Medical Office Building Sector Remains Stable, Attractive

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Having weathered recent headwinds, the medical office building sector is seeing a return to more stable property fundamentals, according to a new Medical Office National Report from Institutional Property Advisors.

There was a COVID-driven fall-off in medical visits in 2020, but this has “generally dissipated,” the report states, adding that “medical office vacancy has stayed between 8 and 10 percent and, in June 2023, the rate was just 50 basis points above the long-term average.”

Rising construction costs have helped to prevent overbuilding, with medical office space totaling only 10.7 percent of the overall office pipeline. IPA points to a very different factor limiting the product type: “… the sector’s main challenge is not supply, but rather a health-care labor shortage.” The pandemic has exacerbated an existing worker shortage that may hinder practices seeking to expand to meet future medical care demand.

High interest rates have affected both deal flow and pricing. Transaction velocity in the MOB sector fell by more than 30 percent over the 12 months that ended in June.

“The average sale price has begun to recalibrate accordingly,” IPA reported, “dropping 3 percent from the high reached in 2022 to $295 per square foot for the yearlong span ended in June.”

MOB regional performance

MOB regional performance. Table courtesy of IPA Research Services; Bureau of Labor Statistics; Federal Reserve; Centers for Medicare & Medicaid Services; Moody’s

On top of that, a paucity of transactions, especially those of $10 million or more, have hampered price discovery.

Geographic Diversity

A variety of regions across the country split up top marks for different performance metrics.

The Mid-Atlantic and the Southeast (driven by Florida) lead in terms of low average vacancies, and the former is tops for a falling overall vacancy, having dropped by 40 basis points year-over-year. The Mountain States too have seen a sizable fall in overall vacancy, by 30 basis points.

Asking rents are highest (at $32.74) in the Pacific region, and lowest in the Midwest ($17.50). Rental growth was far and away the highest in the Central Plains region, with 7.8 percent year-over-year. The Northeast (4.6 percent) and Southeast (4.5 percent) were essentially tied for a distant second place.

 

Source: Commercial Property Executive

Five Healthcare Merger And Acquisition Trends Ambulatory Surgery Centers Should Know

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Mergers, acquisitions and consolidation are a pivotal part of healthcare operations, particularly at Ambulatory Surgery Centers (ASCs).

It can be helpful for independent practices to be aware of trends to compete with ASCs backed by private equity firms and large health systems and to stay up to date with where investors are interested.

Here are emerging trends in healthcare merger and acquisition activity, as laid out in an article by Ankura, a global expert services and advisory firm, and published Oct. 18 in JDSupra:

1. Expanding Outpatient Networks

Reduced cost of care, patient convenience, technology advancement and the pandemic accelerated health system interest in expanding outpatient care offerings. ASCs are experiencing an increase in demand and thus are increasingly attractive to investors.

Big names such as Nashville-based HCA Healthcare and Dallas-based United Surgical Partners International have used acquisitions to expand their outpatient care networks and are producing a growing share of overall company revenue.

2. Rise In Private Equity And Investor Interest

Nontraditional investors such as retail giants, technology companies and private equity firms are expanding their investments into healthcare services. Several physician specialties, including dermatology, orthopedics, gastroenterology, dentistry and ophthalmology, are key targets for private equity.

3. Expansion Of Care Offerings

Many healthcare groups have placed an emphasis on vertical integration — or having a role in various aspects of the care continuum. By acquiring groups along the care continuum, organizations can achieve greater coordination, improved patient outcomes and cost efficiencies.

4. Increased Use Of Digital Health Technology

Healthcare companies have been acquiring digital health startups and technology companies to accelerate innovation, increase operational efficiency and expand service offerings.

5. Health System Consolidation

Healthcare company mergers continue to play a key role in the industry, such as rural hospitals partnering with larger health systems to continue operations. Despite this, healthcare remains highly fragmented and has the potential to further consolidate, according to the article.

 

Source: Becker’s ASC Review

Florida And Chicago Investors Team Up To Buy Baylor Scott & White’s Frisco Medical Campus

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Two investors have teamed up to buy a Frisco hospital complex.

Chicago-based Remedy Medical Properties and Kayne Anderson Real Estate of Florida have purchased the Baylor Scott & White Frisco Medical Center.

The 161,264-square-foot, 68-bed specialty hospital is at 5601 Warren Parkway, west of the Dallas North Tollway. The medical center is near The Star, the headquarters and training facility of the Dallas Cowboys.

The 7.4-acre campus is fully occupied by Texas Health Ventures Group, a joint venture between Baylor Scott & White and United Surgical Partners International.

Built in 2001, the medical center was previously owned by Nashville-based Healthcare Realty Trust.

“This was an attractive opportunity to secure a fully leased medical center that has a strong growth trajectory in one of the hottest markets in the country,” Joe Magliochetti, chief investment officer for Remedy Medical, said in a statement. “The BSW Frisco Medical Center is performing very well, and is benefiting from a notable increase in outpatient and ambulatory services, with orthopedic care as the primary driving force. In addition, Remedy has existing relationships with Baylor Scott & White and USPI, and we are pleased to be able to further strengthen those relationships through this acquisition.”

The Frisco medical complex includes 11 operating rooms, an emergency department, onsite pharmacy, private rooms and a two-story parking garage. Terms of the purchase were not disclosed.

“The Dallas-Fort Worth region is growing rapidly, and the Frisco market area is the epicenter of that growth,” Antonio Minchella, senior managing director with Kayne Anderson Real Estate said. “Baylor Scott & White is committed to serving the Frisco area through this location. They entered a long-term lease extension prior to the purchase, and are investing in the building to both improve the patient experience and upgrade and enhance surgical capacity.”

Remedy Medical Properties owns almost 30 million square feet of medical real estate in 43 states. The company’s holdings include the Healthcare Associates of Texas medical center in Irving.

Kayne Anderson Real Estate is based in Boca Raton and manages more than $14.5 billion in real estate assets.

 

Source: The Dallas Morning News