Welltower Adds to MOB Growth Spurt

The company has agreed to pay $140 million to buy a 270,000-square-foot complex in Berkeley Heights, N.J., from its tenant, which will continue its occupancy under a new 20-year lease.

1 Diamond Hill Road. Image via Google Street View

Welltower Inc.’s medical office building portfolio continues to grow, as the company inks an agreement to acquire Summit Medical Group’s 270,000-square-foot campus in Berkeley Heights, N.J. The health-care infrastructure provider will purchase the six-building property for $140 million.

READ ALSO: Welltower to Buy CNL Health-Care Portfolio for $1.3B

Located on 43 acres at 1 Diamond Hill Road, the Summit flagship campus as it exists today debuted in 2006. The property had been home to data and analytics firm Dun & Bradstreet before Mountain Development Corp. acquired it for $11.5 million in 2002, according to Union County records, and ultimately redeveloped and expanded it as a home for Summit. In addition to accommodations for a host of medical practices and services, the Summit campus also features a 1,200-square-foot Walgreens pharmacy that opened in 2008.

Summit will continue to occupy the campus under a 20-year absolute net lease with Welltower, effectively expanding Welltower’s portfolio of Summit-leased properties to more than 500,000 square feet. The property sale, which will help facilitate Summit’s planned merger with CityMD, is on schedule to reach completion in the third quarter of 2019.

MOB growth spurt

Welltower is having a highly acquisitive year; in addition to such transactions as this week’s $308 million joint venture purchase of a six-community senior living portfolio in the Denver and Boulder metro areas, the company has expanded its MOB holdings by leaps and bounds. In May, Welltower closed the $1.3 billion acquisition of a 55-property, 3.3 million-square-foot MOB and outpatient facility portfolio from CNL Healthcare Properties. And earlier in the year, the company paid $400 million to acquire a 23-property, 979,000-square-foot collection of MOBs from Hammes Partners.

Welltower has been aggressive in the MOB sector over the last couple of years, and it has everything to do with cap rates. According to a report by Marcus & Millichap the average cap rate for MOB product finally began to inch upward ever so slightly in 2016 and held steady in 2018. Asked during the company’s first quarter 2019 earnings conference call on April 30 if the rise in cap rates has made the asset class more interesting to the company, Shankh Mitra, chief investment officer with Welltower Inc., responded in the affirmative. However, he added, if cap rates go down again, the company will get out of the market again. Welltower’s outpatient medical portfolio has grown from 259 properties totaling 16.3 million square feet at the end of the second quarter of 2018 to 356 properties totaling 21.8 million square feet at the close of the second quarter of 2019.

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