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Why Experts Say Now Is The Time To Buy Medical Office Buildings

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Despite all the doom and gloom of the news about the office sector, one component remains strong: medical office buildings.

It is buoyed by a stable clientele, long-term leases, and a slow pace of new entries. Even better, the buildings’ tenants can rely on a steady flow of customers in need of care. The flow has even increased as a result of passage of the Affordable Care Act, an aging population, and advances in medical technology that enable more procedures to be delivered in lower-cost, more efficient outpatient settings.

And investors are paying attention, according to the just-released 2024 report “Emerging Trends in Real Estate” issued by PWC and the Urban Land Institute. In total, the U.S. healthcare industry represents 17% of GDP. Outpatient care and care provided in medical office buildings is a significant share of the total.

“The sector has also been shifting to a retail mind-set, where hospital systems and providers look to attract new patients and build market share in new areas, contributing to the increased demand for high-quality medical space,” the report noted.

For landlords, medical offices are practically ideal tenants. They may sign leases of 15-20 years and are likely to renew them in order to remain close to their patient base.

“Typically, the renewal rate is 80% or more and rent growth generally ranges between two and three percent a year,” the report stated. “These dynamics have helped the medical office sector maintain healthy fundamentals throughout economic cycles.”

Furthermore, occupancy has risen in recent years as space absorption has outpaced square footage added. The occupancy rate was 92.8% in 2Q 2023.

Nevertheless, “after reaching peak investment volumes of $30.2 billion (annual basis) in the third quarter of 2022, medical office transaction volume has since slowed to $20.2 billion as of the second quarter of 2023,” the report noted.

But while it has slowed, it has not stopped. Transaction volume totaled $4.7 billion in the first half of 2023 – lower than the $10.1 billion sold in the same period of 2022, but consistent with levels seen from 2018 through 2021. Few distressed sales have occurred. The report attributed the lower transaction volumes to a “disconnect” between sellers and buyers.

“But the stage is set for increases in volumes when buyers and sellers can better come together and the capital markets begin to normalize,” it said. “The medical sector is large and investable, comprising over 1.5 billion SF of current inventory. A substantial amount of opportunity exists for investors to take on more ownership.”

By square footage, over half the sector is owned by users – hospitals, providers, and physician groups. The rest is owned by REITs and private investors who use a variety of structures and vehicles to make it work, the report noted. Institutional investors often invest through operating partners, frequently vertically integrated regional or national firms that specialize in the development, acquisition and operation of medical office buildings and often have deep relationships with hospitals, health systems and physician groups.

Speculative development is rare, leaving inventory to increase at a pace driven by tenant demand, currently around 1% and seldom rising more than 2% a year.

The opinion of experts surveyed for the report is largely favorable. Some 48% recommended buying, 46.4% said hold, and just 5.8% said sell. And while 34.3% considered the sector overpriced, that was a much smaller percentage than viewed suburban and central-city offices as overpriced. Some 61.4% thought medical offices were fairly priced and 4.3% thought they were underpriced.

“The medical office sector has matured into an attractive and stable CRE asset class of its own,” the report concluded.

 

Source: GlobeSt

Miami-Based Vitalis CEO On Medical Office Growth In Region, State

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Jacksonville is an excellent target area for growth in the health care real estate sector, said the CEO of a firm specializing in medical office space that has just entered the market.

St. Johns Vein Center at 8767 Perimeter Park Blvd. (PHOTO CREDIT: VITALIS)

Miami-based real estate investment firm Vitalis bought the 10,647-square-foot St. John’s Interventional and Vascular Institute last month for $3.8 million. Located at 8767 Perimeter Park Blvd. near Tinseltown, the property is the home of St. Johns Vein Center, a vascular catheterization laboratory that is one of the few vascular testing facility in the region.

“Jacksonville’s positive demographic trends for health care and demand led to the deal — and that more might be on the way,” Vitalis founder and Managing Director Elliot LaBreche told the Business Journal. “It’s a higher acuity use, those tenants tend to stay and reinvest in their space. They don’t move around a ton.”

Vitalis, which has properties in 12 states, has done a variety of deals in the health-care-focused real estate space, including providing bridge loans to developers, sale-leasebacks and tenant representation.

Growth in the sector is driven by an aging population and changes in the way health care is provided, with services like surgery, imaging, gynecology or orthopedic care taking place outside of hospitals.

“You have insurance companies pushing health systems to deliver care in a more cost-effective way, and that’s not in a hospital. It’s really in these outpatient facilities,” LaBreche said. “There are a lot of growth drivers for these facilities to do really well.”

In the wake of the vein center acquisition, LaBreche said Vitalis has a letter of intent signed for another Jacksonville property, a surgery center.

“We’re just as interested in growing in the Northeast part of Florida because deals are a little more attractive from a buyer’s standpoint, but the fundamental drivers for healthcare are there,” LaBreche said.

Pivotal Healthcare Partners acquired St. Johns Vein Center in February. Given the property’s central location, size, and cutting-edge catheterization lab, Pivotal Healthcare Partners’ plans to designate St. Johns Vein Center as the hub all affiliated practices will refer their higher-acuity catheterization lab procedures toward, a press release said.

 

Source: JBJ

CenterWell Senior Primary Care Bringing Seven Personalized Primary Care Centers to Middle Tennessee

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CenterWell Senior Primary Care is opening seven new senior-focused primary care centers in middle Tennessee throughout 2023, giving local seniors access to a personalized, care-team approach to healthcare.

The upcoming June 28 and 29 grand openings at CenterWell Tusculum and Murfreesboro, respectively, mark the first two senior primary care centers in the area. The grand openings are from 10 a.m. to 1 p.m., and will include tours of the centers, low-impact exercise demonstrations with SilverSneakers, live music from ReWind, games, and free treats from Alley on Main.

CenterWell Senior Primary Care is the largest and one of the fastest-growing senior-focused, value-based care providers in the country. Together with its sister brand Conviva Care Center, CenterWell Senior Primary Care delivers care to seniors in more than 250 centers across 12 states, with plans to open 30-50 new centers per year through 2025.

“I’m excited to lead CenterWell Senior Primary Care in the place I’ve called home for 24 years,” said Jason Spector, Market President for Tennessee. “Our board-certified physicians and integrated care teams are set to deliver comprehensive, holistic care in seven state-of-the-art facilities, with Murfreesboro and Tusculum already seeing patients and five more centers opening this year. Whole-person care means we’re committed to addressing all the factors that affect the health and well-being of our patients and this community. I’m looking forward to expanding that care to Middle Tennessee seniors and helping break down barriers to healthcare in our underserved communities.”

Dr. Anitha Mullangi, CenterWell’s Chief Medical Officer for the Tennessee market, emphasized CenterWell’s focus on whole-person health.

“It’s so important how you relate to patients, how you understand them, their culture, and their needs, and CenterWell’s care model allows doctors to do this,” Mullangi said. “Our longer appointment times, the integrated care teams looking after the physical, social and emotional needs – all of which affect seniors’ overall health – help patients live healthier, happier lives. We are committed to providing that kind of excellent healthcare to seniors in our communities.”

All new CenterWell Senior Primary Care locations in middle Tennessee will be staffed by board-certified physicians, nurses, social workers, and medical assistants, and patients will have access to clinical pharmacists, behavioral health specialists and referral specialists, all who have been specially trained to treat the senior population. In addition to its healthcare offerings, CenterWell facilities include activity centers for local seniors.

CenterWell Tusculum, located at 4901 Nolensville Pike in Nashville, and CenterWell Murfreesboro, located at 1715 S. Rutherford Blvd., Suite A in Murfreesboro, began accepting patients in April. Other centers with planned openings this year include Clarksville, Hermitage, Lebanon, Madison and Smyrna. Full details will be released at a later date.

The Primary Care Organization of Humana Inc. (NYSE: HUM), which includes CenterWell Senior Primary Care, serves nearly 266,000 members from many different Medicare Advantage health plans, as well as some patients who have Original Medicare.

For more information on CenterWell Senior Primary Care, please visit CenterWellPrimaryCare.com.