MOB Trades Top $1 Billion in Volume Following Record Quarter
Medical office building investment sales volume totaled approximately $1.09 billion in first quarter 2013, following the most active single quarter in the industry’s history when over $5.57 billion in quarterly volume was reported in fourth quarter 2012. A significant drop in volume is to be expected when comparing fourth quarter to first quarter volumes, as fourth quarter activity is often heightened as investors rush to close transactions prior to year end, with a large spike often occurring in December. Nonetheless, 2013 appears to be off to a very active start, as the year to date volume through first quarter significantly surpassed the prior year volume of $778 million for the same quarter in 2012 by over 40 percent. The first quarter was absent of any large company consolidations and major portfolio transactions valued above $100 million, and was comprised of asset sale and portfolio transactions. Given that the value of these transactions was mostly $50 million and below, it is worth noting the large number of transactions that took place to total $1 billion in aggregate volume. The public non-traded REITs were among the quarter’s most active buyers. GriffinAmerican Healthcare REIT II reported a total of $92.9 million in first quarter acquisitions. American Realty Capital Healthcare Trust also had an active quarter, reporting $64.0 million in acquisitions, the majority of which were medical office building transactions. The publicly-traded healthcare REIT sector also continued to be active, and demonstrated sound financial performance compared to the overall REIT industry as well as the Dow Jones Industrial Average, as demonstrated in the chart below.
The first quarter of 2013 marks the most active first quarter of transaction volume reported in the last ten years according to real capital analytics. If the quarter’s activity is any indication of how the year will unfold, the medical office building industry is poised for another robust year in 2013. Pricing for medical office buildings remains favorable for sellers, with the average cap rate for first quarter reported at 7.8 percent. This represents a slight decline in the average cap rate of 8.0 percent reported in fourth quarter 2012, indicating a slight increase in pricing for medical office buildings being reported. Overall, pricing has remained steady over the past year, with the average reported cap rate falling within a fairly tight range of 7.6 percent to 8.0 percent each quarter. The relatively low volatility in cap rates over the past year corresponds to the steadily low financing rates available to buyers over the same time period, which have remained at historic lows for the past year.
In the midst of an active quarter, Griffin American made several notable acquisitions throughout the Midwest region. As part of a five-building portfolio totaling $46 million, the non-traded REIT acquired two medical office buildings in Michigan totaling 94,000 square feet and a 44,000 square feet MOB in Noblesville, Indiana. The two-building Michigan portfolio is comprised of off-campus, multi-tenant facilities in the Detroit suburbs of Novi and West Bloomfield that are located within close proximity to Ascension’s St. John Providence Park Hospital and Henry Ford West Bloomfield Hospital, respectively. The Noblesville acquisition is a Class A building constructed in 2008 that is fully leased, with 59 percent of the building leased to Riverview Hospital through 2017. MedProperties Holdings LLC of Dallas, through a joint venture partnership with Equity Inc. of Columbus, OH, acquired the Atrium Medical Center Medical Office Building in Middletown, Ohio in late March. The five-story, 103,000 square foot medical office building is located on the 200-acre hospital campus of the 328-bed Atrium Medical Center located just outside of Dayton. The acquisition marks the first acquired by the partnership between MedProperties and Equity Inc. The transaction price was not disclosed
In March, American Realty Capital Healthcare Trust acquired the Northside East Cobb Medical Campus, a three building outpatient campus totaling 69,341 square feet in Marietta, GA. The outpatient campus is nearly fully occupied at 97 percent, and is anchored by long-term leases to Northside Hospital which utilizes the building for primary care space and an imaging center, among other uses. The purchase price was reported to be $19.2 million, or $277 per square foot.Broadstone Real Estate LLC, a real estate investment and management firm based in Rochester, NY, acquired three Florida MOBs totaling 46,854 square feet. The buildings are located on Florida’s Gulf Coast in Sarasota and Englewood. The purchase price of $16 million represents a 9.4 percent cap rate, according to Real Capital Analytics. The buildings are subject to long-term leases with Gulf Coast Surgery Center for 20-year terms.
New York-based Norvin Healthcare Properties acquired the Central Texas Rehabilitation Hospital located in Austin for $32.9 million. The newly-constructed, 60,000 square foot facility was built in April 2012 and was acquired from an affiliate of Prevarian Hospital Partners. The facility is fully leased by a joint venture between Kindred Healthcare and Seton Healthcare Network, a not-for profit integrated health system based in Austin. The acquisition expands Norvin’s medical office building and healthcare real estate portfolio in Texas, as the company is one of the largest for-profit owners of properties in Houston’s Texas Medical Center. The Sanders Trust acquired Kyle Medical Plaza, a 42,000 square foot medical office building located in Kyle, Texas, a southwest suburb of Austin. The recently completed, Class A facility features a wide range of healthcare uses, including a surgery center, MRI testing, physical therapy space, and various other physician practices. The purchase price for the facility totaled $13 million, or $310 per square foot
A joint venture between CNL Healthcare Properties and Montecito Medical Operating Company acquired a majority interest in the Claremont Medical Plaza, a 48,894 square foot medical office building located in Claremont, CA. The investment marks CNL’s first medical office building acquisition and the first for the joint venture between the two firms. The building was built specifically for Pomona Valley Health System, which occupies 77 percent of the 89 percent leased building. The transaction price was reported to be $19.8 million, or $404 per square foot. The seller of the transaction was StoneCreek Company, which will continue to manage the property. In the Pacific Northwest, Trammell Crow announced the acquisition of an existing biotech research facility and excess land located adjacent to Swedish Medical Center in Seattle, WA. The acquisition, which totaled $42.6 million, includes plans to redevelop the existing building by adding an eighth floor and developing a new, 330-space parking structure. Upon completion in 2014, the building will have a total of 190,000 square feet of medical office space. The acquisition also included two surface parking lots located two blocks away from the building, which Trammell Crow announced will be developed into two, six-story residential developments totaling over 250 units as part of the project’s second phase. Trammell Crow made the acquisition through a joint venture with Washington Capital Management of Seattle.
Health Care REIT acquired the Charter Professional Building, a three-story, 56,103 square foot medical office building in Columbia, MD, for $20.6 million. The 98 percent leased building boasts a rent roll that consists of 30 percent occupancy by Johns Hopkins Medicine and is located adjacent to Howard County General Hospital, a 249-bed acute care hospital that is part of the system. The price paid equates to $367 per square foot, making it one of the highest prices paid on a per square foot basis for medical office in the Baltimore market in the past year.Marcus Partners announced the acquisition of the Cross Street Medical Building, a 70,000 square foot Class A medical office property located at 40 Cross Street in Norwalk, CT. The price for the transaction, according to Real Capital Analytics, was $13 million, or $185 per square foot. The facility’s location is situated within Norwalk’s West Avenue medical corridor and is within walking distance to Norwalk Hospital. The acquisition adds to Marcus Partners’ growing portfolio of commercial real estate holdings in the Mid-Atlantic and Northeast regions. The Boston-based real estate investment firm invests in medical office, bio-medical facilities, and research and development properties, among other asset classes.
By Hammond Hanlon Camp LLC