ASHBURN, VA–Avison Young just went to market with a 75,000-square foot medical office complex in Ashburn Farms, Va. It is not a five-cap deal, it is not hospital anchored and the complex consists of three 25,000 square foot buildings. In other words, says Avison Young broker Jim Kornick, it doesn't look like what most institutional investors want to buy, at least generally speaking. But, Kornick predicts to GlobeSt.com, “people will want to fight over it.”
There are a lot of pluses to the property, such as its location in an affluent community. However the primary draw will be that a scarce product — a medical office building – has come to market.
This is not to say there have been no trades in this asset category at all. Avison Young will close at the beginning of the year a building in Fredericksburg, Md., that is majority leased to the Mary Washington health system. “It is an outpatient facility that is strategically very important to Mary Washington so from an investor's point of view that's very attractive,” Kornick says. Also, Avison Young just closed on an 84,025-square-foot office building in Columbia, Md., located at 6350 Stevens Forest Rd., which is occupied by a significant percentage (43% ) of medical- and healthcare-related clients, with Johns Hopkins Community Physicians anchoring the property.
But that said, MOB assets still rarely appear on the DC area market. The reason is a combination of a lack of supply relative to the local population, the health systems here do not sell the assets they own very often and there has not been much medical office development in the market, according to Kornick. “In addition to having less to begin with, we build less to, compared to the rest of the nation,” he says.
For that reason, “there is a disproportionate amount of capital trying to buy medical office buildings now than ever in history. Money is flowing to this product.” The reason, of course, is that risk-adjusted returns are better than traditional office and MOB properties are perceived as recession proof. Also demographics favor this asset class.
One new trend that might widen the supply pool is that the difference in cap rates between on-campus and off-campus is now negligible, Kornick says. Today pricing is all about strategic purpose and what the tenancy is. “For instance, if Inova were to decide to sell its healthplexes, the fact that they are off campus would not be an issue. They would be very dearly priced because of their strategic purpose.”
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
