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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

Investors Expect Big Second Half: MOB Buyers Discuss State Of Market During InterFace Webinar

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After the initial shock of the fallout of the COVID-19 pandemic, it looks as if the healthcare industry, and subsequently the healthcare real estate (HRE) sector, is getting back on track.

“We collected 96 percent of our rents (in April), but the providers and our tenants were really scared,” said Chip Conk, CEO and founder of Nashville, Tenn.-based Montecito Medical Real Estate, which has a portfolio of about 3 million square feet of medical office space under management. “They didn’t know anything about what was really going to happen. However, by last week, we have seen from our tenants, I think, a little bit of stabilization in terms of where they are psychologically, and we actually had some requests that got totally paid back. Overall, the sector, at least our tenants, seems to be stable … COVID could come back, but overall we’re feeling a lot better than we were 90 days ago, as a company.”

As a result of such stability in the HRE sector, demand and pricing remain quite strong for medical office buildings (MOBs), according to panelists who took part in a June 10 webinar exploring how the sector is faring during the pandemic.

Sponsored by Atlanta-based Interface Conference Group, part of France Media Inc., the event was titled, “State of the Industry: What’s the Outlook for 2020 from an Investment, Development and Leasing/Operations Perspective?”

In addition to Mr. Conk, the discussion, moderated by Mindy Berman, senior managing director and an MOB sales broker with Jones Lang LaSalle Inc. (NYSE: JLL), also included: Robert Hull, executive VP with Nashville-based Healthcare Realty Trust (NYSE: HR); and Peter Westmeyer, president and managing principal with Chicago-based MBRE Healthcare.

As noted, the strength of the MOB sector amid the fallout from the pandemic has kept the product type on the radar screens of many investors, according to the panelists, whose firms are among those that have remained as active as possible in the market.

 

Source: HREI

The COVID-19 Shutdown Tests Medical Office Buildings As An Investment

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As U.S. health-care systems limit medical services to emergency and urgent care situations in the face of COVID-19, medical office buildings are standing empty, and the threat of tenants missing lease payments mounts.

Still, experts say, investors have every reason to keep MOBs high on their list of sector favorites. In addition to pent-up demand, strong sector fundamentals—aging Baby Boomers, expanded medical insurance coverage, new treatment options and shifts in service delivery—are expected to aid the MOB sector’s rebound and its love affair with investors.

“Medical office buildings and other outpatient care settings have been hot commodities in commercial real estate investment for the past several years,” according to Cushman & Wakefield’s 2020 Health Care Investor Outlook released at the end of last year. “Legacy investors are doubling down on the sector, while new investors are competing for the limited product supply.”

In the meantime, medical office building owners will have to wait for tenants and their patients to return.

“Most owners are trying to not make an impulsive decision, to wait and see how this situation plays out,” said Allen Bolden, a partner with HB Medical Real Estate.

But despite the MOB market’s underlying strength, too much time may prove to be an enemy.

“The fact that we don’t know if this will last another week or several months is why we can’t give solid answers to the future,” Bolden added. “The only thing we do know is the longer the economy is shut down, the more this will test the strength of MOBs as an investment.”

 

Source: CPE