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Finding Heathcare Real Estate Development Opportunities In A Tough Market

The current healthcare real estate development market is a bit of an enigma.

The GlobeSt Healthcare conference developer panel discussion included (from left to right): Sean Miller of Anchor Health Properties, Jaime Northam of Ryan Cos. US Inc., Sharon Harper of The Plaza Companies, Jake Dinnen of based PMB and Malcolm Sina of Sina Companies. Not pictured: Moderator Murray W. Wolf of HREI™. (PHOTO CREDIT: HREI)

But panelists at a recent GlobeSt Healthcare conference developer panel discussion say they are staying busy despite a challenging environment

The number of medical office building projects under construction remained somewhat steady from 2022 and into 2023. Yet the total square footage started nationwide during a 12-month period from the third quarter (Q3) of 2022 to Q3 2023, fell 41.6 percent. In Q3 2022, 23.3 million square feet of space was started, while Q3 2023 saw that drop to 13.8 million square feet.

Murray W. Wolf, the publisher and founding editor of Healthcare Real Estate Insights, presented these stats compiled by Arnold, Md.-based Revista, an HRE research firm, during a panel discussion focused on development at the ALM/GlobeSt. Healthcare conference on Dec. 12 at the Andaz Scottsdale Resort. Mr. Wolf served as the moderator of the session titled, “Through the Lens of Developers: Reimaging Healthcare CRE.”

Although HRE project starts were down in late 2023 versus 2022, Mr. Wolf pointed out that the number of projects under construction nationwide as of the end of Q3.

 

Source: HREI

When Will Medical Office Building Sales Bounce Back?

On the surface, the current state of the medical office building (MOB) investment market is about as slow as it’s been for years, maybe decades.

However, as is typically the case with a complex, robust industry like HRE, there is much more going on than meets the eye.

The InterFace Healthcare Real Estate conference investment panel included (from left to right): John Fry, SVP- Acquisitions, Rendina Healthcare Real Estate; Ryan Crowley, SVP, Investments, Healthcare Realty; Alex Bell, Partner, Catalyst Healthcare Real Estate; Eric Lee, Managing Director Medical & Life Sciences, Berkadia Real Estate Advisors LLC; Chris Morgan, Senior Manager, Investments, Big Sky Medical; and the moderator, Andy Dow, Shareholder, Member of Board of Directors and Chair, Real Estate Industry Group, of Winstead PC. (PHOTO CREDIT: HREI)

“The first half of the year volume was down … anywhere from 66 to 71 percent versus the first half of 2022,” said Andy Dow, an attorney with a focus on healthcare real estate (HRE) and the chair of the Real Estate Industry Group with Dallas-based Winstead PC. “The (second quarter) volume was roughly $1.2 billion, which was the lowest quarterly volume ever recorded by RevistaMed (an HRE data and research firm) since it was founded in 2015.”

So when will it bounce back?  Probably not before the elections of 2024, according to the InterFace Healthcare Real Estate panel.

 

Source: HREI

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Another MOB Sales Record: $25 Billion In 2022

Perhaps James A. Schmid III, chief investment officer and managing partner with Media, Pa.-based Anchor Health Properties, summed up how many successful healthcare real estate (HRE) investment and development firms are going about their business at a time when costs and interest rates are on the rise.

“Last year, 2022 was certainly a pivot point, I think, both for our sector as well as commercial real estate and the economy as a whole,” Mr. Schmid said. “It was, in aggregate, a very successful year for us as we closed just over $600 million of new acquisitions, monetized and or recapitalized several hundred million of developed and/or owned assets … and monetized a strategic position in our operating business with a client of Stepstone Real Estate, an international offshore client.

“That being said,” he added, “as the market has continued to move, with interest rates continuing to rise as the (U.S. Federal Reserve Bank) increases rates, we’ve continued to be more and more selective about decisions we make, particularly with new investments – trying to be thoughtful about what where we want to own and why, trying to focus on our areas of strength and scale across our platform.

“This is also true on the development front, where we continue to be extremely active. We really haven’t seen much of a slowdown in development; if anything, we’ve seen a continued acceleration in development in different parts of the country, particularly high growth markets where health systems and physician clients alike have a continued need for more and more specific space for clinical use.”

Mr. Schmid was a guest speaker during a fourth quarter (Q4) subscriber webcast hosted Jan. 24 by Arnold, Md.-based Revista, a data firm that provides a wide variety of statistics on the HRE sector to its subscribers.

The $2.2 billion of MOB sales in Q4 will likely, when all of the transactions are recorded, rise about 30 percent, to about $3 billion, according to Revista. (Slide courtesy of Revista)

The webcast led by Revista principals Mike Hargrave and Hilda Martin focused heavily on medical office building (MOB) market data during this time of inflation and rising debt costs, with much of that data reaffirming what a strong industry the HRE sector continues to be.

 

Source: HREI