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MOBs Continue To See Demand As They Adapt To Market Changes

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The medical office building (MOB) sector continues to be favored by investors as a stable asset despite real estate challenges and disruptions brought on by the pandemic, according to JLL’s (Chicago) new “Healthcare and Medical Office Perspective.”

The recent report explores key themes impacting U.S. healthcare systems and medical office owners, including labor challenges, payor and reimbursement pressures, elevated costs, and industry disruptions

“Facilities offer both risks and opportunities to healthcare providers, and, despite the challenges, the critical nature of healthcare and large tailwinds from a growing and aging population continue to make healthcare real estate one of the most stable asset classes for investors,” Jay Johnson, National Practice Leader, Healthcare Markets, JLL, said in a press release.

Specifically, medical office occupancy is relatively stronger than the commercial office sector and was significantly less disrupted by pandemic. Medical office asking rents averaged 2 percent growth year over year for the past five years and reached an average $23 per square foot triple net by mid-year 2022, reports JLL.

Medical office sales reached $9.2 billion in the first half of 2022 after a record performance and investor interest in 2021. JLL anticipates 2022 to close at another record year. The strong demand for healthcare services and the continued shift to outpatient care is expected to assure healthy investor appetite for MOBs.

 

Source: healthcare design

Nonprofit The City Of Hope In Talks To Acquire Cancer Treatment Centers Of America For $390M

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California-based The City of Hope just announced that it is in talks to pay $390 million to acquire Boca Raton-based Cancer Treatment Centers of America, a network of oncology hospitals and outpatient care centers.

The deal is expected to close in early 2022, subject to regulatory approval. After close, City of Hope officials plan to convert CTCA to a nonprofit organization.

Combined, City of Hope and CTCA have 11,000 “team members,” which includes collaborating physicians across California, Arizona, Illinois and Georgia.

“City of Hope’s acquisition of CTCA and the transition of CTCA to nonprofit status should enhance and expand its battle against cancer,” said John Balitis, chairman of the Labor & Employment Department at Jennings, Strouss & Salmon PLC law firm in Phoenix. “Unlike a for-profit business that maximizes revenue for distribution to owners, a nonprofit entity recycles what otherwise would be profit back into the entity to further the entity’s mission and purpose. Tax concessions for nonprofits also free up funds for use in pursuing goals and objectives that otherwise would be unavailable in a for-profit setting. Such a change for an organization like CTCA is positive when you consider how vital research and clinical trials are in the cancer treatment industry. In Arizona, where CTCA has four locations, we might expect an expansion in programs as well as facilities as more funds become accessible to further the organization’s goals rather than to be paid out as dividends.”

Reduce Operating Costs

The combination of City of Hope and CTCA also can provide the combined organization with the economies of scale that reduce operating costs and provide the opportunity to reinvest those dollars into research, technology and other modes of life-saving innovations that can benefit patients, said Joan Koerber-Walker, president & CEO of the Arizona Bioindustry Association.

“With missions that are closely aligned and that put the needs of cancer patients first, this looks to be an excellent opportunity to improve the lives of cancer patients and the people who care about them,” Koerber-Walker said.

Joseph Lupica, chairman of Newpoint Healthcare Advisors LLC, said City of Hope has had a sterling reputation as an outstanding provider in a high acuity setting.

“With today’s emphasis on value-based care, however, if a single-specialty hospitals has a high cost of care to go with all that excellence, they can quickly find themselves on the wrong side of history,” Lupica, a Fellow of the American College of Healthcare Executives, said. “Patients and payers demand value, which considers both quality and cost. This is especially in a market where UCLA, USC and Cedars-Sinai Medical Center all have extremely well-regarded cancer programs, but have a broader base of services.”

The last time Lupica studied that market, he found that City of Hope’s publicly-reported cost per day was almost 40% higher than other hospitals in the San Gabriel Valley, even after adjusting for case mix acuity.

“With this acquisition, maybe City of Hope has found a business proposition that will improve their value equation — quality and cost — by diversifying their base and learning from an efficient company,” Lupica said. “And they can do it without moving away from their core clinical competency.

 

Source: SFBJ

The Pandemic Has Made Healthcare More Desirable

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“The pandemic increased demand and made healthcare a more desirable asset class,” Rahul Chhajed, VP and senior director of healthcare at Matthews Real Estate Investment Services, tells GlobeSt.com about how the asset class fared during the pandemic.

For one, medical properties moved onto the list of darling asset classes, and it isn’t hard to understand why.

“It is no longer just a recession that investors are worried about. If there is another pandemic, healthcare services are something that people are always going to need. At the end of the day, everyone needs medical care,” says Chhajed.

With the exception of a temporary pause in the market at the beginning of the pandemic, when elective surgeries and other healthcare services were paused to allow healthcare providers to focus on COVID-19, healthcare properties outperformed other asset classes. Chhajed notes that many tenants didn’t need rent relief and continued to pay rent.

This year, investors have been trading out of more challenged asset classes, like retail and office, in favor of medial facilities.

“COVID really provided a proof of concept for the industry to show that this product type is here to stay. It is not only institutional, but it is an asset class that private capital should look at as well,” says Michael Moreno, VP and senior director of healthcare at Matthews Real Estate Investment Services.

Institutional capital has been the dominant player in the healthcare sector, and that is because it can be a more complicated asset class. Now, both institutional capital and private investors are competing for deals.

“More institutions have definitely entered the ring, but we are also seeing the private markets have started to buy these deals,” says Moreno.

And, there is a third player: owner-occupiers. Existing owners are looking at the demand—which has driven cap rates down significantly—and deciding to sell.

“The sale-leaseback market is really picking up, and a lot of that has to do with pricing,” says Moreno.

Over the last few years there has been significant cap rate compression, and owners would rather take the proceeds and put it back into the business and grow.

“Private buyers love those deals because they typically contain long-term leases and they are triple net,”  Moreno says.

On the lease side, retail owners are finding new users in healthcare. Many clinics and ambulatory centers are signing leases in retail facilities as part of the trend from in-patient care to out-patient care.

“Retail-centric healthcare is great for providers because the care is coming to the consumer,” says Chhajed. “A lot of these healthcare systems are looking for ways to provide ease of access, and retail centers meet those needs to make healthcare more accessible. The confluence of these trends is creating a heyday for medical assets after the pandemic. Now healthcare is looking stronger than ever.”

 

Source: GlobeSt.