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Supurva Healthcare Group Targets Medical Office Buildings To Launch Its Real Estate Portfolio

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Booming is the only word to describe demand for medical office buildings,

With the nation slowly recovering from the COVID-19 pandemic, investors have concluded that the number one real estate investment opportunity today is MOBs. The formerly niche product has moved front and center as multifamily yields have compressed in recent years and the current retail and broader office investment landscapes have seen a large-scale disruption related to the ongoing COVID-19 issue.

The MOB asset class has exhibited consistent growth in recent years, buoyed by both increased demand for outpatient services and strong historical performance. MOBs are a significant subset of the greater office asset class and are growing in stature among experienced real estate investors. As the name suggests, MOBs are developed specifically for tenants in the medical field to consult with patients and perform various surgical procedures.

Supurva’s decision to invest in MOBs is coming at an opportunistic time as it seeks to create a portfolio of MOBs. It is the Company’s firm belief that that despite the economic turmoil caused by COVID-19 and the growth of telehealth, the MOB market has and will remain resilient. MOBs will sustain their power through the coming decades as the U.S. population ages, consumes more healthcare services, and receives more of those health care services at outpatient settings.

With advances in medical technologies, procedures that once could only be performed at hospitals or ambulatory care facilities can now be performed at the physician’s office, further fueling demand for MOBs. Investors are beginning to realize that MOBs represent an alternative asset class that is rapidly increasing in popularity.

“The number one takeaway from a recent real estate investment symposium was simple and straightforward,” reported Mr. Murphy, Supurva’s chief executive officer. “Investors should liquidate their other real estate holdings and put their money into MOBs. For real estate investors seeking a steady return on their investment the only safe, secure, and reliable real estate investment opportunity today is clearly MOBs. Supurva will be working with real estate professionals throughout the country to identify undervalued and underutilized medical office buildings.”

Jones Lang Lasalle, a leading real estate investment company reported in a February 2021 article that ​despite the economic downturn of 2020, there has been no downturn in demand for MOBs. Despite the financing obstacles witnessed during the pandemic, sales of MOBs exceeded $13 billion in 2020, which was on par with pre-pandemic sales levels in both 2018 and 2019. While other real estate investments declined by an average of 33%, MOBs sales remained strong, further demonstrating that MOBs can withstand pandemic-related operational challenges.

JLL went on to report that medical offices remain a favored sector for real estate investment as evidenced by new entrants into the space, including institutional investors, private equity funds, and individual investors. The compelling investment thesis for medical office space has generated a significant supply of investment capital (both debt and equity) waiting to be deployed into this space, providing a very liquid and competitive market for sellers.

The demand-driven increase in healthcare services from a growing and aging population (10,000 people per day turning 65) has pushed hospitals and health systems to create lower cost outpatient care alternatives.

JLL is not he only real estate investment company focusing on MOBs. According to the CBRE Group, compared to other asset classes and the overarching office class specifically, MOBs generally exhibit uniquely steady long-term occupancy rates. CBRE data suggests that medical office vacancy rates have consistently been lower than the total office sector, with vacancy rates falling from 11.1% in 2010 to 8.4% by mid-year 2018. According to the CBRE 2019 Healthcare Real Estate Investor & Developer Survey Results, 99% of CRE firms stated that between 2018 and 2019 the occupancy of their medical office portfolios either remained stable or increased from the year prior.

The strength of MOB occupancy rates is partly due to the length of leases that medical tenants typically sign. Because the physical features of MOBs are very specific-offices, medical treatment rooms, surgical rooms, and waiting rooms-the build-out is often more costly than that of a traditional office tenant, and medical tenants typically sign longer leases for this reason. Tenants also tend to stay put longer given the high switching costs associated with relocating. In addition to stable occupancy rates,

MOBs have also exhibited consistent rent growth over the past ten years, which can be seen in the below graph. In 2018, the average asking rental price increased to almost $23/SF, a 1.4% increase year-to-year. Average asking rent for U.S. MOBs remained at a near-record level in Q2 2019 according to CBRE.

“MOBs represent the Company’s future and MOBs represent the RX for success,” Mr. Murphy commented.

 

Source: yahoo! finance

The Top Three Reasons Why Healthcare Real Estate Is Recession-Resistant

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This has been a roller coaster of a year when it comes to the economy, and many are talking about the potential of a recession happening very soon.

According to the Conference Board Consumer Confidence Index, August has been just slightly down. Consumer spending makes up 70 percent of the U.S. economy. If sentiment moves down, consumers and purchasing managers begin to curtail spending and an economic slowdown is inevitable.

Unfortunately, the more the news and articles focus on the impending recession, the more it becomes a self-fulfilling prophecy. Other signs that point toward a potential recession include an unemployment rate that is at the lowest point in 49 years, trade wars that are causing material prices to increase, and geopolitical unrest abroad that could have a huge impact on the U.S. economy. On the bright side, wages appear to be moving up, initial unemployment claims remain low, interest rates support continued investment and inflation remains in check.

There is a close correlation between real estate values and the health of the U.S. economy, but like most things, it is quite nuanced. As companies retract and give back space, occupancies fall and therefore so does the value of commercial real estate. This problem is exacerbated when debt covenants are violated and/or maturities occur during a recession, often requiring re-margining of the debt and/or a fire sale to meet an impending maturity.

With all this in mind, one of the safest asset classes in commercial real estate during a recession is medical office. Below are three reasons behind this.

Tenant Retention

Medical tenants tend to be “stickier” than their general office counterparts. This is because landlords and their provider tenants typically make a much higher investment in the physical space and sign longer-term leases.

The current cost of typical West Coast medical tenant improvement is in the mid-$100s per square foot. In a contracting market, landlords are reluctant to make the necessary investment to entice medical tenants to move, and tenants themselves become more resistant to funding tenant improvements in times of economic uncertainty.

Under normal circumstances, medical tenants are “stickier” because they need to maintain a consumer-facing presence, more akin to a retailer. While consumers may cut back on their lattes during a recession, they are less likely to forgo medical attention and, often, services are covered by insurance. Even those consumers that lose their jobs are often covered by government plans, which helps to moderate the impact and allow them to continue seeking medical care when needed.

Demographics

Medical office also has demographics on its side. According to the U.S. Census Bureau, the number of Americans age 65 and older is expected to double over the next three decades.

An aging population requires more healthcare professionals and more space to deliver medical services. The silver tsunami’s demand for healthcare will cause the patient volume to increase beyond what the current infrastructure can support.

A recent article by The National Center for Biotechnology Information reports that patients age 65 or older make up 13.5 percent of the U.S. population, but represent over 45 percent of the utilization of healthcare. As this age cohort swells, we will need more physical space to meet the demand, as well as physicians and other medical practitioners.

Supply And Demand

A substantial rise in capital has occurred in this sector that is tied to a greater awareness and acceptance by investors of the durable income characteristics of medical office. There is up to $5 billion of buying power in this industry, which is reinforced by the need for late-cycle defensive plays in a challenging return environment, according to the August Healthcare Capital Markets Perspective report from JLL managing director Mindy Berman.

Healthcare is part of the wave of capital raised in niche sectors, notably outraising traditional real estate classes by a factor of four to one. An uncertain economic forecast and low interest rates create higher medical office rates and attractive, stable returns.

The supply of healthcare real estate is low; the sector is a fraction of the size of general office. The institutional investors and REITs are long-term owners, while the healthcare systems themselves own upward of 70 percent of the real estate in this space. This limited supply, coupled with the aforementioned capital, makes the space attractive.

The fundamentals of healthcare real estate are solid. Though a recession could be around the corner, Meridian, a developer and investor specializing in healthcare developments, believes real estate will remain a strong investment. An aging demographic, desire for recognizable, accessible space and the fact that demand continuously outweighs supply in this sector all contribute to this viewpoint.

 

Source: REBusiness Online

Fort Worth’s Near Southside Primed To Become Innovative Economic Force

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Earlier this year, Fort Worth leaders had plans for a first-of-its-kind medical innovation district south of downtown, an ambitious undertaking that could attract medical-related enterprises to the city and potentially could become an innovation hub.

A new JLL report shows just how much Near Southside has grown over the years—with the potential to become a major medical hub. The city’s plan would connect existing medical institutions and organizations with startups and business incubators with hopes to attract thousands of additional healthcare and technology-related jobs to the area, according to JLL’s report.

Near Southside is already home to major healthcare centers such as Cook Children’s Healthcare System, Texas Health Harris Methodist, Baylor Scott & White, and Medical City Fort Worth.

The 1,400-acre area known as the Medical Innovation District called Near Southside (PHOTO CREDIT: Fort Worth Economic Development Department)

In the report, JLL examines the history and future of the 1,400-acre area called Near Southside. JLL refers to the Fort Worth district as “an emerging mixed-use district” where some of the city’s newest retail, office, and multifamily housing projects are located. The area has roughly 30,000 people employed within its boundaries, making it the second largest employment center in Tarrant County outside of downtown Fort Worth.

INTERACTIVE MAP: JLL map shows the growth from 2007 to 2019 in the Near Southside

The Near Southside area was first developed in the early 1900s in the area north of the Fairmont residential neighborhood. A nonprofit, member-funded organization called Near Southside Inc. was formed in 1995 to look after the area’s development. The nonprofit also manages Tax Increment Financing (TIF) District No. 4, which was created in 1997 to help with revitalization efforts.

In the ensuing years, Near Southside has seen major economic growth. The district’s taxable value was $229.7 million in 1997 and $729.3 million in 2017, according to JLL. Near Southside is projected to have increased its base value by just over 350 percent to over $1 billion by fiscal year 2024.

Improved Infrastructure And Housing Growth

Infrastructure in the area has been improved with the 2014 retrofit of West Rosedale Street from a six-lane road to a four-lane street with bike lanes, on-street parking, and pedestrian improvements. An $8.5 million reconstruction of South Main Street also happened last year.

The Hemphill-Lamar Connector, a $53 million tunnel under Interstate 30 with rail lines providing another downtown route, is scheduled to open in 2020.

Housing in the area has also seen growth in recent years with roughly 2,000 multifamily units having been built since 2000 and three more currently under construction. On top of this, an additional 300 units have been proposed, including a 10-story mixed-use project.

A proposed 2.1-mile extension of TEXRail southwest would add a new station to serve the major hospitals in Near Southside. Those hospitals provide a major economic and employment base for the area, according to JLL.

According to a 2014 study by the University of North Texas, the healthcare facilities in Near Southside have an annual economic impact of $4.2 billion for the city of Fort Worth and $5.5 billion throughout Tarrant County.

Robert Sturns, the economic development director for the city of Fort Worth, told Dallas Innovates earlier this year that the hope is Near Southside would “become the most livable medical district in the U.S.”

Creating a medical innovation district in Near Southside was a key finding from the Economic Development Plan accepted by the City Council at the end of 2017. The plan’s goal is to compete successfully on the national and international stage for “creative, high-growth businesses and the talented individuals who fuel them.”

The University of Texas at Arlington’s Center for Transportation, Equity, Decisions and Dollars was contracted to study the district’s needs and strengths, and Schaefer Advertising is expected to develop messaging and a brand for Near Southside Inc.

Near Southside has been a focus of innovative thinking in placemaking for years. The Brookings Institute’s global urbanization specialist Bruce Katz noted in 2016 that the area was “one of the most eclectic micro-economies I’ve ever encountered,” featuring everything from cultural and fine arts to hospitals and beer and whiskey manufacturing.

 

Source: Dallas Innovates