PHOENIX—The hospital game is no longer a gentleman's game. That was according to one panelist at the recent RealShare National Healthcare Real Estate 2015 conference, an event which drew more than 400 attendees.
"The hospital industry has changed dramatically," explained panelist Mike Noto, SVP of real estate services at Welltower. "Consolidation is going on and will continue to go on."
Mark Alexander, CCIM , managing director of medical office sale leasebacks at Mark Alexander Medical Office Brokerage, said that the medical office building market is being driven to new heights with sound underlying fundamentals. "While REITs mainly buy hospital related MOBs when healthcare systems decide to monetize their buildings, there is a sizable market for CCIMs to do much more business listing doctor owned MOBs on sale/leaseback transactions," he explains, a topic he will further develop in an upcoming exclusive guest column on GlobeSt.com.
Alexander also pointed out that there is an aging inventory out there today. He pointed to statistics from Revista, which showed that there is roughly 476,000 million square feet of class B MOB space. And 63% of the properties tracked were built before the year 2000, Alexander explained. "There are opportunities for construction/refit."
In the next five years, Alexander expects to see more doctors monetizing their buildings. "There is a wave of senior doctors retiring in the country in the next five years and they control a majority of these MOBs." He pointed out that MOB totals at 1.3 billion square feet, valued at $344 billion compared to hospitals, which account for 5,400 properties, totaling 1.5 billion square feet with a total value of $581 billion. "Sale-leasebacks are a great option as an exit strategy," Alexander said. "It will be the new way."
Switching gears a bit, Michael Dettling, principal of Avison Young, explained that it has been a landlord market in the past few years with spiking rents and low vacancy. "Concessions are available generally, but they aren't bending over backwards," he said.
Generally speaking, Dettling said that there was a blip about five or six years ago in the downturn and some groups left some of the buildings…maybe merged or consolidated. "Some of the landlords were feeling a bit pressured." He added that the tenants did have the upper hand, but said that it quickly transitioned back to the landlord, "which is where we are today."
While concessions won't generally be found in markets like Beverly Hills, Dettling said, panelist Kathleen Morgan, CCIM , managing director of global healthcare at Newmark Grubb Knight Frank, said that the Phoenix market is still in the recovery so there are still some concessions taking place.
Morgan explained that "while tenants aren't really driving the bus, we chase after them." Some of the most effective concessions are TIs, she added.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
