Health-Care Real Estate Deals Hit Record $26 Billion

/in /by

Health-care real estate continues to thrive, and investors can’t get enough of the sector, according to JLL’s Valuation Advisory Group’s inaugural Healthcare Investor Survey and Trends Outlook.

Transactions in the sector climbed to $26 billion in 2022, marking an annual record.

In the first report of its kind for JLL, the commercial real estate services firm queried approximately 130 influential leaders in the health-care industry. Participants included private capital providers, which accounted for the highest representation at 33 percent, followed by developers and institutional investment managers, which comprised a respective 23 percent and 19 percent of respondents. The group helped provide a crystal-clear picture of health-care real estate’s success in 2022 and its prospects in 2023.

According to the JLL report, medical office buildings proved a powerful magnet for investors in 2022, with the property type accounting for 58 percent of overall health-care investment activity. Part of the high volume of trading in the sub-sector can be attributed to the $9.4 billion merger between Healthcare Realty Trust and Healthcare Trust of America, which involved a portfolio of approximately 400 MOBs. Had the joining of the two companies not occurred, the numbers would likely look a bit different, as transaction activity declined significantly in the fourth quarter of 2022 due to pricing uncertainty amid rising interest rates and recession fears.

Ambulatory surgical centers followed MOBs in popularity among investors in 2022. Trades involving the property type went on the upswing, jumping 7 percent year-over-year to 27 percent of the total health-care transactions. The investment community’s keen interest in MOBs and ASCs can be linked to an ongoing transformation that has buoyed demand in the outpatient care arena.

“Advances in technology, changes in reimbursement and consumer preference and convenience have shifted sites of care from inpatient to outpatient,” according to the JLL report.

Fundamentally Sound

The rising demand for MOBs along with a low level of new deliveries are serving as a foundation for strong fundamentals in the sector. At the close of 2022, MOBs recorded an occupancy level of 92.3 percent and continued to experience consistent rent growth. MOBs are outperforming the traditional office sector, where the average occupancy level is a notable 11.4 percent lower.

Unlike traditional office buildings, MOBs are not contending with the leasing challenges that accompany the spread of the remote-work trend. And the very nature of MOB space lends itself to longer tenant commitments.

“Because of the high cost to build out a medical office space and proximity to patients, medical office tenants tend to remain in the same space for longer, providing stable occupancy,” as noted in the JLL report.

No Hindrance To Sunny Forecast

Although MOBs are the star of health-care real estate in investors’ eyes, the sector is not impervious to challenges. JLL queried survey respondents regarding their apprehensions about potential obstacles in the health-care investment sector over the next 12 months, and 66 percent pointed to rising interest rates and capital markets as the leading concern. Development costs, garnering the concern of 13 percent of respondents, ranked as the second-most worrisome issue.

Although the investment community is operating with the knowledge that looming obstacles could impact their activity, 66 percent of survey respondents reported that MOBs will remain the most desirable opportunity in health-care real estate in 2023. The immense appeal of MOBs among investors is here to stay for the long term, even amid economic uncertainties.

As noted in the JLL report, “Strong net operating income growth at 2.7 percent in the fourth quarter of 2022, despite high expenses and acceptance of 3 percent escalations, make MOBs a resilient asset class in a cloudy economic climate.”

The future looks bright for health-care real estate investment overall. Thirty percent of survey participants indicated that they anticipate an increase in transaction activity and market valuations over the next 12 months.

 

Source: CPE

$50.3 Million Financing Provided To Montecito To Recapitalize Medical Office Building Portfolio

/in /by

First Citizens Bank just announced that its Healthcare Finance group, part of the CIT division, provided $50.3 million in financing to Montecito Medical Real Estate to recapitalize a portfolio of medical office buildings.

The portfolio consists of an aggregate of 200,000 rentable square feet across seven off-campus medical office buildings located in Florida, Illinois and Pennsylvania. The properties serve a wide range of medical practices including gastroenterology, ophthalmology, obstetrics and gynecology, orthopedic, oncology, laboratory work and more.

“We appreciated the opportunity to again work with the knowledgeable and efficient Healthcare Finance team at First Citizens Bank,” said Chip Conk, CEO of Montecito Medical Real Estate. “We’re pleased to add these seven properties, which are spread across a number of growing locations, to our overall portfolio.”

“Montecito Medical Real Estate is a valued client and we’re pleased to partner with them to provide financing for this unique portfolio of medical office buildings,” said William Douglass, managing director and group head for Healthcare Finance.

“This transaction exemplifies our focus on building strong relationships with our clients to support them through their various business endeavors,” said Steve Reedy, a managing director in Healthcare Finance.

Healthcare Finance, part of First Citizens’ CIT division, provides comprehensive financing and banking solutions to middle market healthcare companies across the U.S. By using a client-focused and industry-centric model, Healthcare Finance can tailor its products and services to help clients meet their needs for capital.

 

Source: PR Newswire

Children’s Health Acquires Nearly 20-Acre Property In Plano, Teases Further Expansion

/in , /by

Dallas-based Children’s Health has acquired a prime piece of property on Legacy Drive in Plano, according to a filing with the Collin Central Appraisal District.

Children’s Health has acquired the property at 5301 Legacy Drive in Plano, adjacent to its existing Children’s Medical Center Plano,. (PHOTO CREDIT:: JAKE DEAN)

Located at 5301 Legacy Drive, the property was built in 1997 and consists of a 296,434-square-foot, three-story campus and 270,414-square-foot parking garage. The property’s total land area is 19.66 acres.

According to the filing, Children’s Health acquired the land in December 2022. The property value was most recently assessed at $49 million, and is adjacent to the health system’s existing Children’s Medical Center Plano.

“As we expand our system to meet the needs of a rapidly growing pediatric population, we are investing in space to help us prepare for this growth,” Children’s Health told the Dallas Business Journal in a statement. “We purchased this property near our Plano campus, at Legacy and Hedgcoxe Road, and are currently evaluating the best use of this property to serve our mission to make life better for children.”

The Legacy Drive property was previously owned by Dallas’ Champion Partners, which purchased it from Keurig Dr Pepper Inc. in December 2019. Champion Partners purchased the campus with a $52.4 million loan from New York-based Square Mile Capital Management. The property served as the headquarters for Keurig Dr Pepper, which moved into the office space in 1998. In February 2019, Keurig Dr Pepper announced it would move its headquarters to a 350,000 square foot building at The Star in Frisco. The company moved in 2021.

In March 2022, Dallas’ Champion Partners and New York-based Taconic Capital Advisors received a $73 million loan from California-based CIM Group to renovate the property, according to a report from the Dallas Morning News.  Renovations were expected to include a new outdoor amphitheater, fitness center, outdoor courtyard, lounge and meeting area. The developers were also set to remodel the two-story lobby entrance to the main campus, the Morning News reported.

Earlier this month, Children’s Health opened the doors of its new specialty center in Prosper. The three-story, 30,000-square-foot center will expand access to care for children and families in Collin and Denton Counties. In Dallas, Children’s Health and the University of Texas Southwestern Medical Center are in the midst of planning a new pediatric medical campus.

Children’s Health and UT Southwestern are considering a site on the southeast corner of Harry Hines Boulevard and Mockingbird Lane, according to a report by D CEO. The site is on the north side of the UTSW campus, directly across Harry Hines from UTSW’s Clements University Hospital.

Documents sent to potential contractors last year describe the proposed project as a $2.5 billion pediatric hospital to replace the existing Dallas campus of Children’s Health with 532 beds, a medical office building, and at least one parking garage. An emergency department with 90 bays and more than 90 newborn intensive care unit beds is also planned. The RFQ said construction was expected to begin in 2024 for a 2028 delivery.

 

Source: Dallas Business Journal