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FOR THE RECORD
The Newmark team of Ben Appel, Jay Miele, Michael Greeley, John Nero, Ron Ott and Adam Goss of the firm’s National Healthcare Capital Markets Group represented Atkins Cos. in its sale of a six-building,
250,000-square-foot medical office portfolio in Connecticut, New Jersey, Ohio and Pennsylvania. Two undisclosed real estate investment trusts purchased the buildings, which are home to a mix of hospital and physician networks, for an unspecified price.
basically obsolete today. When
those properties became larger,
and included many more individual doctor tenants, they became more challenging to manage — all of those individual tenants and their needs
— which was not attractive to larger investment groups.
“Properties that now are operated by larger medical companies such as hospitals with better credit have meant greater value and return for investors.”
Atkins noted that the seemingly imminent rising interest rates could affect medical office building pricing, but not demand. He said inflation will likely mean rents should increase more than the usual 2 percent annual hike for the short term.
And while there has been growing interest and use of telehealth services, Atkins said he does not see it affecting medical office building valuations.
Ben Appel, an executive managing director of global health care services with Newmark, said he sees energetic near- and long-term fundamental drivers in the medical office sector, “including significant new allocations of capital into MOBs, as well as reallocations away from sectors such as hospitality, professional office and retail.”
Appel, who advised Atkins on the recent portfolio sale, said “there is $300 billion of dry powder in open- ended funds, $77 billion of which is allocated to ‘alternative’ real estate assets including MOBs, life science, seniors housing, student housing and storage centers.”
“Yet, the year-to-date transaction volume is $51 billion. So, there is
50 percent more capital demand, and that money has to find a home. Investors have found stability in medical office, as a long (weighted average lease term), income growth, high credit, a sticky tenant asset class.”
He added: “There’s quite a bit of runway right now, and as billions
of dollars of joint ventures are currently being formed, this is just the beginning.”
Appel said he’s seeing properties that had 5.5 percent cap rates a year ago now going for 4.5 percent or lower. He’s also seeing “appetites expanding” and greater interest in
behavioral health and outpatient rehabilitation services properties.
“With the best of the best buildings, in the best
Ben Appel
locations,
and with the highest number of qualified tenants, the cap rates are in the high threes and low fours,” Appel said.
“we are an aging population and a highly insured population. It doesn’t matter if you are living in New York or middle America or anywhere, you
need health care services.”
Paul Bergeron is a freelance reporter based in Herndon, Virginia. RE
He said other factors contributing to the investment surge are that
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