The Revista mid-year 2017 construction report says to expect 20.9 million square feet (SF) of MOB deliveries in 2018, which would be a rise of 10% over 2016’s 19.0 MSF delivered. And overall, 64% of the MOB expected deliveries in 2018 are expected to be off campus. That is up from 54% observed in 2014.
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 portfolio includes several class A assets such as the Harker Heights Medical Pavilion which is 100% leased and on the campus of Seton Medical Center Harker Heights.
The Big Three healthcare REITs – HCP, Welltower and Ventas –remained disciplined with acquisitions while non-listed REIT fundraising has limited their supply of new investment capital.
In the medical office building (MOB) space, large portfolio sales involving publicly traded companies usually grab most of the headlines. Recent blockbuster deals include Physicians Realty Trust’s (NYSE: DOC) $700 million acquisition of more than 50 MOBs from Catholic Health Initiatives in 2016 and Healthcare Trust of America’s (NYSE: HTA) $2.25 billion purchase of more than 70 medical office properties from Duke Realty Corp. (NYSE: DRE) in recent months.
n 2013, the Healthcare REITs within the 2016 top owners report had funded roughly $0.5B worth of construction projects that were considered “in progress” at 12/31/2016. That $0.5B represented just 0.7% of their total gross real estate assets.
Record MOB sales in the first half of nearly $5.5 billion rivaled total volume in 2012 through 2014. The major reason was HTA’s $2.2 billion acquisition of the Duke Realty healthcare portfolio in June, leaving the balance of first half acquisitions at $3.2 billion, consistent with first half volume in 2015 and 2016 – years with record overall sales.
When Nashville-based Healthcare Realty Trust (NYSE: HR) announced second quarter (Q2) earnings on Aug. 2, there was no hint that it had a major medical office building (MOB) portfolio acquisition in the works. In fact, President and CEO Todd Meredith seemed to suggest that the MOB space could be risky for imprudent investors.
Revista has posted the Mid -2017 Top 50 Metro Rankings Report for Medical Real Estate to its subscriber portal.
The overall construction pipeline, comprised of Hospitals and Outpatient MOBs under construction and in late planning, stands at $104.4B..