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Q3 Medical Office Building Sales Were $2.2 Billion

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After a slow start to the year, medical office building (MOB) sales have picked up in the second and third quarters (Q2 and Q3), providing a strong possibility that the final 2019 volume will top $10 billion for the fifth straight year.

According to two data firms that separately compile their own MOB sales statistics – Arnold, Md.-based Revista and New York-based Real Capital Analytics (RCA) – transaction volume in Q3 topped $2 billion. Both firms’ data shows that year-to-date (YTD) MOB sales through Q3 topped $7.1 billion.

RCA’s data had Q3 MOB sales at $2.35 billion, for a YTD total of $7.28 billion. The firm’s data also indicates that the average capitalization (cap) rate, or the expected first-year yield, in Q3 was 6.7 percent – up from 6.3 percent in Q2 – and the average price per square foot (PSF) of $316, which was down from $326 a quarter earlier.

Revista, which uses different criteria for compiling its MOB sales data than RCA, indicates that Q3 sales totaled $2.2 billion, bringing the YTD total to $7.1 billion. Revista’s data shows that the overall average cap rate for MOB sales was about 6.6 percent in Q3, with the average cap rate for MOB portfolio sales coming in at 6.2 percent and single assets at 6.8 percent. Revista data puts the average PSF for all MOB sales at $323.

Interestingly, Revista data shows that there is still a premium to be paid for on-campus MOBs, which sold for an average of $339 PSF; on the other hand, off-campus facilities had an average PSF of $321.

Revista’s data also indicates the highest quality properties, those in the top 25 percent, sold for average cap rates of 5.8 percent and the absolute highest quality properties selling for cap rates averaging 4.4 percent.

While the YTD MOB sales volume stood at more than $7 billion at the end of Q3, there is a good chance that Q4 will see a strong uptick in volume. This news come by way of a variety of industry professionals as well as 2019’s biggest buyer by far, Toledo, Ohio-based Welltower Inc. (NYSE: WELL).

As HREI reported on Nov. 13, Welltower, which had made MOB investments topping $2 billion YTD through the end of Q3, last week announced that in recent weeks it had entered into five separate definitive agreements to acquire MOBs for a combined total of $1.67 billion.

Welltower’s pending acquisitions, for which it has entered definitive agreements, includes a $787 million purchase of 29 “Class A” MOBs from Milwaukee-based Hammes Partners. In addition, the REIT announced that it is “under contract” to make four other, separate MOB transactions totaling $885 million.

Those purchases, if they close as predicted by the end of year, would bring Welltower’s total 2019 MOB acquisitions to more than $3.5 billion.

Welltower’s deals alone, should they indeed close by the end of the year, would bring the MOB sector’s overall volume for the year, when added to the $7 billion-plus recorded in the first three quarters, to nearly $9 billion and provide a virtual lock that 2019’s volume will exceed $10 billion once again.

 

Source: HREI

Examining The U.S. Medical Office Sector: Has It Recoverd In Second Quarter 2019?

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Following a sharp 33% drop in growth during the first three months of 2019, the US medical office sector recovered in the second quarter, reducing activity to a 5% year-over-year decline, according to a Real Capital Analytics report.

However, this improvement was largely impacted by a particular deal in June, in which Welltower purchased a portfolio of 50 medical office buildings from CNL Healthcare for more than $1 billion. Without this substantial transaction, second quarter activity would be down 36% year-over-year, RCA says.

This significant deal offers misleading headline figures, as the individual asset sale volume still fell 32% year-over-year in the second quarter. Though the steady decrease in numbers does not necessarily validate the sector’s future.

Considering the majority of medical offices are situated in suburban areas, the asset pricing often relates to suburban offices overall.

The average cap rate for suburban offices is 7%, while medical office cap rates in the second quarter of 2019 remained lower, averaging 6.6%. However, medical office cap rates were much more similar to suburban asset cap rates, earlier in the cycle.

Source: GlobeSt

Welltower Sells Senior Living Portfolio for $1.8B; Signs $1B Development Deal

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Healthcare REIT Welltower has signed a $1 billion development agreement with Discovery Senior Living, as well as acquired a handful of facilities from the company along with a 6-building, 270,000 square foot medical office campus for $140 million from Summit Medical Group.

The exclusive development agreement focuses on two new projects that the companies are currently reviewing. That, however, is just one piece of a number of agreements struck by the two companies, which have a pre-existing relationship.

“We are excited by the opportunity to expand a key operator relationship,” said Welltower’s Chief Investment Officer Shankh Mitra, in prepared remarks.

Among its agreements, Welltower has:

– Sold its stake in the Benchmark Senior Living portfolio for $1.8 billion. Benchmark has recapitalized the portfolio with private institutional capital. The 4,137-unit seniors housing portfolio consists of 48 assisted living properties located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, and had $24 million of secured debt that was extinguished at closing.

– Made an off-market acquisition of three infill seniors housing campuses that are located in the Dallas-Fort Worth and San Antonio metro areas. The portfolio, recently developed by South Bay was acquired for $216 million, or $280,000 per unit, through a newly formed joint venture between Discovery and Welltower. Once the last phase of the Alliance Town Center development in Dallas-Fort Worth opens in the fourth quarter of 2019, the total cost of the portfolio will be $237 million, or $273,000 per unit. In-place occupancy throughout the recently built portfolio (excluding the last phase of the Alliance Town Center) was 72% upon acquisition.

– Gone under contract to fund three newly opened assets located within Discovery’s core footprint in Florida for $92.7 million, or $255,000 per unit. These three buildings achieved certificates of occupancy in the second quarter of 2019. “All of these assets, including those that are under contract, are steel and concrete construction and represent a significant discount to Discovery transactions we have seen in the marketplace recently,” Mitra says.

– Entered into a definitive purchase agreement to purchase a 43-acre, 6-building, 270,000 square foot medical office campus in Berkeley Heights, NJ for $140 million. The campus will be master leased by Summit Medical Group, an independent multispecialty medical practice, under a new 20-year, absolute net lease. This campus is the largest and most comprehensive of five “hubs” in Summit’s 80-location hub-and-spoke model, and will bring Welltower’s total Summit-leased footprint to over 500,000 square feet. The sale is expected to close in the third quarter of 2019, subject to customary closing conditions. The sale of the medical office campus is conditioned upon Summit’s recently announced intended merger with CityMD.

– Acquired a six-community portfolio located in the Denver and Boulder metro areas from Colorado-based Balfour Senior Living for $308 million. The portfolio includes Balfour’s downtown Denver flagship community, Riverfront Park, and the recently developed Lavender Farms, which opened in April. As part of the portfolio purchase, Welltower has received exclusivity on Balfour’s future acquisition and development pipeline, as well as an option to acquire up to a 34.9% interest in Balfour’s management company. Several development initiatives are currently underway in East Coast markets, rapidly expanding the existing relationship between Welltower and Balfour.

 

Source: GlobeSt.