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Medical Office Building Sales Fell Nearly 50 Percent In Q2, But The Sector’s Outlook Is Strong

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The volume of MOB investment sales transactions in the second quarter of 2020 totaled around $2.2 billion, a 43 percent decrease compared to a year ago. In the first quarter of 2020, MOB investment sales volume reached $3.7 billion, according to data firm Real Capital Analytics (RCA).

The CoStar Group, another provider of commercial real estate data, pegs MOB investment sales volume at around $2.1 billion in the second quarter, a drop of 54 percent from $4.7 billion from a year ago.

“The volume of sales has absolutely hit pause, it hit the brakes really hard in the second quarter. You saw a significant drop in sales volume,” says Keith Pierce, research manager for Southeastern region with real estate services firm Transwestern. “The price per square foot did not really shift that much for those sales that did close. But by and large, just everybody froze in late March and largely stayed frozen until sometime in June.”

Average cap rates on transactions involving MOB assets remained at 6.6 percent at the end of the second quarter, flat with the figure from a year ago and the first quarter of 2020, according to RCA. CoStar pegs average MOB cap rates at 6.7 percent, also registering no change from the previous quarter.

“I anticipate seeing somewhat of a flattening,” says Russell Brenner, president of the medical office and life sciences division with real estate investment firm CA. “Once the market truly opens up again and lenders, which have been very selective in where they lend, come back into the market in droves and in a more significant way, I think you may well see cap rates continue to fall. But for probably the next two three quarters, I think it will be a largely flattening of cap rates.”

Earlier during the pandemic, many Americans largely postponed elective procedures, which put a dent on revenues for medical office tenants. But in states where those facilities are reopening, industry sources are reporting pent-up demand.

“We saw very few delinquencies, perhaps a handful of rent deferral requests, but by and large, the healthcare medical office tenancy as a whole stood up very well,” says Brenner. “Certainly now that elective procedures are back on in most parts of the country, MOBs are poised to bounce back and will continue to be a stable and reliable asset class.”

“Medical practices are running at 90 to 95 percent of pre-pandemic levels,” says Steve Hall, senior managing director for healthcare advisory services at Transwestern, who expects this level of demand to continue through the end of the year.

“Many of the company’s tenants are back to 80 percent of pre-pandemic levels of procedures and services,” says Jon Boley, senior vice president of acquisitions and development for HSA PrimeCare, a firm that develops, leases and manages medical facilities.

“The reason these businesses are not back to 100 percent is because they are having to do above-standard cleaning in order to disinfect surgery centers throughout the day,” Hall notes. “A factor that will shore up MOB assets in the future is the dearth of new construction happening right now. During a pandemic, a lot of people aren’t pulling the trigger on a brand new construction. The lack of construction going on right now I think is really going to keep the market strong since there is not going to be oversupply.”

 

Source: HREI

Medical Office Building Sales Surpass $10 Billion For Fifth Consecutive Year

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U.S. medical office building sales continued in an upward trend through the fourth quarter of 2019 and into 2020, driven by steady M&A activity within the healthcare market, says Cleveland-based Brown Gibbons Lang & Company (BGL).

Total MOB sales reached $11.2 billion in 2019, marking the fifth consecutive year that sales surpassed $10 billion and the third successive year topping $11 billion.

“The 2019 tally underscores the fact that medical office properties remain a core asset class,” says BGL. “Demographic and healthcare industry trends are firmly entrenched and forecasted to persist, supporting long-term demand for medical office space.”

Q4 2019 saw a total of 379 MOB deals valued at $4.3 billion, representing a 20% increase in transaction value. The average price per square foot decreased by 8% to $274 per square foot. The cap rate remained unchanged to 6.6%, pushing the 12-month average to 6.6%—a marginal contraction from from 6.7% over the previous 12-month average.

Based in Chicago, MB Real Estate (MBRE) emerged with a 29% share of acquisition volume in the Southeast market and a 12% share nationally in Q4 2019, according to BGL. MBRE’s reach in the Southeast was underscored by the purchase of 900 Village Square Crossing in Palm Beach Gardens, Florida..

Completed in 2012, the two-story, multi-tenant building with 38,944 rentable square feet was acquired from Prestige for approximately $381 per square foot, which is 15% and 23% above the regional and national averages, respectively.

“While sales volume is down year-over-year, pricing remains strong across medical office investments as investors seek to take advantage of continued strength in the U.S. economy,” says BGL. “We continue to see strong demand for medical office assets from public and private REITS as well as private equity and foreign capital investors. Major players dominated M&A activity throughout 2019, which is likely to continue; however, new investors are entering the marketplace, which is setting the stage for a busy first half in 2020,” according to BGL’s report. It also cites a fact that bears repeating: “U.S. healthcare jobs outpaced nearly every other sector during 2019.”

 

Source: Connect Media

Q3 Medical Office Building Sales Were $2.2 Billion

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After a slow start to the year, medical office building (MOB) sales have picked up in the second and third quarters (Q2 and Q3), providing a strong possibility that the final 2019 volume will top $10 billion for the fifth straight year.

According to two data firms that separately compile their own MOB sales statistics – Arnold, Md.-based Revista and New York-based Real Capital Analytics (RCA) – transaction volume in Q3 topped $2 billion. Both firms’ data shows that year-to-date (YTD) MOB sales through Q3 topped $7.1 billion.

RCA’s data had Q3 MOB sales at $2.35 billion, for a YTD total of $7.28 billion. The firm’s data also indicates that the average capitalization (cap) rate, or the expected first-year yield, in Q3 was 6.7 percent – up from 6.3 percent in Q2 – and the average price per square foot (PSF) of $316, which was down from $326 a quarter earlier.

Revista, which uses different criteria for compiling its MOB sales data than RCA, indicates that Q3 sales totaled $2.2 billion, bringing the YTD total to $7.1 billion. Revista’s data shows that the overall average cap rate for MOB sales was about 6.6 percent in Q3, with the average cap rate for MOB portfolio sales coming in at 6.2 percent and single assets at 6.8 percent. Revista data puts the average PSF for all MOB sales at $323.

Interestingly, Revista data shows that there is still a premium to be paid for on-campus MOBs, which sold for an average of $339 PSF; on the other hand, off-campus facilities had an average PSF of $321.

Revista’s data also indicates the highest quality properties, those in the top 25 percent, sold for average cap rates of 5.8 percent and the absolute highest quality properties selling for cap rates averaging 4.4 percent.

While the YTD MOB sales volume stood at more than $7 billion at the end of Q3, there is a good chance that Q4 will see a strong uptick in volume. This news come by way of a variety of industry professionals as well as 2019’s biggest buyer by far, Toledo, Ohio-based Welltower Inc. (NYSE: WELL).

As HREI reported on Nov. 13, Welltower, which had made MOB investments topping $2 billion YTD through the end of Q3, last week announced that in recent weeks it had entered into five separate definitive agreements to acquire MOBs for a combined total of $1.67 billion.

Welltower’s pending acquisitions, for which it has entered definitive agreements, includes a $787 million purchase of 29 “Class A” MOBs from Milwaukee-based Hammes Partners. In addition, the REIT announced that it is “under contract” to make four other, separate MOB transactions totaling $885 million.

Those purchases, if they close as predicted by the end of year, would bring Welltower’s total 2019 MOB acquisitions to more than $3.5 billion.

Welltower’s deals alone, should they indeed close by the end of the year, would bring the MOB sector’s overall volume for the year, when added to the $7 billion-plus recorded in the first three quarters, to nearly $9 billion and provide a virtual lock that 2019’s volume will exceed $10 billion once again.

 

Source: HREI