On behalf of Irvine, Calif.-based management company IRA Capital, commercial real estate investment and advisory firm HFF has just sold a Texas-based class-A medical office portfolio spanning 137,686 sq. ft. across three properties. The sales price for this particular deal was not disclosed, but the portfolio deal is one signal of continued M&A activity within the healthcare real estate sector this year. HFF describes the buyer as a “publicly traded healthcare REIT.”
The portfolio constitutes Cedar Park Medical Center, located in Austin, as well as two Dallas-Fort Worth assets: The Center for Cancer & Blood Disorders and Baylor Health Center at Magnolia Greens. All three properties are fully leased and are sites wherein patients may obtain state-of-the-art, specialized medical services and procedures such as cyberknife, medical and radiation oncology, orthopedic surgery and pain and spine treatments. Patients also have access to primary care and family medicine at the facilities
“The portfolio represented the rare opportunity to acquire institutional-quality core medical office buildings leased long-term to several of the most highly respected tenants in the industry,” said Evan Kovac, managing director for HFF’s investment sales team. “The new owner has the ability to build a long-term relationship with these established tenants as they continue to expand their footprints within two of the nation’s top real estate markets.”
Within the medical office building (MOB) sector, REITs and other institutional funds are “actively searching for larger deals and portfolios” in 2017, according to researchers at commercial real estate brokerage Marcus & Millichap. But increased competition means investment in the medical office sector is not for the faint of heart.
Private capital is expected to play a larger role targeting deals in the $5M-$20M range. And single-tenant retail investors have grown more active in MOB over the past year, tempted by higher yields relative to other investments at this point in the cycle.
For 2017, Marcus & Millichap forecasts a 40-basis-point decline in vacancy this year, compared to an 80-basis-point decline in 2016. Tightest vacancy will be found in the Pacific Northwest and Central Plains regions, ranging in the mid- to high-4%. Rent growth is forecast at .3% this year.
About 8.5 million sq. ft. of MOB space should hit the market this year, Marcus & Millichap forecasts. Of this total, 2.1 million sq. ft. will be constructed in the Midwest, the firm says, as developers turn away from a more-saturated Southern region.
Here’s the latest data on MOB cap rates provided by Marcus & Millichap researchers, from the firm’s 2017 Healthcare Real Estate Outlook:
- “[Single-tenant] on-campus medical office buildings are trading at sub-6 percent initial yields.”
- “[Multi-tenant on-campus] buildings draw first-year returns in the mid-6 to low-7 percent range.”
- “Off-campus medical office properties with strong tenancy, which often include a healthcare system and long remaining lease terms, are in high demand. These properties fetch initial returns in the mid-6 percent area.”
- “Yields on other off-campus medical assets, including those in need of repositioning or located in secondary or tertiary markets, can trade up to 200 basis points higher. Factors such as quality, location, deferred maintenance and tenancy have an impact on returns for these assets.”