April 25, 2018
John B. Mugford

Three Big Portfolios to Meet Big Investor Appetites

The bread-and-butter medical office building (MOB) deal continues to entail the sale of a single building for a price of less $20 million, often quite a bit less.

Such deals, of course, do not typically satisfy the appetites of the sector’s largest investors, including private equity funds, the larger publicly traded REITs, and institutions, as well as foreign capital. Such investors prefer deals that provide immediate scale instead of having to accumulate a portfolio by making smaller, one-building acquisitions.

So far, 2018 has proved to be a good year – perhaps a great year – for those looking to acquire large portfolios, as three big portfolios – very big – have hit the market in recent weeks.

The three portfolio offerings are sure to provide a boost to the MOB investment sales market for 2018 and pique the interest of the sector’s investors.

Here’s a look at the portfolio offerings:

■ The MMRE portfolio, which consists of 17 medical office buildings with a total of 813,467 square feet of rentable space in nine states. Representing the seller is the U.S. Healthcare Capital Markets Group with Los Angeles-based CBRE Group Inc. (NYSE: CBG). The portfolio is 96.9 percent leased, with 40 percent of the space being occupied by investment grade credit-rated tenants, including the likes of: Des Moines, Iowa-based UnityPoint Health (Aa3 from Moody’s); Akron, Ohio-based Summa Health (Baa2); Cleveland Clinic (Aa2); Crawfordsville, Ind.-based Franciscan Health (Aa3); St. Louis-based Ascension Health (Aa2); and others. CBRE adds that additional tenants include what the brokerage firm calls “prominent” regional physician groups.

■ The Elliott Bay Healthcare Portfolio, a collection of 91 single-tenant healthcare properties with a total of 1.02 million square feet of space in 25 states. The properties were acquired during the last five years or so by Seattle-based Elliott Bay Capital Trust, the seller. Marketing the portfolio and representing the seller is the Healthcare Capital Markets team with Chicago-based Jones Lang LaSalle (NYSE: JLL), which notes that 62 percent of the portfolio is leased to the country’s two largest dialysis providers: Fresenius Medical Care (NYSE: FMS) and DaVita Inc. (NYSE: DVA).

■ The Hammes Medical Office Portfolio, which comprises 17 properties and a total of 945,889 rentable square feet in markets that include New York, Chicago, Seattle, Washington, Philadelphia, and Houston. The portfolio was accumulated in recent years by Hammes Partners, a fund managed by well-known healthcare developer Hammes Company, based in Brookfield, Wis. The JLL healthcare team, which is brokering the portfolio for the seller, notes that the facilities have affiliations with health systems alignment and have an average remaining lease term of 7.2 years.

These portfolio offerings come on the heels of at least four large portfolio sales to kick off 2018.

Those sales included: Heitman/NexCore’s purchase of 17 MOBs from a fund managed by Bentall Kennedy for a total of $585 million, according to data from Real Capital Analytics (RCA); Norvin Partner’s purchase of five MOBs with 504,721 square feet near Houston for an undisclosed price; Milwaukee-based Aurora Heatlhcare’s $433 million purchase of 20 MOBs from Welltower Inc. (NYSE: WELL); and Kayne Anderson/MB Real Estate’s acquisition of two MOBs for $139.5 million from Atlanta-based Meadows & Ohly.