Expect at Least $2B in Medical Office Portfolio Sales in 2013

Expect at Least $2B in Medical Office Portfolio Sales in 2013

Doubling down is the name of the medical office game, as health care REITs specializing in medical office buildings now typically see twice the yield as companies focusing on other property types. Large portfolio sales volume increased from the previous record of $1 billion set in 2007 to $2 billion in 2012. And, according to a recent Jones Lang LaSalle study, medical office portfolio sales volume is likely to again hit $2 billion by the end of 2013, with REITs such as Health Care REIT, Healthcare Trust of America, HCP, Healthcare Realty Trust and Ventas leading the purchasing pack.

“There’s more capital out there chasing deals than there are properties,” says Mindy Berman, managing director of JLL’s Healthcare Capital Markets. “It’s been a record year and a half for medical office.”

She says the hospitals still own the largest share of medical office building market. They have been cautious, with few dispositions and low levels of development. While a few health care systems are looking to monetize their assets, others are holding properties and partnering with developers when constructing new facilities.

The developers, Berman says, are the true gainers from the explosion in demand for the property type. Developers looked ahead and aggregated properties into portfolios, and have been on a sales tear, Berman says. “Developers started unloading properties last year, and pricing has been even better this year,” she says.

Investors are lining up for any property that comes on the market, Berman says. In early May, Harrison Street Real Estate Capital, through its Core Property Fund, acquired the leasehold interest in the 200,000-sq.-ft. Abbot Northwestern – WestHealth Medical campus in Plymouth, Minn. The three-building complex is mostly leased by Allina Health, the largest health care provider in the Twin Cities region. Other tenants include Same Day Surgery Center, Imaging Center, Breast Center, Urgent Care, Emergency Department, Allina Medical Clinic, Sister Kenny, Minneapolis Heart Institute, Allina Pharmacy, and Allina Medical Labs. 

Also this month, American Realty Capital Healthcare Trust Inc. purchased the 62,000-sq.-ft. Crystal Lake Medical Arts Building in Crystal Lake, Ill., which is anchored by main tenant Centegra Health System. Chicago-based EnTrust Realty Advisors represented the landlord in the sale, and managing principal James Clark III says he’s seeing a large range of REITs and investment funds chasing MOB deals.

“One of the appealing aspects of this property type is that it is sticky, the tenants tend to stay a long time,” Clark says. “For a doctor to move the main patient office is unsettling, so retention in these leases is usually pretty high. That’s easier on the landlord, who doesn’t have to continually rip out and put in improvements, it’s less capital to employ.”

Berman says there’s still a lot more MOB selling expected this year, with seven portfolios comprised of six million sq. ft. in the various stages of closing, under contract or being marketed at the end of first quarter.

“The buyers with access to capital, mostly the REITs, are locking up more and more of the supply, and their practice is to buy and hold, the property isn’t going to turn again on the market,” she says. “If I’m the CFO of a hospital today, this is the best time to sell.”

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