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Supurva Healthcare Group Targets Medical Office Buildings To Launch Its Real Estate Portfolio

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Booming is the only word to describe demand for medical office buildings,

With the nation slowly recovering from the COVID-19 pandemic, investors have concluded that the number one real estate investment opportunity today is MOBs. The formerly niche product has moved front and center as multifamily yields have compressed in recent years and the current retail and broader office investment landscapes have seen a large-scale disruption related to the ongoing COVID-19 issue.

The MOB asset class has exhibited consistent growth in recent years, buoyed by both increased demand for outpatient services and strong historical performance. MOBs are a significant subset of the greater office asset class and are growing in stature among experienced real estate investors. As the name suggests, MOBs are developed specifically for tenants in the medical field to consult with patients and perform various surgical procedures.

Supurva’s decision to invest in MOBs is coming at an opportunistic time as it seeks to create a portfolio of MOBs. It is the Company’s firm belief that that despite the economic turmoil caused by COVID-19 and the growth of telehealth, the MOB market has and will remain resilient. MOBs will sustain their power through the coming decades as the U.S. population ages, consumes more healthcare services, and receives more of those health care services at outpatient settings.

With advances in medical technologies, procedures that once could only be performed at hospitals or ambulatory care facilities can now be performed at the physician’s office, further fueling demand for MOBs. Investors are beginning to realize that MOBs represent an alternative asset class that is rapidly increasing in popularity.

“The number one takeaway from a recent real estate investment symposium was simple and straightforward,” reported Mr. Murphy, Supurva’s chief executive officer. “Investors should liquidate their other real estate holdings and put their money into MOBs. For real estate investors seeking a steady return on their investment the only safe, secure, and reliable real estate investment opportunity today is clearly MOBs. Supurva will be working with real estate professionals throughout the country to identify undervalued and underutilized medical office buildings.”

Jones Lang Lasalle, a leading real estate investment company reported in a February 2021 article that ​despite the economic downturn of 2020, there has been no downturn in demand for MOBs. Despite the financing obstacles witnessed during the pandemic, sales of MOBs exceeded $13 billion in 2020, which was on par with pre-pandemic sales levels in both 2018 and 2019. While other real estate investments declined by an average of 33%, MOBs sales remained strong, further demonstrating that MOBs can withstand pandemic-related operational challenges.

JLL went on to report that medical offices remain a favored sector for real estate investment as evidenced by new entrants into the space, including institutional investors, private equity funds, and individual investors. The compelling investment thesis for medical office space has generated a significant supply of investment capital (both debt and equity) waiting to be deployed into this space, providing a very liquid and competitive market for sellers.

The demand-driven increase in healthcare services from a growing and aging population (10,000 people per day turning 65) has pushed hospitals and health systems to create lower cost outpatient care alternatives.

JLL is not he only real estate investment company focusing on MOBs. According to the CBRE Group, compared to other asset classes and the overarching office class specifically, MOBs generally exhibit uniquely steady long-term occupancy rates. CBRE data suggests that medical office vacancy rates have consistently been lower than the total office sector, with vacancy rates falling from 11.1% in 2010 to 8.4% by mid-year 2018. According to the CBRE 2019 Healthcare Real Estate Investor & Developer Survey Results, 99% of CRE firms stated that between 2018 and 2019 the occupancy of their medical office portfolios either remained stable or increased from the year prior.

The strength of MOB occupancy rates is partly due to the length of leases that medical tenants typically sign. Because the physical features of MOBs are very specific-offices, medical treatment rooms, surgical rooms, and waiting rooms-the build-out is often more costly than that of a traditional office tenant, and medical tenants typically sign longer leases for this reason. Tenants also tend to stay put longer given the high switching costs associated with relocating. In addition to stable occupancy rates,

MOBs have also exhibited consistent rent growth over the past ten years, which can be seen in the below graph. In 2018, the average asking rental price increased to almost $23/SF, a 1.4% increase year-to-year. Average asking rent for U.S. MOBs remained at a near-record level in Q2 2019 according to CBRE.

“MOBs represent the Company’s future and MOBs represent the RX for success,” Mr. Murphy commented.

 

Source: yahoo! finance

Capturing Value From Health-Care Collaborations

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In the wake of the pandemic, collaboration within and among organizations has become increasingly important—if not necessary.

While turbulent times forged new partnerships across all sectors, some of these preserved and further strengthened their key competencies. Chestnut Funds and Anchor Health Properties’ newly launched Chestnut Healthcare Fund II stands as an example of what can be achieved through perseverance and the successful identification of off-market opportunities. Chestnut Healthcare Fund I was launched in 2015 and raised a total of $50 million, which included the acquisition of 52 assets through direct or joint venture transactions.

In an interview with Commercial Property Executive, Anchor Health Properties Chief Investment Officer James Schmid and CEO Ben Ochs, alongside Chestnut Funds CEO Steen Watson, elaborate on their partnerships and how Chestnut Healthcare Fund I’s success fueled their drive to initiate its successor.

CPE: Tell us more about Chestnut Healthcare Fund II. How does the investment vehicle differ from its predecessor, Chestnut Healthcare Fund I?

James Schmid: The new fund is a follow-up to its successful predecessor, which was our initial health-care real estate acquisition fund. The first fund raised just under $50 million in equity, and we have recently completed placement of these funds. The new fund will continue the investment strategy of medical office acquisitions—primarily core and core-plus assets in major U.S. markets—both through direct ownership and through joint venture investments with institutional equity capital.

CPE: Elaborate on the partnerships you’ve created since you launched Fund I.

Ben Ochs: The initial fund has invested across multiple joint venture acquisitions with both The Carlyle Group and Harrison Street Real Estate. Each of these partnerships continues to expand.

CPE: What kind of assets are you targeting and why?

James Schmid: Core and core-plus medical office acquisitions in major markets continue to be the broadest area of focus. These assets continue to offer attractive risk-adjusted returns and ample debt market liquidity to provide leverage and enhance returns. The Anchor platform has acquired over 50 percent of its recent investments in an off-market fashion, allowing for the continued volume of investment opportunities despite increased investor appetite for sector investments.

CPE: What are the markets you are targeting through Chestnut Healthcare Fund II and why?

Steen Watson: The target market focus generally overlaps with the largest 30 U.S. markets, though we have had particular success building scale in markets such as Boston, New York, Philadelphia, Washington, D.C./Baltimore, Charlotte, N.C., Atlanta, Nashville, Tenn., Denver, San Diego and Seattle.

CPE:Tell us more about the factors and conditions that stimulate growth in the aforementioned areas.

Steen Watson: We carefully evaluate factors such as local demand for health-care services, local population trends, local health-care insurance trends, constraints of supply of new facilities, needs of local health-care systems and medical tenancy, and local and state health-care regulations to make informed decisions about investing in a given market and for a given target asset.

CPE: What are the major changes the medical office sector has seen since the onset of the pandemic?

James Schmid: Perhaps the biggest change was the one that didn’t happen. Health systems and their patients continued to need medical office space to handle patient health-care needs. While elective surgeries—typically the highest margin contributor to medical groups and health systems—generally shut down for 90 to 120 days at the beginning of the pandemic, they quickly reopened and regained previous—and backlogged—case volumes.

While telemedicine became a tool for health-care practitioners in certain circumstances, it did not serve as a replacement for physical space to handle true clinical and acuity needs of patients. Going forward, we see telemedicine as a complement to medical office space for lower-acuity and administrative functions, as opposed to a replacement for said space.

CPE: How do you see the sector going forward?

Ben Ochs: An aging U.S. population will continue to drive demand for additional health-care services in the years to come. Health systems will continue to push to capture market share through expansion into strong demographic locations and through the use of modern, efficient outpatient facilities.

Dedicated facilities for inpatient rehabilitation, behavioral health, memory care and substance abuse should continue to be in demand, fueling opportunities for additional development.

 

Source: Commercial Property Executive

Jackson Health To Build Emergency Medical Hub In Coral Gables

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Work will begin in six months on a new emergency medical facility in Coral Gables, Florida, that will serve Jackson Health System patients inside the city and within five miles of it.

Miami-Dade commissioners voted unanimously for the project at their final full meeting of 2020, advancing the latest expansion for the nonprofit public healthcare system that since 1918 has grown from community hospital with 13 beds to a network of thousands.

The single-story building, referred to in Miami-Dade documents as the Jackson Health Emergency Department at Galiano, will be built on two county-owned parcels on the corner of Oviedo Avenue and Southwest Eighth Street, also known as Galiano Street.

“The 10,170-square-foot facility will have dual functions,” a Dec. 15 memo from Miami-Dade Mayor Daniella Levine Cava said.

The larger emergency department will have eight exam rooms and support space, two resuscitation rooms and computerized tomography and radiology equipment. The building will also serve as primary care space with six exam rooms.

There will be 36 parking spaces outside, including two that are compliant with Americans With Disabilities Act requirements. Some spaces will be convertible for electric vehicle charging in the future.

Materials attached to a prior memo by former county Mayor Carlos Giménez shows architectural and design firm Gresham Smith and engineering design firm Kimley-Horn as having worked on the project.

The project is now in the design and development phase, but Jackson has already approved the schematic design and layout of the facility. Miami-Dade expects construction documents to be final soon, with construction to begin in June and end in July 2022.

The roughly one-acre property, which Ms. Levine Cava’s memo said “was gifted” to Jackson by Commissioner Rebeca Sosa, the authorizing item’s sponsor. It is in an area zoned for limited commercial and single-family residential use.

“This…will be a miracle place in an area that we don’t have anything,” Ms. Sosa said.

“Most of the project’s funding will come from the Jackson Miracle Bond program, which includes work at all existing Jackson campuses and the creation of new facilities across Miami-Dade,” the memo said.

An additional $1 million will come from the county’s Building Better Communities general obligation bond program. Commissioners in October OK’d allocating to the project funds from the more than 16-year-old program, which includes an entry for “primary health care facilities” development.

A map depicting the five-mile radius of the property shows that the facility will serve communities in Coral Gables, Miami, Westchester, West Miami, Virginia Gardens, Miami Springs and Medley.

In the next five years, the population of those areas is expected to grow by 45,000 people, a 7.3% increase.

“The fastest-growing segment, will be residents aged 65 and older who will “demand increased medical services,” the memo said. “And the majority of patients treated [at and released from an emergency medical facility originate from ZIP Codes within a five-mile radius. Depending on the size of the ZIP Codes and the population density, a two- to five-mile area can represent between 50% and 70% of the patients treated.”

 

Source: Miami Today