Five Reasons For Physicians To Invest In Medical Office Buildings

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Medical office buildings are becoming increasingly attractive to investors and real estate managers due to their stability and upside potential.

Here are five reasons why medical office buildings could be a good investment for physicians, according to a June 5 report from Benzinga and CityVest, a real estate investment platform.

  1. The healthcare industry is resilient through changing economic cycles. The need for healthcare and treatment of patients will always exist and is not subject to market downturns.
  2. There is a trend toward treating patients in medical office buildings and outpatient settings over hospital settings. Medical office buildings often have high occupancy rates and long-term leases.
  3. Medical office building tenants typically stay in one place for a long period of time, so they are willing to accept leases with renewal clauses and steady rent increases. Medical office building tenants have high expenses associated with moving, so retention rates are good.
  4. Medical office buildings draw in a diverse tenant base, with many different specialists that maintain a steady income.
  5. Over 4 million Americans will turn 65 this year, and baby boomers will start needing more medical care. Demand for medical offices will continue as people need more medical care.

 

Source: Becker’s ASC Review

On-Campus Medical Office Pricing Now Exceeds Off-Campus Assets

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Limited availability of on-campus medical office assets has led to its pricing to uncustomarily exceed that of off-campus assets in Q1 2023 for the first time since Q1 2020, according to a report from Cushman & Wakefield.

Some are seeing the sector as a safe harbor during these challenging economic times.

Jason Anzalone, managing director of development, Cypress West Partners, tells GlobeSt.com that macroeconomic volatility has led investors to pursue safe harbor investment options.

“They have found them in on-campus medical office assets that provide immediate adjacency to acute care facilities, often have health system occupancy, and credit quality and assurances of long-tenured occupancy,” says Anzalone.

C&W’s report said that off-campus transactions have historically made up a good majority of transactions over on-campus facilities.

“With often limited land and many healthcare systems holding ownership of on-campus assets,” Cushman wrote.

Since 2020, off-campus transactions have held an average 5% premium over on-campus in terms of pricing. Occasionally, off-campus averages have fallen below that of on-campus – notably during Q1 2020 at the start of COVID-19 and now, in the preliminary values for Q1 2023, according to the report.

Average cap rates for on-campus assets have grown by 50 bps to an average of 5.5%, while off-campus has risen by 45 bps to an average of 6.5%.

“As with overall transaction volume, both on-campus and off-campus assets have dropped during the second half of 2022,” according to the report.

Volumes for both categories remained relatively strong compared to pre-pandemic historical levels during the middle two quarters last year.

On-campus transactions exceeded $800 million, while off-campus transactions were above $2.5 billion. In Q4, transactions in both categories were much more limited, with off-campus transactions falling by 50% while on-campus receded to only $696 million.

 

Source: GlobeSt.

Bon Secours Mercy Health To Develop 30+ Ambulatory Surgery Centers Across Multiple States

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Cincinnati-based Bon Secours Mercy Health System, a 48-hospital Catholic system, has teamed with Compass Surgical Partners to develop more than 30 ambulatory surgery centers across multiple states, the Triangle Business Journal reported on May 29.

Bon Secours Mercy Health is the latest system to form a strategic partnership to expand their outpatient presence and develop ASCs. Salt Lake City-based Intermountain Health and Columbus-based OhioHealth recently inked similar deals with Nashville, Tenn.-based Surgery Partners — one of the largest ASC chains in the U.S.

“Our view, over time, is that more complex procedures will come out of the hospitals,” Sean Rambo, president of Compass, told the publication. “Health systems are wanting to catch up and use this strategy to expand outside of hospital walls.”

Compass will work with Bon Secours Mercy Health of Ohio to develop the ASCs over the next few years throughout the system’s footprint, which includes Kentucky, Ohio, South Carolina, Virginia, Maryland, New York and Florida, according to the report. The network could expand into other states, such as North Carolina.

“Providing quality outpatient surgical care is an important investment for the communities we serve, enabling us to expand access to care for patients in a way that is accessible and appropriate for their individual care needs,” Bon Secours Mercy Health COO Don Kline said in a news release. “Compass Surgical Partners’ expertise in creating patient-centered ambulatory surgical centers, coupled with their successful track record of leadership in this important space, makes them an ideal partner for this long-term initiative.”

Financial terms of the deal were not disclosed.

 

Source: Becker’s Hospital Review