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Investor Interest In Medical Properties Continues: JLL Closes $142.9M Sale Of 50-Property National Investment Grade Portfolio

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JLL announced today that it has closed the $142.9 million sale of a 50-property national investment grade portfolio totaling approximately 430,000 square feet across 22 states.

JLL represented the seller, Elliott Bay Capital Trust, and procured the buyer, a publicly traded REIT.

The sale of the Elliott Bay Dialysis Portfolio is a multi-state portfolio containing single tenant dialysis clinics leased to the two largest U.S. dialysis providers, Fresenius Medical Care and DaVita. The net lease properties are 100 percent occupied and backed by investment grade credit or New York Stock Exchange public companies.

Well located across 22 states in desirable major U.S. metro areas, the properties have mission critical infrastructure providing life sustaining dialysis treatment.  The significant investment in the fit out at these locations and arduous Medicare certification and state licensing creates high retention rates and long-term, inelastic tenancy – one of the main drivers for dialysis clinic investment.  Dialysis remains a fundamental and non-discretionary segment of healthcare services that has a long-term trajectory of growth and profitability regardless of the macroeconomic environment.

The sale was a collaboration between JLL’s Healthcare, Corporate Finance and Net Lease verticals led by Managing Director Mindy Berman and Vice President, Brannan Knott, Senior Vice Presidents Peter Bauman and Tivon Moffitt.

Knott, from JLL Capital Markets, Healthcare, described the portfolio as, “a rare, highly durable income portfolio, tenanted by the nation’s leading dialysis providers.  This is the exact investment profile attracting many investors into this sector and is supported by macro demographic trends of the nation’s aging baby-boomers and increased incidence of end-stage renal disease driving significant increases in dialysis demand for the foreseeable future.”

“JLL sees no slowdown in demand for medical office investments,” Berman added.  “We’ve seen consistent annual sales of $9 to $10 billion in the medical office sector and 2019 should be on pace with recent years.”

“Due to the portfolio mix of investment-grade and high-quality dialysis clinics, JLL was able to achieve excellent pricing for the seller with an accelerated closing time period,” Bauman said.

“Single-tenant medical properties and portfolios remain in high demand across various capital sources,” Moffitt added.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.

 

Source: HREI

Healthcare Construction Boom In North Texas: 79% Of New Dallas-Fort Worth Hospitals Landed In Denton And Collin Counties

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With a population of 7 million-plus, including aging baby boomers and young families moving in daily, North Texas is seeing unabated healthcare construction and investment activity, including seven new hospitals topping 800K SF in just the last year.

Medical facilities in the North Dallas suburbs and facilities centered around outpatient services remain the most prized commodities as the Metroplex tries to meet the area’s growing healthcare needs.

“In particular what is going on right now, in addition to the remarkable growth pattern, I think there is a lot of competition among healthcare providers,” Turner Construction Co. Director Steve Whitcraft said.

Whitcraft will be speaking on this topic at Bisnow’s The Future of Dallas Healthcare Real Estate conference Sept. 19.

“You have very strong providers in this market that are all very capable, differentiating themselves to best compete for those family services and also trying to get further out into the community. I think you are going to see more specialty facilities like heart and cancer centers and more satellite-type facilities with unique strengths to growing local neighborhoods,” Whitcraft said.

It is the growing North Dallas suburbs in particular where providers are setting up clinics and hospitals at a healthy pace.

“As the population continues to grow in the area of Collin County — it reached a population of a million this year  — healthcare facilities are expanding to the Planos, the Friscos, the Prospers and the Denton areas where we are seeing a lot of this growth,” McCarthy Building Cos. Vice President of Operations for the Dallas Business Unit Nate Kowallis said.

In fact, counties north of Dallas dominate CoStar’s list of healthcare projects and hospitals under construction.

“Since 2018, the region has added seven hospitals totaling 804K SF of new space,” CoStar Group’s Paul Hendershot said. “Seventy-nine percent is found in Collin and Denton counties, reflecting the high levels of growth in the northern suburbs.”

Healthcare projects under construction in the North Dallas suburbs include Texas Health Hospital Frisco, a collaboration between Texas Health Resources and UT Southwestern Medical Center; Cook Children’s Medical Center in Prosper, Denton County; and a new patient care tower for Texas Health Presbyterian Hospital Allen in Collin County, according to CoStar data.

Dallas-based pediatric hospital Children’s Health acquired a 72-acre parcel at U.S. Highway 380 and the Dallas North Tollway in Prosper earlier this year to construct a medical campus to serve children in the North Dallas suburbs.

Midlothian, a growing South Dallas suburb, has two medical facilities under construction, including Methodist Health System, a 190K SF full-service acute care hospital, CoStar data shows.

Dallas County also remains in play with the McCarthy | Crowther joint venture constructing The Parkland Outpatient Clinic 2 building, a ground-up, six-story clinic on the Parkland Health & Hospital System’s Dallas campus. The HKS-designed project will host a 540K SF breast cancer clinic.

Outpatient Care Maintains A Healthy Pulse

In DFW Despite some of those large projects underway, DFW healthcare investment and construction activity is focused less on larger hospital settings and more on smaller footprints designed to reach residents in DFW submarkets.

“Health systems and providers are increasingly focused on the delivery of care in lower-cost outpatient settings, and convenience for the consumer is of critical importance,” JLL’s Healthcare Capital Markets Group Managing Director Brian Bacharach said. “As DFW continues to expand, there will be increasing demand for outpatient facilities located within the growing communities.”

Even in the investment side of the space, outpatient services remains a primary focus of investors.

“The majority of third-party investment activity has been outpatient-focused, but there is virtually no speculative development in the space,” Bacharach said.

McCarthy’s Kowallis said he is seeing more construction activity in healthcare today focused on smaller facilities outside of major hospitals.

“There’s been a little bit of [construction] growth year over year, but mostly that has been with the medical office buildings, the clinics and the special care facilities,” Kowallis said. “That’s the big trend that we’ve seen, the shift from hospitals to more clinical or outpatient facilities.”

 

Source: Bisnow

What Is Making The MOB Segment So Healthy?

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Since 2012, annual revenues from the pharmaceutical industry have increased from nearly $200 billion to almost $300 billion in 2018. In the same period, single-tenant medical office transactions jumped from almost $1.5 billion in 2012 to $2.5 billion last year.

What is causing the significant increase in single-tenant medical office transactions along with the robust health-care market?

The simple answer is an aging population. There is no question that America is getting older. According to the United States Census Bureau, the number of Americans 65 years and older is expected to double over the next three decades. An aging population requires more drugs, more health-care professionals and  more space to deliver medical services. For investors in net lease properties, the medical office sector can provide a strong investment opportunity to ride this seemingly unstoppable trend.

First, the space is more accessible to a wider group of investors with an average transaction size of nearly $10 million in 2018 vs. over $20 million for the rest of the single-tenant office sector.

Secondly, medical office is commanding higher per-square-foot valuations than the net lease office sector overall, with buyers paying a 7 percent premium per square foot over non-medical assets. This reflects the robust demand and healthy market fundamentals, as investors can take comfort in owning a solidly performing medical office property that commands a strong valuation.

In an investor survey recently conducted by JLL, respondents’ interest in office assets leased to health-care-related tenants outpaced that of technology, business services, government and financial services. Investors who are targeting the health-care space in 2019 indicated they are allocating on average 20 percent of their capital towards medical office assets.

Additionally, apart from industrial assets, investors indicated that the health-care sector was the most likely to exhibit a decrease in cap rates in the remainder of the year. This, along with the other factors previously mentioned, has attracted a diversified and evenly distributed buyer population. Institutional and private investors as well as REITs have been putting money into this property type, which indicates the depth of investor interest across the spectrum of buyers. Broad investor interest and increased demand is expected to continue to put owners in a strong position to sell their investments at attractive valuations in the future.

Finally, the asset class on average commands lower cap rates than the rest of the single-tenant office space, due to the mission criticality of the real estate. Its cap rate is reflective of its dependable stream of income. On average, medical cap rates are 30 basis points lower than those in the office sector overall.

As net lease investors navigate the uncertainty of the retail sector, the medical office space appears poised to offer an alternative, with strong, dependable returns that are more difficult to disrupt with technology and the internet. As long-term trends in health care continue to point toward longer lifespans and increased care, medical office space will remain critical and demand will increase, providing opportunities for investors to capitalize on this unstoppable force: growing old.

 

Source: Commercial Property Executive