CHICAGO—After a record-setting pace for medical office building and portfolio sales in 2012, investors have shown no sign of slowing down their purchases in the sector, according to recent research conducted by Jones Lang LaSalle's Healthcare Capital Markets. In fact, JLL predicts that year-end 2013 volumes for sales should meet or exceed 2012 levels. More than 120 medical office building properties valued in excess of $1.8 billion were sold in the first half of 2013, while seven portfolios have been on the market or closed with a total estimated value of $1.7 billion, researchers found.
“Investor appetite and sentiment for this asset class of choice remain as strong as it has been since the start of 2012,” says Mindy Berman, managing director of JLL's Healthcare Capital Markets group. “While straight year-over-year comparisons show a slight decrease in volume, market characteristics are unchanged. Medical office remains one of the most sought-after product types.”
Although 171 MOBs valued in excess of $2.2 billion were sold during the first half of 2012, or about $400 million more than in 2013, JLL says an impending increase in capital gains caused a surge in sales in the last half of 2012, which in turn caused a slower first half of 2013.
Transactions in 2012 included the approximate $700 million acquisition by Ventas of Cogdell Spencer Inc. and a $100 million sale-leaseback by Steward Healthcare. And in 2013 transactions included the acquisition by Realty Income Trust of the net lease REIT, American Realty Capital Trust that included $357 million of medical office buildings.
“Concerns about a reduction in record sales levels from 2012 due to the surge of activity connected to capital gains changes appear to be unfounded,” Berman emphasizes. “Business continues to be strong and the demand side has gained even more strength.”
“The drivers for the sustained activity continue to be the relative performance of and demand for medical office and related healthcare properties and the heated pace at which capital is being raised and specifically targeted for MOB acquisitions,” researchers find. “In spite of upward interest rate movement and the lower REIT share prices experienced in May, debt and equity capital raise totals in 2012 and the first half 2013 total $18.4 billion and higher, compared to $20.6 billion in 2010 and 2011.”
“The exceptional healthcare real estate capital raise continues to outpace new acquisition opportunities, resulting in historic pricing levels and continued cap rate compression,” Berman says.
According to the JLL, the average price for healthcare real estate in the first half of 2013 was $197, compared to $161 during the first half of 2012. And cap rates for the top properties now average between 5.5 and 6.5 percent nationally.
“Healthcare properties, and MOBs in particular, have been high on real estate investors' lists for several years,” Berman says. “It is apparent from the mid-year trends that this level of activity could very well remain the standard for the near future.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
