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8-Property Fresenius Medical Care Portfolio Trades Hands For $56.5 Million

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An undisclosed buyer has acquired an eight-property single-tenant healthcare portfolio from Kingsbarn Realty Capital for $56.5 million.

Fresenius Medical Care occupies all eight of the properties, and the average remaining lease term is 10.4 years on the original 15-year leases. The eight properties total 94,000 square feet and are located in Texas, Virginia, New York, Ohio, Georgia, and Missouri.

Fresenius-occupied properties have been popular among single-tenant net lease investors. According to The Boulder Group’s Third Quarter Net Lease Research Report in 2021, Fresenius was among the single-tenant properties to experience the greatest amount of cap rate compression for new construction properties. 7-Eleven and AutoZone were also on the list. Overall, cap rates for retail, office and industrial fell to 5.80%, 6.80% and 6.70%, respectively, and pricing in the sector is at all-time highs.

SRS’ national net lease group managing principals Matthew Mousavi and Patrick Luther and first VP Stephen Sullivan brokered the eight-property sale, representing Kingsbarn, as well as 14 other Fresenius-occupied properties since September 2021.

Mousavi says that the deals show the strong investor appetite for healthcare real estate, which he expects to continue.

“We see this trend continuing due to continued demographic changes with an aging population, the appeal of medical as an e-commerce resistant product type, and the fact that these operators tend to be well capitalized with strong financial positions—allowing for a more efficient sale to the marketplace as well as the availability of attractive financing for investors,” Mousavi said in a statement about the sale.

Other deals involving Fresenius include White Oak Healthcare MOB REIT’s acquisition of a seven-property medical office portfolio last year. The seven assets are 100% leased by Fresenius and DaVita affiliates. They total 67,110 square feet and are located in five states.

Medical office deals have become so popular that some office owners are trying to sell office properties with any medical tenants as medical office to capture better pricing and more investor interest. Some properties with as little as 25% medical office are being marketed as healthcare, according to Jon Boyajian, a principal at Echo Real Estate Capital, a medical office expert. However, investors should be cautious. Converting office into medical is no easy task.

 

Source: GlobeSt.

Seniors Housing and Skilled Nursing Could Be Investor Favorites

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Skilled nursing sectors investor favorites, a new report from Marcus & Millichap predicts.

Third quarter data showed that seniors housing move-ins are rising as more residents become vaccinated, with occupancy rising in both segments from July through September. Rents are also up annually by more than 1% across all four levels of care, led by memory care and assisted living.

Skilled nursing’s recovery was a bit more muted, with occupancy at 76.2% in November, down 1,000 basis points over 2019 numbers. But nationally, the average daily rate has increased or held firm in every quarter for more than a decade.

“But the near-term future is opaque with the pandemic still creating uncertainty,” Marcus & Millichap’s Benjamin Kunde notes. “However, seniors housing and skilled nursing facilities remain a key piece of the care spectrum, and the current environment may present unique favorable circumstances for investors. Temporary hurdles coincide with longer-term tailwinds that are becoming more apparent.”

Development has eased as of late, with less than 48,000 seniors housing units breaking ground in October, a 30% decrease from the typical pace. But Kunde says “robust demand is on the horizon, potentially outpacing supply and powering occupancy improvement.” In particular, aging baby boomers are likely to push a demand surge in the future, and they have money to spend: some estimates say the segment holds more than half of all US wealth.

One potential headwind? Labor shortages, which continue to plague both segments. A study by the American Health Care Association and the National Center for Assisted Living shows that three-fourths of respondents believe the staffing situation for assisted living has gotten worse from midyear through September.

“Many operators are utilizing higher compensation to attract staff, which is costly at a time when insurance fees have increased and infrastructure improvements are needed for virus containment,” Kunde notes. “Furthermore, some operators are allocating funds to ramp up marketing efforts, as many facilities are trying to fill rooms at the same time. Endeavors to entice prospective residents are especially important in the near term, as move-ins should accelerate once a broader return to workplaces reduces the number of people able to provide at-home care.”

Meanwhile, investors who pressed pause during the pandemic have a stash of capital and are reentering the market. Sales volume has matched the 2020 total already, and Kunde predicts that momentum will continue as owners list properties following the end of government stimulus funds which helped keep the industry afloat.

“The cost of capital remains low, and potential interest rate hikes and tax changes on the horizon could drive sales activity in the near term,” Kunde says. “Still, many investors are taking a cautionary approach as various short-term headwinds are lingering. Uncertainty in the marketplace and ongoing price discovery adds a wrinkle to getting deals done.”

 

Source: GlobeSt.

With Medical Office Buildings In Short Supply, Investors Are Widening Their Nets

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Although most healthcare real estate (HRE) professionals seem to agree that the fundamentals of the business haven’t changed much due to COVID-19, the pandemic seems to have accelerated at least one previous trend.

Investors appear increasingly willing to buy in HRE product types other than only medical office buildings (MOBs).

“Healthcare real estate used to basically mean medical office buildings,” said Philip J. “PJ” Camp, managing director with New York-based Hammond Hanlon Camp (H2), a healthcare investment banking and advisory firm. “But along the way it got expanded to mean seniors housing and long-term care, and now, I think, and this is being increased as a result of COVID. It’s further expanded to include post-acute care, behavioral health, inpatient rehabilitation facilities (IRFs) and others.”

Why the broadened focus in a post-pandemic world? Simply put, there just aren’t enough MOBs to go around.

A growing number of investors, including those with very deep pockets, have become interested in acquiring MOBs. That has created such strong demand for the product type that capitalization (cap) rates, or first-year estimated returns, are being compressed to historic lows.

“There’s been an awful lot of capital raised to invest in healthcare real estate,” Mr. Camp added, “and that capital has to go to work. And we’re seeing the demand for medical office buildings coming from a wide variety of investors, including a lot of private equity firms and the REITs (real estate investment trusts), which, by and large, have seen their stock prices recover” since the so-called COVID Crash of February to April 2020.”

 

Source: HREI