Medical Office Building Sales Fell Nearly 50 Percent In Q2, But The Sector’s Outlook Is Strong

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The volume of MOB investment sales transactions in the second quarter of 2020 totaled around $2.2 billion, a 43 percent decrease compared to a year ago. In the first quarter of 2020, MOB investment sales volume reached $3.7 billion, according to data firm Real Capital Analytics (RCA).

The CoStar Group, another provider of commercial real estate data, pegs MOB investment sales volume at around $2.1 billion in the second quarter, a drop of 54 percent from $4.7 billion from a year ago.

“The volume of sales has absolutely hit pause, it hit the brakes really hard in the second quarter. You saw a significant drop in sales volume,” says Keith Pierce, research manager for Southeastern region with real estate services firm Transwestern. “The price per square foot did not really shift that much for those sales that did close. But by and large, just everybody froze in late March and largely stayed frozen until sometime in June.”

Average cap rates on transactions involving MOB assets remained at 6.6 percent at the end of the second quarter, flat with the figure from a year ago and the first quarter of 2020, according to RCA. CoStar pegs average MOB cap rates at 6.7 percent, also registering no change from the previous quarter.

“I anticipate seeing somewhat of a flattening,” says Russell Brenner, president of the medical office and life sciences division with real estate investment firm CA. “Once the market truly opens up again and lenders, which have been very selective in where they lend, come back into the market in droves and in a more significant way, I think you may well see cap rates continue to fall. But for probably the next two three quarters, I think it will be a largely flattening of cap rates.”

Earlier during the pandemic, many Americans largely postponed elective procedures, which put a dent on revenues for medical office tenants. But in states where those facilities are reopening, industry sources are reporting pent-up demand.

“We saw very few delinquencies, perhaps a handful of rent deferral requests, but by and large, the healthcare medical office tenancy as a whole stood up very well,” says Brenner. “Certainly now that elective procedures are back on in most parts of the country, MOBs are poised to bounce back and will continue to be a stable and reliable asset class.”

“Medical practices are running at 90 to 95 percent of pre-pandemic levels,” says Steve Hall, senior managing director for healthcare advisory services at Transwestern, who expects this level of demand to continue through the end of the year.

“Many of the company’s tenants are back to 80 percent of pre-pandemic levels of procedures and services,” says Jon Boley, senior vice president of acquisitions and development for HSA PrimeCare, a firm that develops, leases and manages medical facilities.

“The reason these businesses are not back to 100 percent is because they are having to do above-standard cleaning in order to disinfect surgery centers throughout the day,” Hall notes. “A factor that will shore up MOB assets in the future is the dearth of new construction happening right now. During a pandemic, a lot of people aren’t pulling the trigger on a brand new construction. The lack of construction going on right now I think is really going to keep the market strong since there is not going to be oversupply.”

 

Source: HREI

Amazon’s First Neighborhood Health Center Will Be In Dallas-Fort Worth

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Amazon is launching a healthcare pilot with Crossover Health in Irving, offering a clinic designed to serve Amazon employees at nearby fulfillment centers and their families. 

California-based Crossover Health opened its first clinic in the area earlier this year, looking to directly contract with employers in the area and offer direct primary care services that include integrated primary care, musculoskeletal services, and behavioral health and health coaching. The direct primary care practice can be difficult to scale when it asks residents to purchase a membership on top of existing health insurance, but partnering with employers is a win for employers who want value and for the growing clinic. 

“Across the U.S., an increasing number of patients do not have easy access to a primary care physician and instead utilize emergency or urgent care options, which is not only more expensive for patients, but also overlooks important preventative care opportunities,” said Darcie Henry, Amazon’s Vice President of Human Resources via release. “We want to solve that for our employees, and the launch of these new Neighborhood Health Centers will provide a range of quality primary care services for employees across the country – further strengthening Amazon’s industry-leading benefits program, which provides comprehensive healthcare for employees starting on day one of employment.” 

According to Derek Rubino, Senior Program Manager of Workplace Health & Safety at Amazon, Amazon chose DFW because it has one of the largest populations of Amazon employees in the country.

“With large fulfillment centers in Coppell and Haslet and other sites near Dallas, Garland, and Fort Worth, it is a perfect place to try out this model,” Rubino says. “Amazon also looked at primary care usage, health of its employees, and emergency room overuse to make its decision.”

 The pilot program is launching five markets across the country, and by the end of the year, there will be six nearsite clinics to serve Amazon employees in DFW alone. Current and future Crossover locations have been chosen to serve areas where a high concentration of employees live and work. The first clinic is open to all Crossover members, but future Crossover clinics will only be for Amazon employees.

Crossover also acquired a digital health company Sherpaa, allowing it to continue to serve patients during the pandemic. The clinic even has a virtual care studio specifically designed for physicians to do virtual visits so that they don’t use an exam room. 

Rubino says Amazon chose Crossover health because of its virtual health platform, convenient access, and holistic care all under one health. Current Amazon employees can keep their primary care physicians if they want, but Crossover offers another option. Eventually, hours at Crossover will go from 7 a.m. to 11 p.m. six days a week to allow Amazon’s shift workers to access the facility,  

“The landscape is changing drastically,” says Nate Murray, Co-founder and chief revenue officer of Crossover. “I think, through the pandemic, we fell upon something that is more convenient, and even though some people are a little apprehensive [about trying virtual care], they find out that it actually was a great visit and super convenient.”

“We are proud to collaborate with Amazon to support the health and wellness of Amazon’s employees. Crossover Health believes that exceptional primary care is central to continued health and well-being,” said Dr. Scott Shreeve, CEO and co-founder of Crossover Health via release. “Now it’s more important than ever to make care available through multiple channels and across the full continuum. Our advanced primary care model will serve as vital infrastructure to deliver expanded access to care in-person and online to meet the needs of Amazon’s employees and their families.” 

 

Source: D CEO Healthcare Magazine

Pro Tips From Medical Office Buildings To Avoid COVID-19

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Do you own or operate commercial real estate? Do you worry how to keep your properties safe during the crisis caused by the novel coronavirus? You can learn a lot from medical office buildings.

Long before doctors diagnosed the first COVID-19 infection, the owners of medical office buildings were thinking about how to stop the spread of disease. They have even identified a few key renovations that make a difference.

“They exercised a high standard for sanitizing their space, even pre-COVID-19, and are acutely aware of the transmission of infection,” says Joseph Fetterman, executive vice president of Colliers’ Healthcare and Life Science brokerage practice in the Philadelphia region.

Medical office owners and investors have a huge motive to prove that their buildings can operate safely, without spreading the novel coronavirus. As the crisis caused by COVID-19 drags on, businesses that can operate safely are more likely stay open—and keep paying rent.

“We have not seen closures of medical office buildings… We are operating fully in the facilities we manage,” says Kimberly Lamb, executive director of healthcare corporate solutions for JLL. “When most other buildings were shut down, our medical office buildings operated throughout, keeping open to serve the physicians and their patients, albeit with a trimmed back staff for the clinics but they operated the whole time.”

Fresh Air Matters

Because COVID-19 is a respiratory disease, owners of medical office buildings focus on how to keep viral particles out of the air in their buildings. Improving the heating ventilation and air conditioning systems can make a big difference, as can bringing more outside air into structures.

“It is common for the property manager to upgrade filters to MERV-13 and increase fresh air supply,” says Connie O’Murray, managing director of property management for JLL. “So far, however, most managers are not installing systems that use ultra-violet light to disinfect indoor air—they haven’t yet been proven to be effective and are not suitable for all buildings.”

Medical office buildings also ask their patients and staff to wear masks—to filter the air they breathe—and manage how their patients move through buildings. Many medical service providers now ask their patients to register online to bypass the risk posed by crowding into waiting rooms.

“Triage for COVID positive patients is being conducted through telemedicine, outside where possible or in isolated space removed from other patients,” says Fetterman. “Waiting rooms are either more distanced by removing chairs or restricting chairs that can be used.”

“It is all about getting them in to see their doctor and back out as quickly as possible,” says Bob Atkins, principal of the Atkins Cos. in a recent podcast for NREI.

“A lobby registration kiosk could also perform this function,” says Audrey Symes, research director for healthcare and life sciences for JLL.

For some medical offices, that means cutting back on staff who share the air in the limited space of an office. Hospital executives are evaluating which positions can effectively be done remotely on a permanent basis.

“We are hearing potential administrative footprint reduction targets of 50 to 75 percent,” says JLL’s Lamb. “Any vacancy administrative space may create would be absorbed by clinical needs as we move forward.”

Keeping MOBs Clean

All medical offices are disinfecting their spaces to at least the standard set by federal officials at the Centers for Disease Control (CDC).

“Some owners are going above CDC standards for operating the facility to be vigilant,” says Lamb.

Disinfection reaches an even higher level if a patient seems likely to carry the virus.

“When we have a patient who has been reported as presenting positive, we shut down the area and path in which the patient took to allow any spores to dissipate and then thoroughly sanitize the areas before opening back up to the public,” says Lamb.

Property managers are also finding ways to use ways copper metal to kill the virus. Coronavirus particles break apart within hours of landing on copper surfaces. In comparison, they can remain active and lethal for days on surfaces like steel or plastic, according to the Smithsonian Institute.

Owners and operators could replace doorknobs and touch plates with brass, which includes enough copper to kill the virus. But that’s often prohibitively expensive.

“What we have heard about and are seeing is copper foil tape wrap on door handles or placed on touchpoints such as elevator buttons,” says O’Murray.

Managers can also reduce the number of surfaces people have to touch by installing automatic doors or kickplates to open manual doors. In bathrooms, managers can slow down the flush times on toilet and install toilet seats with covers to limit the spread of aerosol droplets into the air, according to O’Murray.

Medical Offices Are Used To Controlling Infections

Long before the crisis caused by COVID-19, the professionals who operate medical office space tried to make sure visitors to their facilities did not make each other sick. Most of the techniques above were developed over the years to avoid “healthcare-associated infections.” The majority of medical office buildings are located on a hospital campus, often physically connected to a hospital.

“This alone creates a different mode of operation and management than any other type of real estate,” says Lamb. “There is a higher level of risk.”

The coronavirus pandemic has heightened the danger. Often people who have tested positive for COVID-19 are in the same building as people who are especially vulnerable to the virus, because of age or a compromised immune system, for example.

“Professionally managed medical office buildings are operated as safely, if not more so, than a typical office building,” says Connie O’Murray. “As our knowledge of the virus evolves over time, so, too, do the approaches and innovations towards mitigation.”

 

Source: NREI