Tag Archive for: cap rates

You are here: / cap rates

Posts

Medical Office Building Sales Surpass $10 Billion For Fifth Consecutive Year

/0 Comments/in , , /by

U.S. medical office building sales continued in an upward trend through the fourth quarter of 2019 and into 2020, driven by steady M&A activity within the healthcare market, says Cleveland-based Brown Gibbons Lang & Company (BGL).

Total MOB sales reached $11.2 billion in 2019, marking the fifth consecutive year that sales surpassed $10 billion and the third successive year topping $11 billion.

“The 2019 tally underscores the fact that medical office properties remain a core asset class,” says BGL. “Demographic and healthcare industry trends are firmly entrenched and forecasted to persist, supporting long-term demand for medical office space.”

Q4 2019 saw a total of 379 MOB deals valued at $4.3 billion, representing a 20% increase in transaction value. The average price per square foot decreased by 8% to $274 per square foot. The cap rate remained unchanged to 6.6%, pushing the 12-month average to 6.6%—a marginal contraction from from 6.7% over the previous 12-month average.

Based in Chicago, MB Real Estate (MBRE) emerged with a 29% share of acquisition volume in the Southeast market and a 12% share nationally in Q4 2019, according to BGL. MBRE’s reach in the Southeast was underscored by the purchase of 900 Village Square Crossing in Palm Beach Gardens, Florida..

Completed in 2012, the two-story, multi-tenant building with 38,944 rentable square feet was acquired from Prestige for approximately $381 per square foot, which is 15% and 23% above the regional and national averages, respectively.

“While sales volume is down year-over-year, pricing remains strong across medical office investments as investors seek to take advantage of continued strength in the U.S. economy,” says BGL. “We continue to see strong demand for medical office assets from public and private REITS as well as private equity and foreign capital investors. Major players dominated M&A activity throughout 2019, which is likely to continue; however, new investors are entering the marketplace, which is setting the stage for a busy first half in 2020,” according to BGL’s report. It also cites a fact that bears repeating: “U.S. healthcare jobs outpaced nearly every other sector during 2019.”

 

Source: Connect Media

What Is Making The MOB Segment So Healthy?

/0 Comments/in , /by

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

Examining The U.S. Medical Office Sector: Has It Recoverd In Second Quarter 2019?

/0 Comments/in /by

Following a sharp 33% drop in growth during the first three months of 2019, the US medical office sector recovered in the second quarter, reducing activity to a 5% year-over-year decline, according to a Real Capital Analytics report.

However, this improvement was largely impacted by a particular deal in June, in which Welltower purchased a portfolio of 50 medical office buildings from CNL Healthcare for more than $1 billion. Without this substantial transaction, second quarter activity would be down 36% year-over-year, RCA says.

This significant deal offers misleading headline figures, as the individual asset sale volume still fell 32% year-over-year in the second quarter. Though the steady decrease in numbers does not necessarily validate the sector’s future.

Considering the majority of medical offices are situated in suburban areas, the asset pricing often relates to suburban offices overall.

The average cap rate for suburban offices is 7%, while medical office cap rates in the second quarter of 2019 remained lower, averaging 6.6%. However, medical office cap rates were much more similar to suburban asset cap rates, earlier in the cycle.

Source: GlobeSt