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DigitalBridge Group Agrees To Sell Wellness Portfolio For $3.2 Billion

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DigitalBridge Group Inc., the real estate investment trust led by Chief Executive Officer Marc Ganzi, agreed to sell its so-called wellness infrastructure portfolio of more than 300 facilities in a transaction valued at $3.2 billion.

The REIT is set to obtain $316 million in proceeds from the sale of the division, which includes senior housing and skilled-nursing facilities, hospitals and medical office buildings, to Highgate Capital Investments and Aurora Health Network, according to the newly released statement. Highgate and Aurora are set to assume about $2.9 billion in associated debt. Bloomberg News first reported the agreement earlier.

“We’re incredibly bullish about our ability to get the right price for that asset and, ultimately, find the right home for it,” Ganzi said on a second-quarter earnings call last month.

The REIT is working to rotate away from real estate sectors that were favored by its founder Tom Barrack and exclusively pursue digital infrastructure assets such as data centers, fiber networks and cell towers.

“There’s a path to finish the mission between now and the end of the year to get to 100% digital,” Ganzi said at a conference last month.

Boca Raton, Florida-based DigitalBridge, formerly known as Colony Capital, in June agreed to sell assets to Fortress Investment Group LLC. In March, it announced the completion of its sale of a hotel portfolio to Highgate and an affiliate of Cerberus Capital Management LP. Those transactions followed other divestitures including the sale of a stake in real estate investment firm RXR Realty as well as its warehouse portfolio.

DigitalBridge’s shares have gained 146% in the past 12 months, outperforming the Bloomberg U.S. Real Estate Large & Mid Cap Price Return Index, which rallied around 33% over the same period.

Highgate, led by Mahmood and Mehdi Kimji, has historically focused on hotels, its website shows. Its partner on the transaction, Aurora, led by Joel Landau and Leo Friedman, has been an owner-operator of skilled nursing facilities.

 

Source: Wealth Management

Medical Office Building Investors Will Be Chasing Deals In 2020

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As we prepare to swing into the new year, the outlook for the medical office sector is good…largely.

Underpinning the market, as it always has, is the continual aging of the population and the increased medical services that come along with it.

But, despite this sure-bet demand, the sector is not without its challenges, as Al Pontius, SVP and national director of Marcus & Millichap’s Office and Industrial divisions, makes clear. Those concerns arise as a result of the massive industry trend toward consolidation and the move on the part of many formerly independent care providers to saddle up with national care brands.

The firm’s second-half Medical Office Buildings Report defines the growth of the merger movement:

“Hospital and health-system merger activity continues to transform the medical office sector, driving a reduction in physician-owned practices in recent years. In 2012, nearly half of locations were physician-owned practices, but in 2018, just 31 percent were owned by doctors.”

And therein lie the concerns for the existing stock of medical office buildings (MOB).

“There’s a lot of older-vintage product that’s not located where the health systems want to be,” says Pontius. “Some assets may not accommodate the desired configuration of services that the major health systems see as appropriate, modern enough or technologically supportive enough. Consequently, there are a number of buildings that will under-perform relative to newer properties in the sector as well as other asset classes.”

But while there might be assets that sit on the sidelines as healthcare needs grow, few investors, be they institutional or private, are doing the same.

“The consolidation has supported investor sentiment as major providers create efficiencies and broaden service coverage,” says the report. “A sizable pipeline of new space and major expansions by high-credit tenants will sustain elevated investment activity through the end of this year.”

 

Source: GlobeSt.

Growth In Outpatient Demand Drives A Surprising Number Of Buildings Greater Than 150,000 Sq. Ft.

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With the opening this month of the 10-story, 250,000 square foot MOB at the new Sutter Health CPMC campus in San Francisco, the market is heralding a new era of large format medical office development with building size over 150,000 square feet.

This new trend is a function of the well-recognized growth in outpatient care with its focus on the patient experience and physician convenience with critical services and specialties housed under one roof, with the added goal of accountable care in a lower cost setting. The timing couldn’t be better given the surge in capital seeking investment opportunities in healthcare given the quality of tenancy and durability of medical office properties.

There are currently 44 medical office development projects larger than 150,000 square feet under construction in the United States, a total of 10.9 million square feet, representing 22% of all medical office projects underway. In aggregate, the large format projects represent $5.3 billion of investment or $480 per square foot. Six developments alone are over 400,000 square feet and the ten largest projects have a total budget of $2.3 billion. JLL estimates that the mark-to-market valuation of these projects, once completed, is $7.8 billion.

The largest medical office development under construction and near completion is located on the Upper East Side in Manhattan – the 750,000 square foot, David H. Koch Center for Cancer Care. Interestingly, two of the top four largest medical office developments are located in New York City. Over forty percent of the active development projects larger than 150,000 square feet are located in the Northeast and Mid-Atlantic regions. The Southeast is the least active region with only one project under construction that’s larger than 150,000 square feet.

Providers dominate the ownership of the 44 projects. Only 10 buildings, representing approximately 20% of the square footage, are owned by third party investors. However, the surge in large format outpatient buildings and the staggering scale of capital required to support these developments is an encouraging sign for institutional real estate investors as the capital intensive business of healthcare is expected to eventually turn to real estate investors to augment health system access to bond markets and philanthropy.

 

Source: HREI