Will Medical Office Continue to Support Rich Deals?

Will Medical Office Continue to Support Rich Deals? GlobeSt.com (07/20/17) Drummer, Randyl

Foreign investors, REITs, and other institutional buyers are scrambling to scoop up medical office buildings (MOBs) and develop urgent care and other ambulatory care facilities. In turn, the growing pool of buyers competing for a limited number of available properties is driving capitalization rates lower. In an analysis of almost 23,000 MOB sale transactions from 2008 to now, CoStar researchers found that overall cap rates on sales of medical office properties nationwide of $10 million or greater have gradually compressed as sales competition and pricing remain robust versus the early years of the recovery. As of June 30, national cap rates stood at a tight 6.2 percent, reports CoStar Analytics. In the most recently released reports by the Revista health-care consulting firm, all tiers of transactions have registered compression. "Combined with off-peak total transaction volume," Revista principal Hilda Martin remarks, "the numbers seem to reflect what a lot of us are feeling, which is a very competitive market with more interested buyers than there are opportunities."

Interest in U.S. medical office space from global investors is increasing as they seek diversification and yield plus a hedge against political and currency risk, reports JLL Managing Director Mindy Berman. Chinese capital alone accounted for $2.6 billion last year in sales of North American health care properties. Chad Vanacore, REIT analyst with Stifel Nicolaus & Associates, remarks, "We believe medical office buildings continue to have the most compelling fundamentals among health care REIT asset classes, and we expect MOB-focused REITs to outperform the sector as a whole." Among the biggest recent deals was Milwaukee-based Physicians Realty Trust's announced purchase of 18 MOB facilities in eight states for about $735 million last month. The acquisition includes such prime properties as Baylor Cancer Center in Dallas.

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