More than 120 medical office building (MOB) properties valued at $1.8 billion were sold in the first half of 2013, according to research conducted by real estate services and investment firm Jones Lang LaSalle (JLL). This year's transaction volumes are expected to meet or exceed 2012 levels, JLL reported.
“Investor appetite for this asset class of choice remains as strong as it has been since the start of 2012,” Mindy Berman, managing director of JLL’s Healthcare Capital Markets group, said in a news release announcing the research findings.
A total of 171 MOB properties sold during calendar year 2012 at an average value of $13.2 million, or $161 per square foot. In comparison, of the 124 MOBs sold so far this year, the average value was $14.8 million, at an average price per square foot of $197, the JLL report said.
“During the recession, investors came to realize that the income-producing qualities of this class of real estate are very stable," Berman said in an interview with Healthcare Finance News. "That is driven principally by the fact that you have physicians and hospitals in long-term leases, and they tend not to move,” she explained.
With a low level of vacancies in the market, loss of income for the investor becomes less likely and the need to continually reinvest in buildings for new tenants declines. Less frequent leasing commissions make for a more favorable climate, too.
Healthcare REITs, in particular, have capitalized on the market trend, offering dividend yields "well in excess of what individuals can earn in money market accounts," Berman explained.
“All of that adds up to a very desirable asset class during a challenging economic time where office vacancy around the country is still pretty high, and interest rates are still low,” said Berman.
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She expects conditions to persist “as long as the dynamics of low rates and access to capital are there.”
Lillibridge Healthcare Services, the nation's largest owner and manager of MOBs, acquired a 409,000 square foot portfolio of buildings in August, underscoring Berman’s emphasis on the sector’s appeal.
The transaction included seven MOBs located on the campuses of five Advocate Health Care hospitals in the metropolitan Chicago area: Advocate Good Samaritan Hospital, Downers Grove, Ill.; Advocate Good Shepherd Hospital, Barrington, Ill.; Advocate Christ Medical Center, Oak Lawn, Ill.; Advocate South Suburban Hospital, Hazel Crest, Ill.; and Advocate Trinity Hospital, Chicago.
“We have developed a strong relationship with Advocate, and an understanding of their mission and values, after many years of collaborating with them on several projects within their system, hospitals and the Advocate Medical Group," said Todd W. Lillibridge, president and CEO of Lillibridge Healthcare Services, in a news release announcing the transaction. "This MOB portfolio acquisition is another important step toward achieving our mutual goal of implementing and supporting today's outpatient-focused healthcare delivery models.”
Berman noted that the MOB market also remains strong at the lower end of the sector, among physician group-owned or -leased properties.
"The perk at this time with physician group buildings is that health systems have been actively buying up practice groups. In many of instances, [investors] buy a physician group building, and wouldn't you know it, within a year a hospital buys them out. Suddenly, the investors have an A-rated hospital tenant in their building," she said.