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Investors Plan To Put More Money Into Healthcare

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The I-word, inflation, is bad enough. But then there’s the R-word: recession. And some forecasters see the potential coming forward, according to the latest CNBC Fed Survey.

Not that it’s a given, but the trifecta of inflation, more hawkish Fed monetary policy, and issues coming out of Russia’s invasion of Ukraine have increased the bet to a 33% chance of one in the next 12 months.

That may be what a new CBRE survey picked up on. Distributed to “approximately 500 of healthcare real estate’s most influential healthcare real estate trusts (REITs), institutional healthcare investors, private capital investors, and developers throughout the United States” and responses coming from about a fifth of them, 85% believed that the healthcare real estate industry is “recession resistant.”

“Survey results suggest a very significant increase in capital allocated to healthcare real estate for 2022,” the report said. “In 2021, the total capital allocation provided by respondents in our survey was $10.9 billion, while actual transaction volume for 2021 ended at nearly $16 billion. This year, the total capital allocation from those unique firms who provided a figure (65 out of 86 firms) totaled $17.1 billion, which represents a 57% increase compared to 2021.”

This year, the firms that gave a capital allocation reported $17.1 billion going into 2022, a 57% increase. Given that, CBRE expects investors to allocate at least $25 billion in capital to the sector. Market caps are likely to drop with the capitol going in, and 96% of respondents expected cap rates on Class A on-campus to be below 6% this year, while 79% anticipate the average cap rate will drop below 5.5%.

“This can be ascribed to the ongoing increase in demand for high-quality healthcare real estate, the resiliency of healthcare real estate during the pandemic, and new funding sources actively exploring alternatives to traditional real estate products, such as office, industrial, multifamily and retail,” the report reads.

Similarly, the life science sector is also tremendously strong, with record level venture funding of $32.5 billion in 2021 and in 2022 40% of respondents thinking that life sciences properties, especially those housing biotech or pharma, should see a cap rate below 5%.

As might be expected from these numbers, a big majority—84%—plan to be net buyers of healthcare real estate, including all healthcare REITs and institutional investors that responded. Only 26% of current owners will be net sellers. With that much demand and low interest in dropping net ownership, that describes a coming challenge to obtain additional properties, meaning likely higher prices.

 

Source: GlobeSt.

Where Medical Office Acquisition Opportunities Are

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Healthcare real estate in the US is in a state of absorption and expansion, as networks and organizations battle it out to claim the best practices and locations.

There is flux within the sphere, reported NAI Global last week, with medical REITs among the most active buyers in 2021, looking for product and paying big numbers.

One acquisition opportunity are point-of-access clinics, located within diverse communities. Another increasingly popular acquisition target are independent specialty practices—regardless of size—which are being absorbed by large systems. Meanwhile, other clinics are looking to break away, creating real estate disposition opportunities.

Buyers And Sellers In State of War

Additionally, off-campus, multi-specialty clinics and ambulatory surgical centers are seeking strategic locations for expansion and geographic reach, representing more opportunities. The current and foreseeable climate is one of “war,” according to one commentator to NAI Global, as firms compete for market share and dominance.

Medical office buildings have been incredibly stable throughout the pandemic with occupancy rates remaining unchanged and asking rates increasing. Their stability compared to other classes continues to draw interest from investors who see it as a “safe” investment despite construction costs increasing in 2021.

Finding Historically Low Cap Rates

Fully leased MOBs with credit tenants are expected to continue to trade at historically low cap rates in 2022. Large institutional owners have maintained their rentals, concession packages, and the like, while local landlords with mixed tenant profiles are more willing to offer competitive lease packages and incentives to attract and secure medical tenants.

The sector does face specific challenges though, NAI Global also says. Staffing shortages, including burnout of healthcare workers, will continue in 2022, resulting in pressure to both provide care and remain profitable. Additionally, costs for care will outpace inflation, as the overwhelming demand requires additional expenses.

 

Source: GlobeSt.

Investors Are Flocking To MOB And HRE Space

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Currently in the growing and highly visible medical office building (MOB) space, a couple of questions seem to be garnering most of the attention.

One of those is: Will the influx of new capital, including large amounts from deep-pocketed institutional investors and investment managers, slow down in the near future?

The other is: Will capitalization (cap) rates, or first-year expected returns, stop their unprecedented compression to historic lows, even amid rising inflation and potentially higher interest rates, anytime soon?

The answers seem to be “no” and “no,” according to a panel discussion that took place at BOMA International’s 2021 Medical Office Building + Healthcare Real Estate Conference held Nov. 1-3 at the Omni Dallas Hotel.

The session was titled “The Investor Flight Toward Healthcare Real Estate” and the discussion heavily focused on growing institutional investment in the MOB and HRE space, as well as soaring pricing and falling yields for the product type.

The panelists taking part in the session included two MOB sales brokers, two healthcare real estate (HRE) specialists with institutional investment firms that are somewhat new to the space, and a Wall Street research analyst who covers public companies. They were:

■ Moderator Ben Appel, executive managing director with the Healthcare Capital Markets group of Newmark Group Inc. (Nasdaq: NMRK);
■ Mindy Berman, senior managing director and head of the healthcare capital markets platform with Jones Lang LaSalle Inc. (NYSE: JLL);
■ Vikram Malhotra, managing director and research leader for Mizuho Americas;
■ Pratik Patel, director with New York-based Wafra Inc., which in late 2020 formed a $550 million joint venture (JV) partnership with Welltower Inc. (NYSE: WELL) that entailed Wafra acquiring an 80 percent ownership in 24 MOBs; and
■ Jennifer Wong, VP of acquisitions with Boston-based AEW, which has formed partnerships with firms in the sector, including a recently formed JV with Nashville, Tenn.-based Montecito Medical Real Estate that plans to spend up to $1 billion in coming years on acquiring MOBs.

 

Source: HREI