Since its founding in 2004 as an acquirer and developer of student housing properties, Chicago-based CA Ventures LLC has branched out into other property types, including residential, industrial and senior housing.
Over the years, the firm that was originally known as Campus Acquisition – the “CA” in CA Ventures – grew into what it calls a “global, vertically integrated real estate investment management company with more than $13 billion of assets across North America, South America and Europe.”
In early 2020, the investment firm made its move into healthcare real estate (HRE) with the launching of a medical office and life science division.
In recent months, the company announced that the healthcare division had evolved into a new entity, CA Health and Science Trust Inc. (CAHST), a private real estate investment trust (REIT) focused on acquiring and developing value-add and core-plus medical office and life science facilities across the country.
Leading the private REIT are: as president, Russell Brenner, a 24-year commercial real estate (CRE) veteran with a strong background in acquiring and developing medical office buildings (MOBs) and ambulatory surgery centers (ASCs); and, as chief investment officer, Jesse Ostrow, also a CRE veteran with a strong background in real estate private equity, investment banking and consulting.
The two executives were previously with well-known Chicago-based HRE firms, as Mr. Brenner was a partner from 2012 to 2019 with Stage Equity Partners and Mr. Ostrow was the chief investment officer with MedProperties Group, a medical real estate investment, development and operating platform. He was with the firm from 2011 to 2018.
In announcing the launching of CAHST in September, the REIT also announced an initial equity commitment of up to $245 million from three partners; New York-based Davidson Kempner Capital Management LP, New York-based Monarch Alternative Capital LP and CA Ventures.
The new REIT has certainly gotten off to a fast start.
According to Mr. Brenner: “The REIT plans additional follow-on equity raises in the coming 24 months. With leverage, we will seek to deploy roughly $2 billion over the next 36 to 48 months.”
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As Revista’s third quarter webcast came to a close on Oct. 21, Mike Hargrave, one of the firm’s principals, summed up the information the healthcare real estate data firm had presented that day.
“The overall theme of this webcast is that medical office buildings and healthcare real estate had a very strong quarter,” Hargrave said, adding that the strong quarter was “representative of the current overall state of the sector.”
Indeed, Q3 was a strong quarter for MOBs, highlighted by the fact that sales came in at $4.6 billion, the second highest quarterly total – behind the $4.9 billion of sales in Q2 2017 — since Revista began tracking such data in 2015.
That strong Q3 puts year-to-date MOB sales for 2021 at $9.6 billion, all but assuring that the sector will reach seven straight years of topping $10 billion in sales — a benchmark indicating that the sector is one of the most desirable asset classes among investors of all types.
“In addition to strong sales during the third quarter, MOB sales on a trailing 12-month (TTM) basis, at $13.7 billion, was the highest we’ve seen in several years,” Hargrave added.
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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.
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Indeed, Q3 was a strong quarter for MOBs, highlighted by the fact that sales came in at $4.6 billion, the second highest quarterly total – behind the $4.9 billion of sales in Q2 2017 — since Revista began tracking such data in 2015.
