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Total MOB Sales Volume Tops $11 Billion In 2020

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In late January, Arnold, Md.-based Revista, a research firm focused on providing a wide variety of healthcare real estate (HRE) data to its subscribers, reported that medical office building (MOB) sales had “preliminarily” totaled $10.2 billion in 2020.

The reason for the “preliminary” tag was that Revista was presenting the data just a few weeks after the end of 2020, not giving it enough time to track down all of the sales that took place, including a flurry of transactions that totaled well over $600 million in the last few days of the year.

In presenting the $10.2 billion sales figure, as well as many other statistics, Jan. 26 during Revista’s first of six planned informational webcasts planned for 2021, Hilda Flower Martin, a principal, said “There are still more (transactions) coming in, so this ($10.2 billion figure) is definitely going to be revised upward. I wouldn’t be surprised if it doesn’t get close to or surpass $11 billion, which is right in line with what we’re typically seeing (in recent years) in the sector.”

Ms. Martin’s prediction was indeed correct, as Revista recently released its final MOB sales statistics for 2020.

 

Source: HREI

The Denver And Colorado Springs Medical Office Building Market Is Vibrant And Growing

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The Colorado medical office building market comprises 23.9 million square feet of total space.

Of this amount, approximately 17.6 million sf, or 74%, is located within Colorado’s two largest core-based statistical areas, Denver and Colorado Springs. Inside these metros, the outpatient/MOB market is vibrant, growing and coveted by medical office investors.

The Denver MOB Market

The Denver MOB market contains 14 million sf of space across 275 MOBs that Revista tracks (7,500 sf and greater). Denver’s MOB market has been growing recently as more than 800,000 sf has delivered to the market during the past year. Despite inventory growth of 6% during the past year, the MOB occupancy rate has held steady and even risen in recent quarters. The MOB occupancy rate in Denver stands at 90.5% as of the second quarter of 2020 (Figure 1). This is up 20 basis points from first-quarter 2020 and up 10 bps from the second quarter of 2019. Overall, Denver’s MOB occupancy rate has performed quite admirably during the beginning stages of the COVID-19 pandemic.

The average triple-net MOB rent in Denver was $21.47 per sf in second-quarter 2020. Same-store rent growth was 3.5%, year over year. Denver’s same-store rent growth metric ranks 15th of the 125 CBSAs Revista tracks and compares to just 1.5% same store year-over-year rent growth for the aggregate top 50 CBSAs.

Overall, from both a supply/ demand perspective and a revenue or rent perspective, the Denver MOB market is strong and growing which makes it attractive for investors.

One form of investment in the market is through new construction. Denver currently has 574,000 sf of MOB construction in progress, which represents 4% construction vs. inventory. Fidelis Healthcare is developing a 100,000-sf MOB near the campus of SCL St. Joseph Hospital. The MOB is scheduled to be complete later this year. Synergy Medical Partners also is constructing a 100,000-sf MOB on the campus of Swedish Medical Center. The MOB also is scheduled to be complete this year and contains first floor retail.

Mortenson Development and Seavest Healthcare Properties are planning to build a 43,732-sf MOB in the fast-growing Candelas master planned community in Arvada. Mortensen and Seavest have been longtime investors in Colorado health care real estate.

The Colorado Springs MOB Market

The Colorado Springs MOB market contains 3.6 million sf of space, which makes it the 73rd largest MOB market Revista tracks. The Colorado Springs MOB market has not seen as much recent growth as Denver and just 72,000 sf has delivered in the past year. The Springs MOB occupancy has performed quite well recently and stands at 90% as of the second quarter. In fact, the lack of recent inventory growth has allowed the occupancy to climb from a low of 86.8% in the fourth quarter of 2018 to 90% in second quarter 2020 (Figure 2).

 

The average triple-net rent in Colorado Springs was $15.72 in the second quarter. Base rents for MOBs in the Springs range from $11.80 (10th percentile) to $24.01 (90th percentile), according to Revista’s metro report on Colorado Springs. Same-store year-over-year rent growth in the Springs was 2.7% in the second quarter, also above the 1.5% registered by the Top 50 CBSA benchmark.

Strong fundamentals are attracting new MOB development in the Springs. There is 360,000 sf of MOB space in progress across six projects in the Springs area. UCHealth has two projects under construction. It is building a 65,000-sf MOB next to Grandview Hospital. Scheduled to complete later this year, UCHealth will lease the project from MBRE Healthcare Real Estate. In addition, UCHealth is scheduled to break ground on the 120,000-sf Eastview Medical Center. This project is located on the east side of town and will contain an ambulatory surgery center, outpatient imaging, medical and surgical specialty services, an orthopedic center and outpatient rehabilitation, according to UCHealth.

The Colorado Medical Office Building Transaction Market

Attractive real estate fundamentals also can lead to a robust transaction market. Both Denver and Colorado Springs have seen strong MOB transaction activity recently.

In Denver, over $139 million worth of MOBs have traded hands during the past year. The current average price per square foot is $270 and the average trailing 12-month cap rate is 6.5% as of the second quarter (Figure 3). Notable recent trades in the Denver market include the sale-leaseback of the Southeast Pediatric Medical Center in Centennial to the Thompson Realty Group of Lincoln, Nebraska.

Healthcare Realty Trust paid $33 million in March for the Ridgeline Campus, located in Highlands Ranch. The Ridgeline Campus is a 137,000-sf MOB to which Children’s Hospital Colorado Pediatric Mental Health Institute recently moved.

In Colorado Springs, over $85 million worth of MOBs has traded during the past year. The average price per sf is $277 and the average TTM cap rate was 6.2 in second-quarter 2020 (Figure 3). A notable recent trade includes MBRE Healthcare’s $33.6 million purchase of the three-building, 149,428-sf Union Park Medical Campus. This was a high-profile trade that closed during the middle of the pandemic.

Overall, Denver and Colorado Springs are good examples of the attractiveness of the outpatient/MOB sector and its merits to investors and other stakeholders.

 

Source: Colorado Real Estate Journal

Tax Advantage Group Closes $8.5 Million Faith Family Medical Center to Continue Support in Federal Promise Zones

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Tax Advantage Group LLC (TAG), a consulting firm specializing in New Markets Tax Credit (NMTC) financing, recently closed its third NMTC transaction in a Federal Promise Zone with the funding of Faith Family Medical Center (FFMC), located in Nashville, Tennessee.

There are 22 Federal Promise Zones, which are defined by The US Department of Housing and Urban Development as high poverty communities where the federal government partners with local leaders to increase economic activity, improve educational opportunities, leverage private investment, reduce violent crime, enhance public health and address other priorities identified by the community.

FFMC, is a non-profit medical center providing health, wellness and medical services to the working uninsured and other underserved people in Middle Tennessee.  They are currently operating out of an aging, undersized facility located in a community with 46.2% poverty.  With the help of Reinvestment Fund and SunTrust Community Capital, they were able to leverage a successful capital campaign through a NMTC financing structure to finance a new medical center, doubling their capacity, in the Nashville Federal Promise Zone.

“When we began our capital campaign to build a larger facility, we planned to build a 10,000 square foot one story building on our current property. When we heard about the NMTC program, we began to dream about the possibility of building something even bigger,” saidLaura Hobson, FFMC’s President and CEO.  Hobson went on to say, “through Tax Advantage Group’s leadership in walking us through the NMTC journey, we are now able to build a two story 17,000 square foot building that will allow us to grow and widen our reach even more. The expansion of our services would not be possible without the NMTC program, and that program would have been unattainable if it weren’t for Tax Advantage Group’s diligent work and guidance throughout the process.”

The financial closing of FFMC represented the newest transformative deal financed by Tax Advantage Group in a Federal Promise Zone, with all three totaling nearly $60 million of NMTC, including:

Swiss Krono, Barnwell, SC – $42.25 million of NMTC financing was provided to this Non-Metropolitan Operating Business for the construction of a high-density fiberboard production facility collocated with their existing engineered flooring line, making them one of the largest employers in the South Carolina Low Country Promise Zone; and

Ascension St. Vincent YMCA, Evansville, IN – This $9 million NMTC financing package supported an $18.1 million facility combining a 10,000 square-foot primary care center with a new 70,000 square foot YMCA which, in addition to serving over 12,000 low-income residents, replaces the over 100-year-old original Downtown YMCA located in the Evansville, Indiana Promise Zone with 37.5% poverty.

TAG has structured and facilitated NMTC investments totaling over $716 million to 55 businesses and non-profits across the United States. The funds supplement over $1.1 billion in combined financing. To date, TAG‘s portfolio has created 12,736 direct jobs; served over 332,000 clients through its nonprofit investments; and helped create over 6.3 million square-feet of new and improved commercial and industrial real estate.

Aimed at stimulating investment and economic growth in low-income communities (LICs), TAG‘s current portfolio consists of investments in areas with poverty rates as high as 66.6%, median family income as low as 14.24%, and unemployment rates as high as 31.2%.

TAG NMTC Program Senior Manager Pete Byford, said, “We could not have delivered these financially sound, impactful projects without our investors, our amazing borrowers, and our community partners.”

 

Source: Yahoo! Finance