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When Will Medical Office Building Sales Bounce Back?

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On the surface, the current state of the medical office building (MOB) investment market is about as slow as it’s been for years, maybe decades.

However, as is typically the case with a complex, robust industry like HRE, there is much more going on than meets the eye.

The InterFace Healthcare Real Estate conference investment panel included (from left to right): John Fry, SVP- Acquisitions, Rendina Healthcare Real Estate; Ryan Crowley, SVP, Investments, Healthcare Realty; Alex Bell, Partner, Catalyst Healthcare Real Estate; Eric Lee, Managing Director Medical & Life Sciences, Berkadia Real Estate Advisors LLC; Chris Morgan, Senior Manager, Investments, Big Sky Medical; and the moderator, Andy Dow, Shareholder, Member of Board of Directors and Chair, Real Estate Industry Group, of Winstead PC. (PHOTO CREDIT: HREI)

“The first half of the year volume was down … anywhere from 66 to 71 percent versus the first half of 2022,” said Andy Dow, an attorney with a focus on healthcare real estate (HRE) and the chair of the Real Estate Industry Group with Dallas-based Winstead PC. “The (second quarter) volume was roughly $1.2 billion, which was the lowest quarterly volume ever recorded by RevistaMed (an HRE data and research firm) since it was founded in 2015.”

So when will it bounce back?  Probably not before the elections of 2024, according to the InterFace Healthcare Real Estate panel.

 

Source: HREI

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The Year’s Biggest MOB Deal Could Be A Foreclosure

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Although Ventas did not delineate the MOBs that are included, a search of the RevistaMed database found that Santerre is listed as the owner of about 100 properties. The largest is the 169,000 square foot Elm Plaza at 908 N. Elm St. in Hinsdale, Ill. (PHOTO CREDIT: OfficeSpace.com.)

Most healthcare real estate (HRE) professionals seem to agree that, primarily due to higher interest rates, 2023 medical office building (MOB) sales volume will pale in comparison to recent years.

So the recent announcement that an 88-asset MOB portfolio is about to change hands is big news – and could very well end up being the year’s largest transaction. But, ironically, higher interest rates are exactly what are driving the deal.

Chicago-based Ventas Inc., the nation’s second largest healthcare real estate investment trust, announced on March 31st that it intends to foreclose on a large HRE portfolio that was put up as collateral for a 2019 loan.

 

Source: HREI

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Cap Rates On The Rise

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Amid all of the uncertainty in the healthcare real estate sector due to rising interest rates and inflation, Mike Hargrave, principal with Arnold, Md.-based HRE data firm Revista, noted during the firm’s recent conference in Bonita Springs that there are two main questions on the minds of most HRE professionals.

“At Revista, the biggest questions we’re getting are, where are cap rates at and where are they going?” Mr. Hargrave said.

A bit later, after he’d provided plenty of data on medical office building (MOB) sales transaction volumes and capitalization rates, or estimated first-year returns, Mr. Hargrave noted: “So generally, when people ask how much are cap rates going up, I tell them, ‘Well, it depends upon what kind of asset you’re talking about and where it’s located.’”

For the most part, however, Mr. Hargrave indicated that MOB cap rates have been on a steady upward march since the third quarter (Q3) of 2022, amid a time of rising interest rates, pricing uncertainty and greater difficulty in obtaining debt for acquisitions.

Mr. Hargrave presented plenty of data on MOB sales volumes and cap rates during a presentation he gave with another Revista principal, Hilda Martin, during the 2023 Revista Medical Real Estate Investment Forum (MREIF) conference, held Feb. 28 to March 2 at the Hyatt Regency Coconut Point in Bonita Springs, Fla.

 

Source: HREI