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Medical Offices Ready For Spike In Record High Number Of Insured

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The total number of uninsured in the US has reached a new low and the medical office asset class stands to benefit from it, according to Marcus & Millichap’s 2024 National Investment Office Forecast.

This robust demographic will need and seek more visits to healthcare providers, subsequently driving tenant demand for medical spaces, particularly in markets such as Louisville, Seattle-Tacoma, Portland, and Boston.

Those areas have sub-6.5 percent vacancy rates. Texas has the largest percentage of uninsured residents nationwide and carries an office vacancy rate above 15 percent in San Antonio, Houston, and Dallas-Fort Worth.

Arizona and Nevada, too, have high uninsured populations, with vacancies in Tucson, Phoenix, and Las Vegas above 12 percent.

In Florida, some metros notably refute this trend as the state’s uninsured rate is over 11 percent, but West Palm Beach and Miami-Dade have some of the lowest vacancies among major U.S. markets. Medical office projects are slated to constitute approximately 70 percent of the space completed in Tampa this year.

In 2023, fewer medical office assets changed hands than in 2022. However, transaction activity is above the 10-year average in most regions. An aging population will necessitate medical office expansions long-term.

Marcus & Millichap cited a challenged borrowing environment and said this pressure will likely ease in 2024 as many investors expect interest rate cuts.

“Additionally, private investors have become more active in the space as institutions pull back,” according to the report. “Deals in lower price tranches have increased the use of seller financing in some cases, circumventing lender-based headwinds.”

The report said that the new supply would fall to a nearly two-decade-low construction as it will be reduced by 8.5 million square feet to approximately 500,000 fewer square feet of medical office space this year compared to last. This will push total inventory up by just 0.7 percent.

“Limited additions will prevent any major supply headwinds going into 2024 and beyond as new starts decrease as well,” according to Marcus & Millichap.

Vacancy rates will climb by 20 bps to about 9.8%, according to the report. Meanwhile, medical office tenants will still grapple with a prevailing labor shortage, complicating operator expansion plans.

The average asking rent for medical office space will rise by 1.3% to $23.40 per square foot by December as new buildings come online, reaching a more than two-decade high. Metros such as West Palm Beach, Salt Lake City, and Portland are expected to lead the nation in rent growth, concurrent with local vacancy rates below the national average, according to the report.

 

Source: GlobeSt.

Kaufman Hall Selected Financial Advisor To Securing Debt Financing Of Nine Building MOB Portfolio Located In Florida And Georgia

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Kaufman Hall & Associates, LLC (“Kaufman Hall”) was selected as the exclusive financial advisor to AW Property Co. (“AW”) related to securing debt financing for the acquisition of a nine-building, 348,416 square foot medical office portfolio located in Georgia (“Georgia Portfolio”) and a previously acquired two-building, 33,154 square foot medical office asset unencumbered by debt located in Florida (“Florida Asset”).

The eleven on- and off-campus medical office buildings spanning 381,570 square feet are a mix of core, core-plus, and value-add assets.  Much of the Georgia Portfolio is affiliated with a dominant, physician-owned, multi-specialty clinic in the region. AW acquired the Georgia Portfolio on an off-market basis through an existing relationship.

Kaufman Hall’s Role

On behalf of AW, Kaufman Hall undertook a competitive process to secure debt financing for the Georgia Portfolio and the Florida Asset.  Kaufman Hall approached a diverse pool of debt providers that had prior medical office building experience or were seeking entry into the sector.  Based on Kaufman Hall’s efforts, AW’s track record, and the quality of the opportunity, attractive proposals were received from debt providers, despite a challenging capital markets environment. Ultimately, AW selected a well-established national commercial bank as the lender.

About the Companies Involved

Kaufman Hall

For more than 30 years, Kaufman Hall has provided independent, objective insights to assist clients in fulfilling their missions, achieving their goals, and tackling their toughest problems. Kaufman Hall’s real estate practice provides transaction advisory services to many of the nation’s top healthcare providers and developers/investors of healthcare real estate. Kaufman Hall’s focused model provides clients with an unmatched level of relevant experience & independent transaction analysis, structuring and execution capabilities. Kaufman Hall’s real estate practice was launched in 2021 through the acquisition of Healthcare Real Estate Capital (HRE Capital). Providing both consultative and transaction-oriented services, including asset/portfolio joint venture structuring, recapitalizations, dispositions and other related real estate advisory services, the real estate practice has been involved with more than $15 billion of sector-specific real estate transactions across the United States since 2008.

AW Property Co.

AW is a real estate investment and operating company that specializes in medical office buildings in major markets throughout the Southeast United States.  Since 2005, AW has sponsored healthcare real estate investments with an aggregate market value of $800 million, constituting 3.3 million square feet of rentable space in fourteen distinct submarkets.  Headquartered in in North Palm Beach with regional offices throughout the Southeast, AW has a highly dedicated, customer-focused team of professionals with expertise in all facets of real estate acquisitions, redevelopment, finance, operations and asset management.

 

Source: HREI