real Estate Conference held Nov. 1-3 at the Omni Dallas Hotel.

The session was titled “The Investor Flight Toward Healthcare Real Estate” and the discussion heavily focused on growing institutional investment in the MOB and HRE space, as well as soaring pricing and falling yields for the product type.

The panelists taking part in the session included two MOB sales brokers, two healthcare real estate (HRE) specialists with institutional investment firms that are somewhat new to the space, and a Wall Street research analyst who covers public companies. They were:

■ Moderator Ben Appel, executive managing director with the Healthcare Capital Markets group of Newmark Group Inc. (Nasdaq: NMRK);
■ Mindy Berman, senior managing director and head of the healthcare capital markets platform with Jones Lang LaSalle Inc. (NYSE: JLL);
■ Vikram Malhotra, managing director and research leader for Mizuho Americas;
■ Pratik Patel, director with New York-based Wafra Inc., which in late 2020 formed a $550 million joint venture (JV) partnership with Welltower Inc. (NYSE: WELL) that entailed Wafra acquiring an 80 percent ownership in 24 MOBs; and
■ Jennifer Wong, VP of acquisitions with Boston-based AEW, which has formed partnerships with firms in the sector, including a recently formed JV with Nashville, Tenn.-based Montecito Medical Real Estate that plans to spend up to $1 billion in coming years on acquiring MOBs.

 

Source: HREI

The Pandemic Has Made Healthcare More Desirable

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“The pandemic increased demand and made healthcare a more desirable asset class,” Rahul Chhajed, VP and senior director of healthcare at Matthews Real Estate Investment Services, tells GlobeSt.com about how the asset class fared during the pandemic.

For one, medical properties moved onto the list of darling asset classes, and it isn’t hard to understand why.

“It is no longer just a recession that investors are worried about. If there is another pandemic, healthcare services are something that people are always going to need. At the end of the day, everyone needs medical care,” says Chhajed.

With the exception of a temporary pause in the market at the beginning of the pandemic, when elective surgeries and other healthcare services were paused to allow healthcare providers to focus on COVID-19, healthcare properties outperformed other asset classes. Chhajed notes that many tenants didn’t need rent relief and continued to pay rent.

This year, investors have been trading out of more challenged asset classes, like retail and office, in favor of medial facilities.

“COVID really provided a proof of concept for the industry to show that this product type is here to stay. It is not only institutional, but it is an asset class that private capital should look at as well,” says Michael Moreno, VP and senior director of healthcare at Matthews Real Estate Investment Services.

Institutional capital has been the dominant player in the healthcare sector, and that is because it can be a more complicated asset class. Now, both institutional capital and private investors are competing for deals.

“More institutions have definitely entered the ring, but we are also seeing the private markets have started to buy these deals,” says Moreno.

And, there is a third player: owner-occupiers. Existing owners are looking at the demand—which has driven cap rates down significantly—and deciding to sell.

“The sale-leaseback market is really picking up, and a lot of that has to do with pricing,” says Moreno.

Over the last few years there has been significant cap rate compression, and owners would rather take the proceeds and put it back into the business and grow.

“Private buyers love those deals because they typically contain long-term leases and they are triple net,”  Moreno says.

On the lease side, retail owners are finding new users in healthcare. Many clinics and ambulatory centers are signing leases in retail facilities as part of the trend from in-patient care to out-patient care.

“Retail-centric healthcare is great for providers because the care is coming to the consumer,” says Chhajed. “A lot of these healthcare systems are looking for ways to provide ease of access, and retail centers meet those needs to make healthcare more accessible. The confluence of these trends is creating a heyday for medical assets after the pandemic. Now healthcare is looking stronger than ever.”

 

Source: GlobeSt.

Tenet Healthcare To Acquire 92 Ambulatory Surgery Centers For $1.2 Billion

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Tenet Healthcare and subsidiary United Surgical Partners International are expanding their ownership of ambulatory surgery centers, buying 92 from SurgCenter Development.

The $1.2 billion deal expands USPI’s reach into high-growth regions in Arizona, Florida and Texas and includes an attractive case mix of service lines, including musculoskeletal care for total joint and spine procedures, Tenet said in a statement. The transaction will further diversify Tenet’s mix with a larger portion being produced by its higher-margin ambulatory portfolio.

SurgCenter Development owns a minority interest of approximately 39% on average in 86 of the ambulatory surgery centers and a majority interest of approximately 55% on average in six of the ASCs, Tenet said in a released statement.

Tenet plans to finance the transaction through the issuance of first-lien secured notes. The transaction is expected to close in the fourth quarter.

United Surgical Partners International and SurgCenter Development will enter into a five-year partnership and development agreement to provide continuity and support for SCD’s facilities and physician partners, Tenet said. Going forward, USPI also has the exclusive option to partner with SCD on new development projects over the life of the agreement.

The centers to be acquired are located in 21 states. They include 65 mature centers, as well as 27 that have either opened within the last year or will start to perform their first cases in 2022.

Why This Matters

Since 2009, USPI has acquired 67 SurgCenter Development centers. Additionally, in the coming months, USPI plans to acquire a portion of equity interests in the ASCs from physician owners for up to $250 million. Following the addition, USPI will have more than 440 facilities in 35 states.

The terms of the transaction include entry into a new development agreement under which USPI will partner with SCD on the future development of a minimum target of at least 50 centers over a period of five years.

With each center, USPI will have the exclusive option to obtain an immediate ownership position at the time of development with an additional option to purchase SCD’s ownership stake 18 months after the opening of such facilities.

Tenet said it expects the transaction to generate strong financial returns and to realize at least $45 million of annual run-rate synergies over the next three to four years.

The Larger Trend

Tenet Healthcare Corporation, headquartered in Dallas, includes United Surgical Partners International. It operates 60 hospitals, more than 460 other healthcare facilities and Conifer Health Solutions, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.

On Aug. 2, Tenet announced it had completed the sale of its five hospitals and related operations in Florida’s Miami-Dade and Southern Broward counties to Steward Health Care for a reported $1.1 billion. But Tenet’s ambulatory facilities operated by United Surgical Partners International in these markets remained with Tenet and were not included in the transaction.

On The Record

“We are extremely pleased to announce this transformative transaction and partnership, which builds upon USPI’s position as a premier growth partner and SCD’s track record of developing high-quality centers with leading physicians,” said Dr. Saum Sutaria, who took over leadership of Tenet as  CEO this September. “By welcoming these centers into our company, USPI will maintain its reach as the largest ambulatory platform for musculoskeletal services, a high-growth service line. We are also creating a pathway for further expansion through a partnership that pairs the expert development and operational capabilities of our two organizations.”

 

Source: Healthcare Finance