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MOB Sales Come On Strong In Third Quarter 2021 With $4.6 Billion In Trading

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As Revista’s third quarter webcast came to a close on Oct. 21, Mike Hargrave, one of the firm’s principals, summed up the information the healthcare real estate data firm had presented that day.

“The overall theme of this webcast is that medical office buildings and healthcare real estate had a very strong quarter,” Hargrave said, adding that the strong quarter was “representative of the current overall state of the sector.”

Indeed, Q3 was a strong quarter for MOBs, highlighted by the fact that sales came in at $4.6 billion, the second highest quarterly total – behind the $4.9 billion of sales in Q2 2017 — since Revista began tracking such data in 2015.

That strong Q3 puts year-to-date MOB sales for 2021 at $9.6 billion, all but assuring that the sector will reach seven straight years of topping $10 billion in sales — a benchmark indicating that the sector is one of the most desirable asset classes among investors of all types.

“In addition to strong sales during the third quarter, MOB sales on a trailing 12-month (TTM) basis, at $13.7 billion, was the highest we’ve seen in several years,” Hargrave added.

 

Source: HREI

Investors Sizing Up Seniors Housing’s Impending ‘Bull Run’

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Large investors are making a macro call that time is right to enter the seniors market after being on the sidelines even before the pandemic, according to Ted Flagg, Senior Managing Director for JLL Capital Markets, speaking to GlobeSt.

“Finite life investment vehicles that put planned sales on hold with the pandemic are now testing the market with marketing processes,” Flagg said. “There is a widely held view that we are in early days of a bull run in seniors housing (e.g., double-digit annual NOI growth over the medium term) – the question is not ‘if’ there will be outsized growth but rather debate around the timing of that recovery.”

A New Initiative

One sign this timing is getting closer comes from an announcement last week from Monarch Alternative Capital, an investment firm with approximately $9 billion of assets under management, and American House Senior Living Communities, a national leader in the senior housing industry, that they were forming a joint venture to acquire, develop, and manage senior housing properties across the US.

Monarch and American House launched the partnership through the recapitalization of six properties partially owned by American House and one property acquisition from a third party. The newly formed joint venture has the capital, sourcing capabilities, and operating expertise to capitalize on the severe disruption in the senior housing industry caused by COVID-19 and the anticipated supply-demand imbalance resulting from construction and demographic trends.

The seven-property portfolio totals 1,047 units, comprising 525 independent living units, 356 assisted living units, and 166 memory care units concentrated within Florida, Michigan, and Ohio, with an average age of approximately five years.

Monarch believes that the senior housing industry is at an inflection point given the trends of a growing elderly population against the backdrop of a significant slowdown in construction activity of new properties. The joint venture expects to opportunistically invest in additional properties in the near-term.

Distressed Buyers Not Seeing Distressed Prices

Some are seeking distressed assets and looking to strike a bargain on those communities that are available.

“Distressed buyers have been mostly disappointed with the lack of truly distressed pricing,” Flagg said. “Buyers believe pricing was irrationally high in 2018-2019, leading up to the pandemic; now there are more opportunities for reasonable risk-adjusted returns even if not deeply opportunistic. Active-adult (age-restricted housing) is showing the most liquidity today as it catches the tailwind of white-hot traditional multifamily cap rate compression.”

This ‘Arrow is Pointing Up’

Kevin Kinigstein, lead partner of Cox Castle & Nicholson’s senior housing practice group, tells GlobeSt that he thinks seniors housing is a great asset class to invest in.

“The pandemic was particularly difficult on the seniors housing industry, but I believe the arrow is pointing up,” Kinigstein said. “The impact on the seniors housing industry lasted well into 2021 (and is still being felt in many ways). However, while the short term has been challenged, the medium- and long-term outlook remains strong.”

Waiting Out A ‘Challenging’ Period

“This is a sector that has strong medium- and long-term fundamentals, and there’s a recognition that many of those fundamentals remain constant,” Kinigstein said. “While there is no doubt that the industry has taken a hit and there are some improved buying opportunities as a result, a majority of the most active investors in the sector are experienced seniors housing investors who have waited out a very challenged period (as distinguished from inexperienced but opportunistic investors who think the industry has bottomed out). I believe the majority of transactions that will be completed over the next six to 12 months will be by investors who were already invested in (or interested in investing in) the sector pre-pandemic.”

 

Source: GlobeSt.

How Big Will The Health Care In Malls Concept Get?

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The way America shops has changed, but some experiences are still better in person. The same can be said of health care.

Not long ago, outpatient health care and megamalls would have seemed like an odd marriage. But today’s consumers understand this is a marriage of convenience — one that can offer great benefits.

“The demand for health services detached from a large hospital is growing rapidly,” said Patrick Christensen, president of Sturtevant-based Horizon Retail Construction. “People are seeking out more options and want health care that is closest to them.”

Why Malls?

As much of retail has moved online, malls have one key commodity: space. And that space is getting more plentiful. According to Moody’s Analytics’ commercial real estate division, the mall vacancy rate in the first quarter of this year was a record high 11.4%.

Outpatient health care organizations can fill those spaces. The footprint of health care facilities can vary greatly. An urgent care clinic might fit well in a former bookstore. Other health care providers might require more square footage.

One Hundred Oaks mall in Nashville offers a case study for the ways outpatient health care facilities can revive a struggling retail space. Before 2009, stores were leaving and the mall was emptying out fast. Then Vanderbilt University Medical Center’s Vanderbilt Health facility moved in, taking up nearly half of the mall’s space. The new health care facility brought in foot traffic, which in turn attracted traditional retailers and breathed new life into the once-troubled shopping mall.

More Medical Malls?

The number of Americans 65 and older is projected to nearly double from 52 million in 2018 to 95 million by 2060, according to data from the U.S. Census Bureau. Demand for health care services should grow as the population ages.

Considering the benefits that malls offer patients — accessibility, physical space and proximity to other retailers and activities — the potential for continued growth of outpatient health care facilities in malls is immense.

“We are seeing a demand for more outpatient facilities off the campuses of large hospitals,” Christensen said.

Expertise in building care facilities

Sturtevant-based Horizon Retail Construction is uniquely positioned to help shape the way vendors and buyers experience malls. The company has extensive experience transforming retail spaces to make them more conducive to the needs of both retailers and consumers. Horizon’s clients in the health care space include VillageMD and Walgreens, Oak Street Health, Benchmark Physical Therapy and Humana.

The project with Oak Street was particularly ambitious: Horizon was responsible for opening the Chicago-based outfit’s first two clinics in Memphis.

“We are proud to be involved in the Oak Street Health program,” Christensen said. “They provide a great service to the community.”

For a health care industry that is ever changing, Horizon’s ability to “mobilize rapidly,” as Christensen says, could be an asset. Horizon employs more than 150 superintendents — none of whom are subcontractors. That workforce creates a speedy response time to client needs.

“We have shown the ability to quickly adapt to tenant needs,” Christensen said. “Because of that we are valuable working for both small and large businesses.”

 

Source: Waco Tribune-Herald