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Medical Office Rents Weather The COVID-19 Storm

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The medical office sector hasn’t been immune from issues caused by COVID-19.

But Kyle O’Connor, president and founder of MLL Capital, would still rather be in that commercial real estate asset class than any other part right now.

“The medical health care sector and the life science sector seems to be holding up a bit better than some other property types. Certainly, hotels or retail are having a different experience. For us, it’s one of the reasons why we liked the sector and continue to like it a lot. We viewed the asset class as having a number of supportive features associated with it.”

Still, O’Connor says there are issues in the medical sector.

“A lot of people are very concerned that the risk of catching something in the doctor’s office might be greater than whatever the issue in the house. Over time, I think the expectation is that it will dissipate, and the need for those basic health care services will resume.”

In April, MLL, which has 15 buildings in the medical and life sciences sector, collected 97% of rents. In May, the company collected more than 97%. And, as things open up in June, O’Connor sees things improving further. America’s vast, aging baby boomer demographic is one reason that O’Connor likes the medical segment, but it’s not the only reason.

“We find that a lot of the practices are in relatively healthy condition. Their leverage levels tend to be lower in many cases. It is a business that does not have a lot of high highs or low lows.”

In a market where there’s still a lot of capital, and other sectors of CRE are floundering, O’Connor expects more interest in medical office properties. But interested buyers will run into roadblocks.

“Because of the specialty nature of the property types and the things that you learn by being in the space for a bit, I’m not concerned. It is a type of property where it’s very beneficial to have experience and knowledge. We don’t think it’s one that, you know, capital readily flows into. But investors are still taking a wait-and-see approach for the time being. For a small asset class like medical is, it’s too early to make any real prognostications. We do think that it is the right time to be in the market and looking for investment opportunities, which we’re trying to put a lot of energy into doing right now.”

Right now, O’Connor doesn’t see large loads of capital focused on the space.

“They may have some other opportunities that are distracting them or maybe presenting themselves.”

Right now, O’Connor sees that capital focused on other targets.

“I think if you’re an opportunistic fund, you’re probably spending a lot more time looking at the hotel sector, than you would be the medical sector. There’s probably distress pricing happening there. I’m sure some hotels are in default. Whereas, most medical office buildings have had a performing loan in March or probably still going to have a performing loan in the future.”

 

Source: GlobeSt.

South Florida: A Center For Hemispheric And Global Health Care

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By the time a foreign cardiac surgeon is standing side by side in the operating suite with Joseph Lamelas, M.D., to learn how to perform the minimally invasive cardiac surgery Lamelas perfected, that physician would have spent six months on a waiting list to do so.

That’s the allure and importance of training with University of Miami Health System’s chief of cardiac surgery. Whether to train the next generation of world physicians, or receive premier care, health care that reaches the hemisphere and beyond is a significant driver to the South Florida economy.

So much so that 2016 figures from Florida Tax Watch and the Agency for Health Care Administration found that medical tourism brings some $6 billion to Florida and “medical tourism” is a destination feature listed by the Greater Miami Convention & Visitors Bureau.

More than cosmetic procedures, however, patients seeking treatment and medical students hoping to advance their training are finding care and training that can be scarce in the region.

“UHealth delivers such care from locations in Miami-Dade, Broward, and Palm Beach counties, as well as elsewhere around the state,” says Chad Ritch, M.D., associate co-director of UHealth International at the University of Miami Health System.

Baptist Health International, a division of Baptist Health South Florida, served some 12,000 individuals, executives, and families in 2018. The recently opened Hilton Miami Dadeland hosted international patients visiting Miami for treatment. The network recently expanded into Broward and Palm Beach counties.

“Miami-Dade county-run Jackson Health System sees about 3,000 international patients annually,” says Diamela Corrales, director of the international programs and guest services division at Jackson Health System. “By treating major medical specialties such as trauma, neonatology, rehabilitation, transplant and neurosurgery, care is provided to patients hailing from locales where this type of medical technology and advances are not readily available.”

Certified translators at Hollywood-based Memorial Health System, which includes five hospitals plus Joe DiMaggio Children’s Hospital, all operate under the provider’s Global Health Initiative, first launched in 2013. Translators versed in 160 languages allow doctors to converse with patients and consult with fellow physicians in real time on-site or abroad.

Not included in this activity are advancements in health care technology, like those from Sensus Healthcare, Inc., the maker of non- and minimally-invasive treatments. Health tech, medical device and life science startups drive a third of all venture deals in South Florida in 2019, up from less than a quarter in 2018, according to the biannual “eMerge Insights” report.

 

Source: Florida Trend

Expansion in DNA Research Is Driving Strong Demand for Life Science Space in the United States

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A growing seniors population and increasing prevalence of high-cost diseases like diabetes has generated a surge in funding for healthcare research in recent years and, along with it, demand for life science-biotech lab space.

But the biggest impact on demand for wet lab space has resulted from mapping of the complete human genome and subsequent advances in biotechnology, according to Ian Anderson, director of research and analysis with real estate services firm CBRE. Anderson notes that the price for sequencing a human genome has dropped from $100,000 to just $1,000, resulting in massive expansion in DNA research and development of new biotech tools, like the CRISPR gene editing system.

“This ‘gold rush’ of information is providing the pharma industry the ability to tailor treatments to individuals and actually cure diseases, not just diagnose them and treat symptoms,” Anderson says.

As a result, lab space vacancy in the top three life science markets—Boston, the San Francisco Bay Area and San Diego—averaged between 4.0 and 6.0 percent at the end of 2017, the most recent period for which data is available, according a report from real estate services firm CBRE. In certain submarkets, including the Bay Area’s Peninsular and Emeryville/Berkley markets, Cambridge, Mass. and San Diego’s Torrey Pines, vacancy ranged between 0 and about 2.5 percent, respectively.

With ongoing high demand, vacancy and upward rent momentum have strengthen even further since the report was released, according to Anderson.

Tight vacancy is generating new construction in the San Francisco Bay Area and Boston-Cambridge markets, as well as growing life science markets, including Chicago and the Raleigh-Durham Research Triangle. San Diego is seeing significant new construction too, as well as redevelopment of office and industrial buildings for life science and biotech research and development.

These three markets have received the lion’s share funding from both the National Institutes of Health (NIH) and venture capital (VC) firms. According to the California Life Sciences Association, the state’s life science and biotech companies were awarded $3.8 billion in NIH grants in 2017 and attracted $6.7 billion in VC investment. The Massachusetts Biotechnology Council reported that Massachusetts life science and biotech companies were awarded $2.7 billion in NIH grants in 2017 and attracted $3.6 billion in VC investment.

“The life science sector is seeing record levels of IPO and funding activity,” says Greg Bisconti, Cushman & Wakefield executive director who heads the company’s life science practice nationally. A third quarter 2018 Cushman & Wakefield report notes that fundraising, IP, and merger and acquisition (M&A) activity are at an all-time, with Big Pharma playing a significant role in M&A and driving significant growth in all major biotech hubs.

The boom in funding has ratcheted up competition for talent and facilities, setting off a “war for talent” among life sciences companies, notes Bisconti.

“There’s a lot of hiring and organic growth of companies, but every company is limited by talent available,” he says. “When building and growing a life sciences company, key talent is being selective about the job opportunity and their future workplace, which highlights that companies need to secure quality space in which to grow talent.”

More patents are coming out of the New York life science cluster than San Francisco and Boston combined, according to John H. Cunningham, executive vice president and New York City regional market director at Alexandria Real Estate Equities. With both U.S. and European life science companies establishing beachheads in the city, Alexandria recently announced plans for expansion of the life science cluster, which is located on 3.5 acres in Manhattan’s Eastside Medical Corridor near New York University’s academic medical center and Bellevue Hospital. The company also acquired two nearby properties that will be redeveloped for its life science and biotech tenants.

The addition of the 550,000-sq.-ft. North Tower will bring total space at the Alexandria Center to approximately 1.3 million sq. ft. The building will provide collaborative space for scientists, as well as start-up space.

The company also acquired the 593,000-sq.-ft. Pfizer building at 219 East 42nd St. and a 177,000-sq.-ft. industrial building in Long Island City, both of which will be redeveloped. “We’re building an ecosystem that will allow growing companies to remain within our platform. People want to stay here with peers because it helps them grow and flourish,” says Cunningham.

CBRE’s Anderson notes that Los Angeles is producing a lot of STEM talent as well, and there is building momentum for a cluster around Harbor-UCLA Medical Center in the South Bay-Torrance area and life science and biotech companies located around UCLA and in the San Fernando Valley and Thousand Oaks areas. For now, however, many life science and biotech tenants want to be close to where collaboration and scientific breakthroughs are happening (San Francisco Bay Area, Boston-Cambridge or San Diego), Anderson notes.

 

Source:  NREI