Healthcare: Medical building sales staying healthy

By STEVE BROWN for The Dallas Morning News

The credit crunch and recession have put a damper on many commercial real estate sales this year.

But there’s one segment where the outlook doesn’t depend on job growth, retail sales or company relocations.

Medical building investments in North Texas and around the country have jumped this year as investors take advantage of the rising market.

Buyers ranging from large public real estate investment trusts to individual investors have purchased Dallas-Fort Worth medical properties.

Building developers and brokers say improving credit availability and growing employment in the medical sector are fueling these transactions.

“The health care sector is not completely insulated but is very resilient,” said Chris Godfrey of Dallas-based Cirrus Group LLC. “Well-positioned health care properties are going to do pretty well to weather the economic storm.

“We are all consumers of health care services.”

Cirrus just sold its Global Rehab facility on Empire Central Drive in Dallas to Cornerstone Healthcare Plus REIT for $14.8 million. The 40,000-square-foot medical building was built in 2008.

“We are certainly seeing more interest come back to this market,” Godfrey said. “We’ve been fortunate enough to sell a couple of assets over the last few months.

“We are getting a lot of interest in these properties from private real estate investment trusts,” he said. “They are raising significant amounts of money and need to put that capital to work.”

Alabama-based Medical Properties Trust, a public real estate investor, paid more than $74 million in June for three inpatient rehab hospitals in Texas. The deal included the 3-year-old Reliant Rehabilitation Hospital North Texas in Richardson.

“We are already exploring opportunities to finance additional Reliant hospitals, which, when considered with other properties in our acquisition pipeline, reaffirm our optimism about strong growth in our property portfolio,” Medical Properties Trust CEO Edward K. Aldag Jr. said in a prepared statement.

Medical Properties Trust officials declined to directly discuss their investment strategies.

In another recent deal, Arizona-based Heathcare Trust of America bought two buildings. The real estate investment trust paid $13.5 million for a Lewisville medical office building leased to Texas Oncology and a medical office building on the campus of Texas Health Presbyterian Hospital Denton.

“These two quality properties increase the HTA Texas portfolio to 1,278,600 square feet,” Healthcare Trust’s Mark Engstrom said in a prepared statement. “This transaction is consistent with our investment strategy of acquiring high-quality, stable, on-campus medical office buildings and our philosophy of partnering with strong health care systems.”

The Scottsdale-based investor has spent more than $270 million on medical buildings so far in 2010. Healthcare Trust officials didn’t respond to requests for an interview.

Attractive financing rates and a current lack of interest in traditional commercial office building investments are among the reasons real estate investment trusts are increasing their medical building purchases, said David Aubuchon, a senior securities analyst with Robert W. Baird & Co.

“Medical office demand and supply fundamentals are in decent shape now and should improve,” he said.

Investment property broker Marcus & Millichap Real Estate is also forecasting an increase in demand for medical buildings over the next few years.

“The passage of health care legislation will translate into increased demand for medical office space, stimulating absorption in existing properties,” the report concludes. “Space demand was already forecast to grow to accommodate aging baby boomers.”

Health care employment has grown by more than 765,000 jobs since 2008 and is expected to add 4 million more positions over the next decade, Marcus & Millichap forecasts.

Developers of small medical buildings are also seeing an increase in transactions.

Dallas-based Realty Capital Corp. builds medical offices that are bought by doctors and investors. “The good news is we have seen both building sales and leasing pick up this year as compared to 2009,” said Rian Maguire of Realty Capital. “It is a buyer’s market given that there is still more supply than there is demand, and therefore, prices are still depressed as compared to a couple of years ago.”


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