CBRE Completes Sale Of A 23-Medical Building Portfolio Totaling $90M Across Four States

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CBRE just announced  the closing of 23 medical buildings through three separate transactions totaling approximately $90 million.

The deals, sold to separate buyers over the last week, totaled over 300,000 square feet across four states. Properties include the Greenleaf Center Medical Portfolio in the Chicago Metropolitan Area, the Dermatology Solutions Group Portfolio in multiple markets in Florida and Alabama, and 2061 Peachtree located in Atlanta, Georgia. The seller’s exclusive advisors for these deals were Lee Asher, Chris Bodnar, Sabrina Solomiany, Shane Seitz, and Ryan Lindsley of CBRE U.S. Healthcare Capital Markets.

The Greenleaf Center Portfolio consists of 13 medical office buildings clustered around a high traffic intersection within the Chicago Metropolitan area. The buildings total 197,385 rentable square feet and were 93% leased at the time of sale, with 44% of the rentable space leased to investment grade-credit and health system tenants.

The Dermatology Solutions Group Portfolio consists of eight dermatology facilities totaling 51,505 rentable square feet located in Florida and Alabama. The properties were 100% leased to Dermatology Solutions Group with a new 10-year lease which was signed by the physician practice at closing.

2061 Peachtree is a five-story class A medical office building located in the highly affluent South Buckhead area of Atlanta, Georgia. The 47,936 rentable square foot building was built in 2013 and is adjacent to Piedmont Atlanta Hospital. At the time of sale, the property was 100% leased to a diverse set of tenants, including Georgia Hand, Shoulder & Elbow (GHSE), the largest hand and upper extremity practice in Georgia.

“We continue to see very strong interest in the market for healthcare real estate assets, and investors have allocated a substantial amount of capital to the sector this year. Consistent with previous years, pricing and demand for healthcare investment properties continues to be strong with steady cap rates year-over-year,” said Lee Asher, Vice Chairman at CBRE.

CBRE Healthcare Capital Markets (HCM) is a national practice of seasoned professionals dispersed throughout the United States with access to the deepest sources of capital dedicated to healthcare investments. The group specializes in providing healthcare real estate investors with acquisition, disposition and debt & equity recapitalization strategies across the continuum of care, including medical office buildings, skilled nursing facilities, long-term care facilities, and other post-acute care operations.

 

Source: HREI

The Top Markets for Medical Office Buildings

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The medical office building sector is considered one of the safest in commercial real estate investments due to, among other factors, a national trend to lower healthcare property operating costs.

“MOBs are a lot more efficient to run, cheaper to operate and are usually leased on a triple net basis which is attractive to investors,” Rodman Schley, senior managing director of BBG tells GlobeSt.com.

According to a recently released report by BBG, between 2005 to 2016 MOBs rose by approximately 50% to about 41,000 nationwide.

“Houston, Minneapolis/St. Paul, Boston, Atlanta and Chicago have the largest concentration of MOB construction projects. Nationally, the MOB market accounted for an estimated 22 million square feet in 2018,” Schley says.

The Dallas/Fort Worth area had the nation’s highest number of MOB construction completions from the third quarter of 2017 to the second quarter in 2018, according to the report.

“The region had nearly one million square feet of medical office space added during this period,” Schley tells GlobeSt.com.

Besides lower operating costs, the increased demand for medical office buildings can be attributed to growing investor interest, convenience and technology, the overall pursuit of a healthier lifestyle, changes in reimbursement and regulations and the aging population’s need for medical care.

The average asking rental price for MOBs rose to nearly $23 per square foot, a 1.4% increase year-to-year. This is due to an increasing demand for the limited supplies of high quality, newly constructed, medical office space and other outpatient facilities.

“The rate of construction and the renovation of MOBs will continue growing,” predicts Schley. “It’s definitely a strong MOB market. We have a lot of baby boomers and they have medical needs. We’ve also become much more health conscious as a society. We are certainly not at an over saturation point in the MOB sector.”

 

Source: GlobeSt.

Influx Of Capital Into Medical Real Estate Creating New Competition For Established Players

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Growing demand for healthcare services has created a booming market for medical office buildings, bringing a host of new investors into the space and making it more challenging for the sector’s traditional players.

Anchor Health Properties Executive Vice President Katie Jacoby, whose company has been developing medical facilities for over 30 years, said she is seeing a surge of private equity competing for healthcare real estate deals.

“Ten years ago, healthcare was hardly even considered an asset class; now it’s one of the top asset classes,” said Jacoby, who will speak April 11 at Bisnow’s National Healthcare Mid-Atlantic event in D.C. “There is increased competition to purchase properties and to develop properties.”

Flagship Healthcare Properties Executive Vice President Gordon Soderlund, whose firm has been developing medical real estate since the 1980s, is also seeing more private equity firms and REITs making big investments in the healthcare space.

“There’s a lot of competition pursuing development,” Soderlund said. “Our returns on costs are being driven down because there are plenty of players to respond to an RFP … It’s even more competitive on the acquisition side. There’s so much capital chasing medical real estate right now.”

Nationwide transaction volume in healthcare real estate reached a new record in 2017, according to JLL’s 2018 Healthcare Real Estate Outlook, with a significant portion of the growth in the medical office building sector. The JLL report also found the sources of capital investing in medical office buildings are expanding. In 2017, 19% of MOBs were owned by private investors, 11% by REITs and the remaining 70% by healthcare providers, the traditionally dominant owners in the space.

The growing investment in medical real estate comes as the United States’ aging population is creating more demand for healthcare services. The number of people 65 years and older will nearly double by 2050, according to JLL‘s report, and those over 65 spend five times more on annual medical expenses.

“People see it as a stable asset class,” Jacoby said. “Everyone sees it . They have aging parents themselves … They can experience it on their own personal level.”

The types of tenants occupying medical office buildings is also evolving toward more stable operators, giving investors more confidence in the properties.  As recently as five years ago, the most common tenant in an MOB was a physician with a private practice in 3K SF to 5K SF.

“But individual private practices are less common today, with physicians being employed by health systems or forming groups of doctors,” Jacoby said. “A lot of these private doctors are now employed by the health system. If they’re not employed by a health system, consolidations of physician practices into larger conglomerates are allowing them to serve as anchor tenants similar to a health system.”

Soderlund also said he’s seeing physicians being acquired by health systems and consolidating to lease larger blocks of office space, a trend he views as a positive for landlords.

“One day we might be leasing office space to a six-physician practice, and once they’re acquired our lessee is now an investment-graded hospital system,” Soderland said. “From a credit perspective, that’s great. With more large tenants occupying medical office buildings, more investors are interested in buying the properties.

“Hospitals are consolidating, making them stronger, creditworthy tenants,” Jacoby said. “I think that makes it more attractive for other investors that have traditionally invested in other asset classes.”

Jacoby and Soderlund will discuss trends in the medical real estate industry April 11 at Bisnow’s full-day National Healthcare Mid-Atlantic event at the Washington Marriott Georgetown.

 

Source: Bisnow