Life Sciences Real Estate Sector Poised To Shatter Records Again In 2021

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Unprecedented demand for life sciences real estate has prices soaring in markets across the country.

Pricing for life science and R&D properties averaged $585 per square foot in the first half of this year, up 50 percent over last year’s average, according to a new report from Newmark.

That increase was partially driven by a handful of major deals. In March, prices peaked at $750 per square foot after Blackstone paid $3.45 billion, or more than $1,800 per square foot, for a lab portfolio located in and around Cambridge, Massachusetts.

Unlike other sectors, life sciences generally did not cater to remote work during the pandemic, strengthening demand for lab space. Additionally, increased research efforts, pandemic-related or otherwise, caused companies to expand at a time when many office tenants were consolidating.

There’s additional interest in life sciences moving forward. After a record $33.1 billion of venture capital funding was invested in the sector last year, funding is poised to blow past that figure this year, having already reached $26.7 billion in the first six months of 2021 alone.

In New York City, which already has more than 2 million square feet of life science space, another 3 million square feet has been proposed. In the San Francisco Bay Area, where there is 31 million square feet, another nearly 18 million square feet has been proposed. And in Los Angeles, where there is 11 million square feet, an additional 453,000 has been proposed.

Still, renovations can be difficult given zoning prerequisites and other fitting issues.

 

Source: The Real Deal

Report: Denver’s Medical Office Building Market Picks Up Momentum

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Metro Denver’s medical office building (MOB) market recorded strong fundamentals in the first half of 2021, according to CBRE’s Denver Medical Office MarketView H1 2021 report.

Saint Joseph Medical Office Pavilion, a 99,000-square-foot medical facility completed by Dallas-based Fidelis Healthcare Partners at 1818 Ogden Street in Denver. (PHOTO CREDIT: CBRE)

Positive new absorption of 150,318 square feet was recorded in H1 2021 with On-Campus space contributing to most of the absorption activity. Direct vacancy sat at 10.7% in H1 2021, a modest 28 basis points (bps) increase year-over-year, while overall availability was unchanged at 12.3%.

The average direct asking rate rose to $30.68 per square foot full-service gross (FSG), a 5.4% increase since H1 2020. A total of 174,000 square feet of newly constructed MOB space was delivered to the market in H1 2021 with 70.1% of the space already leased. The Denver MOB investment activity picked up momentum this year totaling $104.9 million in H1 2021, up 101.8% year-over-year.

Outlook

With absorptions rebounding sharply to pre-pandemic levels in the first half of 2021, the Denver medical office market will continue to flourish as owners realign their space needs and discuss future projects.

Though economics is still driving transactions, there has been a flight to quality among tenants that is expected to continue over the next several quarters. The increased demand for healthcare properties is driving strong investor interest as seen by the increased sales activity in H1 2021 which is forecast to be even stronger throughout the balance of 2021 and beyond.

While there has been some impact to the medical office market from the COVID-19 pandemic, the activity during the first half of 2021 showed resiliency and a necessity for healthcare space.

 

Source: Mile High CRE

Allianz Lends $234M For MOB Portfolio Acquisition

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In a $620.4 million deal, Nuveen Real Estate and NexCore have acquired a coast-to-coast portfolio of health-care and life science properties encompassing nearly 1.2 million square feet. The seller was IRA Capital.

The majority of the portfolio is a diversified group of 27 health-care assets that traded for $463 million. The portfolio encompasses properties in multiple states: Arizona, California, Florida, Illinois, Michigan, North Carolina, New Jersey, New York, Pennsylvania, Texas and Wisconsin.

Totaling nearly 750,000 square feet, the properties range from medical office buildings, micro-hospitals and ambulatory surgery facilities to cancer treatment centers. NexCore Group joined Nuveen Real Estate in underwriting the deal and will manage the assets.

The health-care portion of the transaction was led by Nuveen Real Estate’s new U.S. Cities Office Fund and brings the value of the firm’s holdings in the sector to more than $1 billion. Andrew Pike, head of health-care, cited the firm’s plans for aggressive growth in the sector.

Allianz Real Estate provided a $234 million loan toward the medical office acquisition. The loan will provide 51 percent of the total acquisition price, and the sponsors will have $228.9 million of equity in the transaction. The deal is structured on a seven-year term with a fixed-rate tranche of $163.8 million (70 percent) and a floating-rate tranche of $70.2 million (30 percent).

The portfolio is 99 percent occupied by 38 tenants, of which 92 percent are investment-grade credit healthcare systems. The portfolio rent roll has a weighted average unexpired lease term of 12 years, providing for a reasonable lease rollover profile during the loan term, according to Allianz.

Twenty of the 27 properties are in Certificate of Need (CON) states, where local governments require an extensive approval process to demonstrate a need for new healthcare facilities, providing high barriers to entry and regulatory restrictions around new supply.

Medical Sector Recovers

In a prepared statement, Mike Cale, co-head of U.S. Debt, Allianz Real Estate, U.S., said:  “The pandemic has emphasized the need for improved access to health-care. That trend has been illustrated by the demand for both outpatient facilities and hospital space for acute care. The medical office sector represents a unique, resilient asset class.”

This transaction marks Allianz’s second U.S. debt deal with Nuveen Real Estate, following Allianz’s $94 million financing of a six-property industrial portfolio for Nuveen’s U.S. Cities Industrial Fund in 2020.

The lack of demand for routine care and limitations on elective procedures, both in response to the COVID-19 pandemic, contributed to a 6.4 percent loss in health care employment in 2020, according to an April report from CBRE. That loss, however, was much less than in the overall economy, and health care jobs are rebounding rapidly.

Medical office buildings showed similar resilience, with annual investment volume falling by just 12.7 percent, the smallest decline for any major product category. Meanwhile, medical office property sales volume jumped in the fourth quarter of 2020, as cap rates continued a decade-long decrease.

Also part of the deal is the $157 million acquisition of two life science properties in Madison, Wis., and Orange County, Calif. Fully leased to three tenants, the assets comprise 420,000 square feet and will add to Nuveen’s 4 million-square-foot life science portfolio. The properties were acquired via TIAA’s balance sheet, according to Nuveen Real Estate.

Since November 2020, Nuveen and NexCore have teamed up on transactions valued at $687 million, noted Todd Varney, NexCore’s chief development officer & managing partner. The assets include 34 buildings totaling 1.4 million square feet, along with 200,000 square feet in development.

 

Source: Commercial Property Executive