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Return Of In-Person Appointments Is Spurring Medical Office Demand In South Florida

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As in-person medical appointments resume, the demand for medical office space for the aging population in South Florida has enhanced.

At the beginning of the pandemic, medical offices weathered the downturn better than traditional offices, but as new COVID-19 variants emerge and appointments continue, there is strong tenant demand.

According to the 2022 U.S. Medical Office National Report, the medical office vacancy rose 80 basis points to 9.5% in 2020, less than a third of the jump that was seen in traditional offices.

Late last year is when availability started to get tighter, benefiting rent growth. The report says the average asking rate national was $22 per square foot, which is up more than 4% since the end of 2019.

In Palm Beach, JLL Capital Markets recently closed the sale of a two-building medical office plaza in Boynton Beach. Although the price of the sale is unknown, the average rental price is $21.50 per square foot.

Woolbright Medical Plaza, located at 1700 and 1800 Woolbright Road, consists of two institutional-grade medical office buildings totaling 33,151 square feet.

JLL represented the seller, TopMed Realty, a private equity firm in Hallandale Beach, in the sale to AW Property Company, a real estate investment, and operating company in Palm Beach Gardens.

A surging population and large concentration of senior citizens in Palm Beach County are driving the demand for health care services. The medical center is adjacent to a 55+ community with 1,800 single-family homes and 500 apartments called Leisureville.

The building is also near Baptist Health Bethesda Hospital East, a 401-bed building and one of the largest health systems in South Florida. JLL Capital Markets closed the sale of the two-building Woolbright Medical Plaza in Boynton Beach.

TopMed rebranded Woolbright Medical Plaza from an office complex to a medical office plaza. It went from 63% to 93% leased. Tenants include physician groups providing radiology and imaging, ENT, primary care, dentistry and physical therapy services.

 

Source: DBR

Twenty-Nine Medical Office Building Portfolio Trades

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Healthcare Real Estate Capital (“HRE Capital”) acted as a financial advisor to Hammes Partners (“Hammes”) in its disposition of a 29-building portfolio of medical office buildings (the “Portfolio”).

The 1,226,312 square foot Portfolio features modern, well occupied assets with significant remaining average lease term and is geographically diverse, spanning Illinois, Wisconsin, Missouri, Ohio, Pennsylvania, Virginia, Washington D.C., Arizona, Texas, Mississippi, and Georgia.

The Portfolio includes on-campus, off-campus, and adjacent-to-campus locations and was transacted subject to assumption of existing debt.

HRE Capital’s Role

On behalf of Hammes, HRE Capital undertook a tailored effort to identify a well-capitalized investor (“Investor”) seeking a substantial and geographically diverse medical office building portfolio and who was positioned to (i) acquire the Portfolio, (ii) take full responsibility for assumption or prepayment of significant existing debt and (iii) close this sizeable transaction on a truncated timeline in the face of a national pandemic complicating diligence.

Leveraging its unmatched relationships in the sector, HRE Capital approached a pool of credible Investors that would allow Hammes to achieve its previously identified goals. With multiple offers in-hand from different types of Investors, Hammes ultimately selected a private equity real estate Investor with extensive experience in the healthcare real estate sector who provided the most attractive offer.

HRE Capital assisted Hammes in navigating the simultaneous completion of buyer diligence, negotiation of purchase and sale agreement, and assumption of existing debt across multiple lenders to successfully achieve a year end closing.

 

Source: HREI

Top 3 Trends Driving This Era Of Hyperactive Mergers & Acquisitions

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It seems as if almost every other week a new healthcare megamerger is announced that is supposed to transform the industry.

From Walmart-Humana to CVS-Aetna – to the recent announcement in the Dallas market around Baylor, Scott & White and Memorial Hermann – the continuous message is that disruption has arrived and the walls of traditional M&A are falling down. Last year, there were 579 deals for U.S. healthcare targets, the second highest total on record. Why is healthcare M&A so hot?

In the healthcare industry, companies are using M&A as a strategy to adapt and respond to a rapidly changing industry environment. Faced with a shifting technological landscape, they are looking for outside expertise and systems to remain competitive. And in private equity, which is investing in healthcare at a rapid rate, attractive margins and profitability are driving them to certain healthcare sub-sectors.

A recent survey of 100 healthcare M&A dealmakers uncovered several insights to understand what’s going on in this market. These are the top trends.

1. Economic conditions are ripe for M&A, but attractive healthcare targets are scarce

A strong economy and low interest rates have significantly improved access to capital. Many companies have paid down debt, stockpiled cash, and are now in a position to spend. From a dry powder position, conditions are ideal for healthcare organizations to evolve through acquisitions, though increased access to capital has created more competition and pushed multiples to all-time highs.

As a result, the shortage of financially attractive acquisition targets is currently the biggest challenge in healthcare M&A. These challenges – high valuations, excessive competition and short timelines for due diligence – have created a seller’s market. The dearth of acquisition targets is further exacerbated by the fact that there simply aren’t many healthcare companies with updated technology/IT systems and additional investment must be factored into the deal model.

2. Heightened competition and prices are spurring healthcare companies to joint ventures

Amid heightened competition and pace of transformation, healthcare companies are turning to joint ventures and alliances to expand into new markets and grow top-line revenue more quickly — and with less hassle than pure M&A. An overwhelming majority of our respondents (79 percent) told us they expect to pursue alliances, partnerships, and joint ventures in the next 12 to 18 months.

While alliances come with their own set of challenges, they allow organizations to realize value earlier by avoiding some of the incredibly challenging and time-consuming aspects of M&A deals, such as fully integrating infrastructures, cultures, and technology. JVs can also be a means of accessing new technology. The most prominent benefits of partnerships and joint ventures, respondents told us, is the opportunity to access outside technology or expertise (57 percent said this). In a world that increasingly favors a digital-first approach, quicker access to new technology could be game-changing for some organizations.

3. Technology is both complicating things and presenting new opportunities

Technology has emerged as one of the central forces – if not the most important force of all – shaping acquirers’ M&A strategies in healthcare. An overwhelming majority of our survey respondents, 93 percent, say technology and systems integration challenges are creating added complexity in the healthcare industry. Also, more than a third of our survey respondents (36 percent) said the fast pace of technological change would pose the greatest challenge to healthcare companies over the next one to three years.

In the context of M&A, this raises the importance of technology and digital due diligence in the targeting phase and makes it critical to plan how acquired companies will be able to adapt, or disrupt, using technology going forward.

To be sure, buyers said they are looking for acquisitions capable of evolving with the rapidly shifting environment – or, those capable of proactively transforming that environment themselves. In that sense, the emergence of new digital tools is seen as a prime opportunity: 48 percent of respondents said one of their top two strategic drivers for making healthcare acquisitions was the chance to disrupt incumbents using technology. And healthcare IT was the subsector most likely to be invested in, prioritized ahead of providers, staffing, and even home health.

A wide range of technologies is seen as having potential to advance the industry. Among our survey respondents, the technologies deemed most attractive were mobile tools (49 percent), data analytics capabilities (37 percent), and the use of blockchain (30 percent). Wearables, sensors and trackers (25 percent), and telehealth tools (20 percent) – all of which intersect with the mobile space – are also drawing interest.

Conclusion

Technology comes with its fair share of challenges, especially integration in a healthcare setting. But it can also fuel an organization’s competitiveness and ability to adapt to disruption in the future. Read the full report, “Reshaping Healthcare M&A: How Competition & Technology are Changing the Game,” to access the complete findings.

 

Source: DBJ