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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.

MLL Capital Expands Medical Office Portfolio With Four Acquisitions

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MLL Capital, a Boston-based commercial real estate investor focused on medical office, laboratory and life sciences properties across the US, announced today the recent acquisition of four medical office buildings, totaling 251,546 square feet during December of 2019.

The properties are located in Chicago, Minneapolis/St Paul, Washington D.C. and Nashville markets.

“These acquisitions align with our strategy to build a portfolio focusing on opportunistic and value-add investments in this sector and repositioning them to attract and retain high-quality medical tenants,” said Wyndsor DePetro, an MLL Capital Principal. “The assets, which are currently 81% occupied, present the opportunity to lease up to stabilized occupancy levels by attracting and retaining a diverse mix of high-quality medical office tenants with a targeted leasing effort using attractive lease packages and capital improvement plans.”

The acquisitions include:

— The 95,043 square foot Advocate Sherman medical office building located on the campus of the Advocate Sherman Hospital in Elgin, IL, part of the Chicago market

— 28 White Bridge Road, a 60,540 square foot medical office building located near the 498-bed St. Thomas West Hospital in Nashville, TN

— 46440 Benedict Drive, a 35,405 square foot medical office building in Sterling, VA, a submarket of Washington D.C.

— The 60,558 square foot High Pointe Health Campus located in Lake Elmo, MN in the Minneapolis/St. Paul market.

“These are well-located medical properties that present an opportunity to create premier, on- and off-campus, multi-tenant healthcare properties,” said Kyle O’Connor, MLL Capital President and Founder. “There continues to be strong interest from investors in value-add medical office, laboratory and life sciences properties, which offer some of the best risk adjusted returns in the market today given the underlying demand fundamentals and downside protection. These recent acquisitions have us on track to reach our goal of building a $500 million portfolio of institutional-quality assets in this sector.”

 

Source: HREI