October 25, 2017
John B. Mugford

2017: The Year of the MOB Portfolio Deal?

Recent offering of 17 MOBs adds to a the list of portfolios put on the market this year

By John B Mugford, Editor, Healthcare Real Estate Insights

Large investors, including institutional and foreign capital sources, as well as others, certainly prefer to acquire properties in large quantities.

However, that’s not always possible when it comes to making acquisitions, or trying to make acquisitions, in the medical office building (MOB) sector. As most professionals involved in the space note, the bread and butter MOB deal typically involves a single building trading below $20 million – typically not large enough to attract the attention of large investors.

While such deals remain the norm, 2017 has presented, and is still presenting, what seems to be more opportunities to acquire MOBs in bulk than in years past. Portfolios have and are continuing to hit the market from a variety of sellers, including some long-time healthcare real estate (HRE) development firms that typically hold on to their facilities until the time is right to sell.

Well, the time certainly seems right to sell in 2017, as capitalization (cap) rates – the estimated first-year return on an investment – have reached all-time lows. Many high-quality portfolios and single MOBs with credit-rated tenants are trading at cap rates of 6 percent and below, some right around or even under 5 percent.

The most recent offering comes by way of PHT Investment Holdings, which is managed by Bentall Kennedy for a Michigan retirement fund. It has 17 buildings and 1.4 million square feet of space, with a good share of the tenants being credit-rated health systems. Many of the largest investors interested in MOBs, including real estate investment trusts (REITs), core funds, and foreign capital sources, are showing an interest, according to JLL’s Healthcare Capital Markets Group, which is representing the seller.

The offering comes on the heels of Jupiter, Fla.-based Rendina Healthcare Real Estate, a long-time HRE developer, putting a 10-property, 489,301 square foot MOB portfolio on the market in September. JLL is also facilitating that offering.

Here’s a sampling of other large MOB portfolio sales – which total more than $3.7 billion – that have taken place so far in 2017:

■ Scottsdale, Ariz.-based Healthcare Trust of America’s (NYSE: HTA) $2.2 billion purchase of most of the HRE portfolio accumulated by Duke Realty Corp. (NYSE: DRE). The deal was announced in May and closed in two tranches in June and July.

■ Nashville, Tenn.-based Healthcare Realty Trust’s (NYSE: HR) pending $612.5 million acquisition of 15 MOBs from long-time HRE development firm Meadows & Ohly LLC. The two entered an agreement in August, with a closing expected this fall.

■ CBRE Global Investors’ $590 million purchase in August of 27 MOB properties from a joint venture partnership of Los Angeles-based Kayne Anderson and Chicago-based MB Real Estate. The seller retained a 5 percent interest.

■ Physician Realty Trust’s (NYSE: DOC) $157.1 million acquisition of 13 MOBs from Englewood, Colo.-based Catholic Health Initiatives (CHI). The deal was not a marketed one, as DOC and CHI have an established relationship following the REIT’s $700 million purchase of a portfolio from CHI in 2016.

■ HTA’s $150 million May acquisition of 11 properties from a JV partnership of Denver-based NexCore Group LP and Chicago-based Heitman.