March 25, 2021
John B. Mugford

With a late surge in 4Q, MOB sales in 2020 once again topped the $11 billion mark, a benchmark figure that conveys the product type’s resilience

Back in January, Revista reported that medical office building (MOB) sales had “preliminarily” totaled $10.2 billion in 2020. 

The reason for the “preliminary” tag was that Revista was presenting the data just a few weeks after the end of 2020, meaning more sales could come to light, including a flurry of transactions that totaled well over $600 million in the last few days of the year. 

In presenting the $10.2 billion sales figure, as well as many other statistics, during Revista’s first of six planned informational webcasts planned for 2021, Principal Hilda Flower Martin said “there are still more (transactions) coming in, so this ($10.2 billion figure) is definitely going to be revised upward. I wouldn’t be surprised if it doesn’t get close to or surpass $11 billion, which is right in line with what we’re typically seeing (in recent years) in the sector.” 

Ms. Martin’s prediction was indeed correct, as Ms. Martin and Revista recently released its final MOB sales statistics for 2020, with the volume coming in at $11.2 billion. 

That marks the fifth straight year in which the MOB volume has topped $11 billion, a benchmark figure that conveys the resilience of the product type and the demand for it by a wide variety of investors, including those managing funds in which institutional investors are involved. 

In summing up the MOB sales activity in 2020, Ms. Martin said, “as anticipated, medical office sales in 2020 topped $11 billion after a flurry of closings at the end of December. Although there was a temporary pause in the late spring of 2020 with COVID-19-related shutdowns and uncertainty, total volume ended up being in line with previous years. 

“With continued steady performance and resilience despite all the challenges of the pandemic,” she added, “the sector continues to drive investor demand and pricing remains very competitive.” 

As noted, the fourth quarter (Q4) ended with a flurry, as the quarterly volume was $3.9 billion, the second highest quarterly volume (aside from the $4.31 billion posted in Q4 2019) since Q2 2017 and the third highest quarterly volume since Revista began compiling MOB sales data in Q1 2016. 

As Ms. Martin noted about pricing, the average capitalization (cap) rate, or first-year estimated yield, posted for all MOB sales in 2020 was 6.3 percent. That marks a slight drop from 2019, when the average cap rate was 6.34 percent, and from 2018, when it was 6.55 percent. 

During the second half of 2020, the cap rate “compressed” to 5.9 percent, Ms. Martin notes, with the median cap rate for deals in the top 25 percent coming in at under 5.5 percent. 

She also said that while single-asset MOB transactions dominated the sales market in the first three quarters of 2020, when they accounted for about 65 percent of the volume, portfolio sales rallied in the latter part of the year, with a number of large portfolios closing. 

Included was a $605 million deal in the last few days of 2020 in which Chicago-based Remedy Medical Properties and its joint venture (JV) partner, Boca Raton, Fla.-based Kayne Anderson Real Estate, acquired 29 MOBs from Milwaukee-based Hammes Partners. 

As a result of more portfolio closings late in the year, portfolio sales ended up accounting for about 39.3 percent of the volume in 2020, with single-asset sales accounting for the remaining 60.7 percent. A year earlier, in 2019, portfolio sales accounted for 45.4 percent of the sales volume. Only once since 2016 have portfolio sales accounted for a majority of the  

yearly volume, and that was in 2017 when portfolio sales accounted for 51 percent. 

As for the year ahead, brokers involved in the sector anticipate a strong 2021. 

“Based on our current activity, we believe transaction volume will be in line with the last few years,” said Christopher R. Bodnar, vice chairman of the U.S. Healthcare and Life Sciences Capital Markets team with CBRE Group Inc. (NYSE: CBRE). “We have several large deals coming to market in the next 30 days, so it is my expectation is that we’ll have a really strong second half of the year, which will help get the sector over the $11 billion benchmark.” 

Ben Appel, executive managing director of the Global Healthcare Services Capital Markets team with New York-based Newmark, also sees a strong 2021 ahead. 

“MOB sales will remain strong in 2021,” he says. “COVID-19 has driven a significant amount of inbound capital into the  

MOB sector, resulting from pains in other commercial real estate assets. We’re currently advising on, or tracking seven MOB portfolio transactions ranging from $100 million to $1 billion and I expect we will see a really interesting combination of household names, and exciting new investors, coming into the sector.” 

Another active MOB broker, Evan Kovac, managing director with the Capital Markets group of Jones Lang LaSalle Inc. (NYSE: JLL), tells HREI the team is “confident 2021 will be a very active year, transactionally, as more and more seasoned investors look to realize gains in what feels like one of the strongest markets ever for medical office from an equity and debt perspective.” 

He adds that the healthcare-focused team with JLL is currently “working on several large-scale strategic sale and equity transactions, in addition to having an active one-off transaction and sale pipeline. It’s crazy how much activity there is right now. For us, many of our deals are off market or limited marketing.” 

As a final note on the MOB market, Mr. Kovac says “pricing is stronger than it’s ever been in the sector.”