MILWAUKEE—The Boulder Group, a net leased investment brokerage firm in suburban Chicago, recently completed the sale of a single tenant Aurora Health Care medical property located at 5818 W. Capitol Dr. in Milwaukee for $3,634,603. The sale comes at a time when investor interest in health care properties has increased due to significant demographic changes in the US, changes that should continue to drive similar sales in the next few years.
"The property sold at a 5.70 cap rate," Randy Blankstein, president of Boulder, tells GlobeSt.com, "which is a premium to properties in the surrounding area."
Boulder recently published a study on the sector and found that the median asking cap rate for single tenant medical real estate declined from 6.72% one year ago to 6.5% in the third quarter. The overall rate for the net lease retail market stood at 6.65%.
"McDonalds and a few other retail tenants still command a lower cap rate then medical tenants," he adds, but buyers are looking for growing sectors with growing business models, and the outlook for health care in general could not be better.
According to the US Census Bureau, seniors over the age of 65 made up 13.4% of the population in 2012. However, this same age group will increase to 22.1% by 2050. Seniors aged 65 to 74 and 75+ average 6.2 and 7.2 doctor visits per year, respectively, according to the US Center for Disease Control, and developing retail-style outlets will bring services much closer to this population. The overall average across all age spectrums is 3.3 visits annually. And the implementation of Obamacare has brought a measure of stability to the market.
These facts have helped give investors confidence in well-located facilities. The Aurora Health Care property, for example, which Aurora operates as a doctor's office with a focus on internal medicine, family practice and obgyn, is located at the intersection of Capitol Dr. and 60th St. It is an outparcel to the Midtown Center, a retail property anchored by Walmart and Pick 'N Save.
Most medical-related leases have rental escalations and credit tenant lease guarantees, Blankstein says, and that is the case with Aurora Health Care, which has more than 11 years remaining on this recently extended lease. The lease also features 15% rental escalations every five years. Aurora Health Care is an investment grade rated company with a Moody's rating of A2.
Blankstein and Jimmy Goodman of Boulder represented the seller in the transaction; a Midwest based real estate investment company. The purchaser was an East Coast based real estate investment fund.
The rental escalations "provide an inflationary hedge" for investors, Blankstein said. Furthermore, medical properties "are highly resistant to e-commerce."
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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.
