July 25, 2017
Murray Wolf

HTA-Duke Realty Deal Might Have Ripple Effects

The biggest medical office building (MOB) deal of 2017 so far could have more of an impact on the healthcare real estate (HRE) sector than just making headlines.

The transaction, of course, had Indianapolis-based Duke Realty Corp. (NYSE: DRE) announcing May 1 that it agreed to sell most of its MOB portfolio to Scottsdale, Ariz.-based Healthcare Trust of America (NYSE: HTA) for a maximum of about $2.75 billion. As of the end of the second quarter (Q2), HTA said it had closed on the acquisitions of 69 properties for about $2.2 billion, as 11 properties were claimed by health systems under rights of first refusal (ROFR) clauses. HTA was still expecting to acquire three properties and a land parcel for $138 million.

That’s certainly big news for the companies directly involved. But industry sources tell us that the ripple effects of the HTA-Duke realty transaction are already being felt beyond Scottsdale and Indianapolis. Here are two potential implications:

  • Increased visibility for MOBs as an investment class, creating even more demand for the product type from large, sophisticated and well-capitalized institutional and foreign investors, many of whom have already been showing increased interest in recent years.
  •  An influx of additional MOBs into the market, as current owners might decide to capitalize on the sector’s currently low cap rates and historically strong pricing for high-quality facilities affiliated with stable health systems. HTA says the capitalization (cap) rate, or first-year estimated return, that it paid for the Duke Realty portfolio was from 5 percent to 5.25 percent. A number of industry sources, however, say the deal’s cap rate was less than 5 percent.

 

For more implications of the deal and insights into what those potential changes could mean for the HRE sector, please visit: HREInsights.com.