March 26, 2020
John B. Mugford

MOB Sales Top $11 Billion for the Fifth Straight Year

Through Q3 of 2019, there was some speculation about whether the total MOB sales volume for the year would top the $11 billion threshold for the fifth straight time.

Any doubt, however, was put to rest with a strong Q4, when sales totaled $3.8 billion and propelled the yearly total for 2019 to $11.42 billion, according to Revista’s 2019 Medical Real Estate Transactions Report. While the 2019 total represents a year-over-year drop of 8 percent, it should be noted that 2018 saw a very strong volume of $12.4 billion.

And, it should also be noted that the 2019 volume rebounded strongly from a slow Q1, when sales were just $1.7 billion, the lowest quarterly total since Revista began compiling yearly and quarterly MOB sales back in Q1 2015.

As for MOB pricing in 2019, Revista’s data indicates that the average capitalization (cap) rate, or the estimated first-year return on an investment, was 6.3 percent in 2019. 

Professionals involved in MOB sales say that actual cap rates for the highest quality deals — those in portfolios and involving newer facilities in top markets and that house strong tenants, including health systems — can be significantly lower, and Revista’s statistics back that up.

Portfolio deals in 2019 had an average cap rate of 6.1 percent and the lowest quartile of cap rate dales were done at an average of 4.1 percent.

Revista’s report also indicates that investors are willing to pay a premium for on-campus MOBs compared to off-campus, as the average cap rate for on-campus facilities in 2019 was 5.9 percent compared to 6.4 percent for off-campus.

As for the price per square foot (PSF) for MOB transactions during 2019, Revista reports the average as $327, the second highest yearly total since 2015.

As has been the case for a number of years, private investors – those not including health systems or publicly traded real estate investment trusts (REITs) – dominated the buyer’s pool once again in 2019, accounting for about 55 percent of all MOB acquisitions, according to Revista. The country’s REITs accounted for about 33 percent of the MOB sales volume last year, while hospitals and health systems represented about 10 percent.

The two largest MOB purchases of the year were both made by Toledo, Ohio-based Welltower Inc. (NYSE: WELL). Those were: the REIT’s $1.25 billion purchase of 55 MOBs from Orlando, Fla.-based CNL Healthcare Properties that closed in May; and its $787 million acquisition of 29 MOBs from Milwaukee-based Hammes Partners that closed in late December.