{"id":1004647987,"date":"2023-03-02T09:59:02","date_gmt":"2023-03-02T17:59:02","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004647987"},"modified":"2023-03-02T22:30:41","modified_gmt":"2023-03-03T06:30:41","slug":"why-mobs-offer-healthy-investor-appeal","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/","title":{"rendered":"Why MOBs Offer Healthy Investor Appeal"},"content":{"rendered":"

The health-care sector has largely rebounded from the lockdowns that halted all but the most necessary doctor\u2019s visits and procedures in 2020. Most health systems reported that they were within 5 percent of pre-pandemic utilization volumes last year, according to Cushman & Wakefield<\/strong>\u2019s most recent healthcare and medical office report.<\/p>\n\n\n

\n
READ THE DIGEST<\/a><\/div>\n<\/div>\n\n\n

That\u2019s good news for medical office real estate, as is the expected 7.3 percent growth in outpatient services through 2026, reported Cushman & Wakefield, citing data from the Advisory Board<\/a>, a healthcare research and analytical organization based in Washington, D.C.<\/p>\n

\"Northmarq<\/a>

Northmarq recently arranged construction financing for Imperial Village, a 45,000-square-foot medical office building in a mixed-use master-planned community in Sugar Land, Texas. Construction is expected to be completed in 2024. Image courtesy of Northmarq<\/em><\/p><\/div>\n

Additionally, medical office buildings have an average occupancy rate of 92 percent, which represents gradual improvement since occupancy dipped in 2020. It\u2019s also clear that while the growth of telehealth<\/a> fulfilled a need during the lockdown, many ailments and checkups still require an in-person visit. Investors expect MOBs to register 2 percent to 4 percent rent growth this year, according to a JLL<\/strong> survey<\/a> released in February. That would be consistent with the past two years, which have produced average rent increases of about 2.3 percent, JLL notes, and compares favorably with the 1.9 percent uptick for office rents over the same stretch.<\/p>\n

As a result, investors are viewing medical office as a safe haven in a disrupted environment. Not only have rising interest rates cast general uncertainty on property values, but the slow return of employees to the workplace is also raising questions about demand for the office sector as a whole.<\/p>\n

\u201cWe\u2019re receiving a lot of calls from office owners who are looking for ways to deploy capital into medical office,\u201d said Andrew Milne, senior managing director for JLL Capital Markets. \u201cIt isn\u2019t a new trend, but a lot more are rethinking their traditional office portfolios.\u201d<\/p>\n

As with most asset categories, higher capital costs have made it challenging to deploy capital into medical office. MOB investors pulled back in the second half of 2022 as the bid-ask spread emerged and lending largely dried up, noted Lorie Damon, an executive managing director with Cushman & Wakefield\u2019s health-care advisory unit. Still, the market remains liquid for trusted borrowers who bring attractive deals to the table.<\/p>\n

\u201cThe limited capacity for accessing debt right now has certainly impacted medical office as well as every other property sector, but deals are getting done,\u201d said Damon. \u201cHealth-care performs really well in recessionary times, because people still get pregnant and still get sick.\u201d<\/p>\n

Pressure on Values<\/h2>\n

Some $19.3 billion in medical office buildings traded in 2022, a $1 billion increase over the prior year, according to New York-based MSCI Real Assets. However, it\u2019s worth noting that a single deal, Healthcare Realty Trust\u2019s acquisition<\/a> of Healthcare Trust of America, accounted for nearly $8 billion of that total. In the second half of 2022, rising capital costs and recession fears cut MOB transaction volume sharply year-over-year.<\/p>\n

Though that REIT deal was a dominant factor in investment volume, private buyers<\/a> accounted for 72 percent of all transactions in 2022, reported MSCI Real Assets. Health-care REITs pulled out of the market early last year as stock prices fell, observers say. The REITs ended the year down more than 22 percent, according to NAREIT, although they generated total returns of nearly 13 percent in January.<\/p>\n

\"Sources:<\/a>

Sources: Revista, CBRE Econometric Advisors, CBRE Research<\/em><\/p><\/div>\n

The dive in health-care REIT values further indicates that a repricing is underway and trickling down to the private market. The median cap rate for medical office ticked up to 5.9 percent by the end of the year, according to research by CBRE<\/strong> and Revista. Gauging true value change is difficult, however, because core asset owners who may have wanted to dispose of properties last year ended up holding onto them, limiting the dataset to value-add and core plus transactions, Cushman & Wakefield noted.<\/p>\n

But in San Francisco, cap rates for surgery centers with credit tenants have climbed to as much as 6.5 percent, or about 200 basis points higher than before the pandemic, said Edward Del Beccaro, executive vice president and the San Francisco Bay Area regional manager with TRI Commercial\/CORFAC International. Many sellers still hope that interest rates will come down and that prior pricing power returns, he added, but he anticipates that the Federal Reserve will raise the benchmark federal funds an additional 100 basis points in 2023.<\/p>\n

\u201cMedical office cap rates will be under further pressure to move higher, and I don\u2019t see them going down at all in 2023,\u201d Del Becarro predicted. \u201cBut as inflation is tamed and the market settles out, I think medical office will be one of the winners.\u201d<\/p>\n

Stabilizing Market<\/h2>\n

Some observers anticipate a rebound in investment sales activity this year as debt markets stabilize. After some fluctuation during the fall and winter, the yield on the 10-year Treasury reached nearly 4 percent by the end of February. That has generally translated into interest rates between 5.5 percent and 7 percent or more for medical office. Some lenders had reached capacity as last year drew to a close, but lending has ticked up with new allocations for 2023, reported Warren Hitchcock, senior vice president & managing director with Northmarq.<\/p>\n

At the same time, the amount of leverage available has dwindled. But some developers can still find favorable terms. A year ago, Hitchcock secured bank financing for 85 percent of cost for a project that was more than 80 percent preleased. Later in the year, a similar deal still managed to muster a loan for 75 percent of cost.<\/p>\n

\u201cNot every lender understands medical office,\u201d he added. \u201cBut the lenders that do know it and understand it are aggressive on it.\u201d<\/p>\n

Lender Interest Grows<\/h2>\n

Indeed, just as medical office space is attracting a wider group in investors, more lenders are gravitating toward it, said Lee Asher, vice chairman with CBRE\u2019s Healthcare and Life Sciences Capital Markets. Among other attractions, medical tenants deliver solid rent coverage thanks to strong earnings before rent costs and other expenses, he said.<\/p>\n

What\u2019s more, rent makes up only 5 percent of operating expenses for medical tenants, which is typically much lower than occupiers in other property categories. Because physicians want to remain near their patients, tenant retention also tends to be high, he added.<\/p>\n

Meanwhile, on the equity side, medical office assets that come to the market are still fetching multiple offers even though some buyers are still on the sidelines, reported John Chun, a managing director on JLL\u2019s Capital Markets team. But to those investors who are active, the retreat of treasury rates along with a decline in corporate bond spreads and SOFR swap rates (secured financing overnight rate) are providing more certainty to the market than was present just a few months ago.<\/p>\n

\u201cIt\u2019s still a very fluid and liquid market,\u201d he said. \u201cAnd we\u2019re starting to see all-in interest rates decrease to a level that should benefit medical office deals this year.\u201d<\/p>\n

Read the March 2023 issue of CPE.<\/em><\/a><\/p>","protected":false},"excerpt":{"rendered":"

Known for resilience in challenging times, medical office assets are being targeted by a broader swath of capital.<\/p>\n","protected":false},"author":890,"featured_media":1004647994,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1521,21754],"tags":[50380],"class_list":["post-1004647987","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-digital","category-medical-office","tag-northmarq"],"acf":[],"yoast_head":"\nWhy MOBs Offer Healthy Investor Appeal - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why MOBs Offer Healthy Investor Appeal\" \/>\n<meta property=\"og:description\" content=\"Known for resilience in challenging times, medical office assets are being targeted by a broader swath of capital.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2023-03-02T17:59:02+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-03-03T06:30:41+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png\" \/>\n\t<meta property=\"og:image:width\" content=\"602\" \/>\n\t<meta property=\"og:image:height\" content=\"452\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Joe Gose\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/\",\"name\":\"Why MOBs Offer Healthy Investor Appeal - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png\",\"datePublished\":\"2023-03-02T17:59:02+00:00\",\"dateModified\":\"2023-03-03T06:30:41+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/c65d4944b0b506742e79b5b1b9ecca26\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png\",\"width\":602,\"height\":452,\"caption\":\"Trend: Why MOBs Offer Healthy Investor Appeal. Image courtesy of Northmarq\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.commercialsearch.com\/news\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Why MOBs Offer Healthy Investor Appeal\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/\",\"name\":\"Commercial Property Executive\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.commercialsearch.com\/news\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/c65d4944b0b506742e79b5b1b9ecca26\",\"name\":\"Joe Gose\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Joe-Gose.jpg?w=71\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Joe-Gose.jpg?w=71\",\"caption\":\"Joe Gose\"},\"description\":\"Joe Gose is a freelance writer interested in compelling business trends and stories around the country. He has primarily focused on real estate development, finance and fundamentals for the last 23 years\u2014the last 17 as a freelancer after leaving the Kansas City Star\u2014and has written for numerous business and consumer publications.\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/author\/joe-gose\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Why MOBs Offer Healthy Investor Appeal - Commercial Property Executive","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/","og_locale":"en_US","og_type":"article","og_title":"Why MOBs Offer Healthy Investor Appeal","og_description":"Known for resilience in challenging times, medical office assets are being targeted by a broader swath of capital.","og_url":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/","og_site_name":"Commercial Property Executive","article_publisher":"https:\/\/www.facebook.com\/CPExecutive","article_published_time":"2023-03-02T17:59:02+00:00","article_modified_time":"2023-03-03T06:30:41+00:00","og_image":[{"width":602,"height":452,"url":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png","type":"image\/png"}],"author":"Joe Gose","twitter_card":"summary_large_image","twitter_creator":"@cpexecutive","twitter_site":"@cpexecutive","schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/","url":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/","name":"Why MOBs Offer Healthy Investor Appeal - Commercial Property Executive","isPartOf":{"@id":"https:\/\/www.commercialsearch.com\/news\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage"},"image":{"@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage"},"thumbnailUrl":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png","datePublished":"2023-03-02T17:59:02+00:00","dateModified":"2023-03-03T06:30:41+00:00","author":{"@id":"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/c65d4944b0b506742e79b5b1b9ecca26"},"breadcrumb":{"@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#primaryimage","url":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png","contentUrl":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png","width":602,"height":452,"caption":"Trend: Why MOBs Offer Healthy Investor Appeal. Image courtesy of Northmarq"},{"@type":"BreadcrumbList","@id":"https:\/\/www.commercialsearch.com\/news\/why-mobs-offer-healthy-investor-appeal\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.commercialsearch.com\/news\/"},{"@type":"ListItem","position":2,"name":"Why MOBs Offer Healthy Investor Appeal"}]},{"@type":"WebSite","@id":"https:\/\/www.commercialsearch.com\/news\/#website","url":"https:\/\/www.commercialsearch.com\/news\/","name":"Commercial Property Executive","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.commercialsearch.com\/news\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/c65d4944b0b506742e79b5b1b9ecca26","name":"Joe Gose","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/image\/","url":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Joe-Gose.jpg?w=71","contentUrl":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Joe-Gose.jpg?w=71","caption":"Joe Gose"},"description":"Joe Gose is a freelance writer interested in compelling business trends and stories around the country. He has primarily focused on real estate development, finance and fundamentals for the last 23 years\u2014the last 17 as a freelancer after leaving the Kansas City Star\u2014and has written for numerous business and consumer publications.","url":"https:\/\/www.commercialsearch.com\/news\/author\/joe-gose\/"}]}},"jetpack_featured_media_url":"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/02\/Imperial-Village-MOB_featured-image.png","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/posts\/1004647987","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/users\/890"}],"replies":[{"embeddable":true,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/comments?post=1004647987"}],"version-history":[{"count":5,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/posts\/1004647987\/revisions"}],"predecessor-version":[{"id":1004649385,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/posts\/1004647987\/revisions\/1004649385"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/media\/1004647994"}],"wp:attachment":[{"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/media?parent=1004647987"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/categories?post=1004647987"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.commercialsearch.com\/news\/wp-json\/wp\/v2\/tags?post=1004647987"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}