Even a 'black swan' hasn't stopped HRE
InterFace panelists say the pandemic simply reaffirmed the sector's strength
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The May 12 InterFace "State of the Industry" discussion included (clockwise from the upper left): moderator Murray W. Wolf of HREI, PJ Camp of H2C, Darryl Freling of MedProperties Realty Advisors, Lance Hardenburg of Caddis HRE, Ben Ochs of Anchor Healthcare Properties and Michael Arvin of New Era Partners. (HREI™ photo)
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NATIONAL -- For many years, a tried and true question for expert panelists at healthcare real estate (HRE) conferences has been this: "What potential concerns about this business keep you up at night?" And a common answer has been the potential for the HRE sector to be rocked by a "black swan" event -- some sort of devastating external economic shock that it didn't see coming
Future HRE conferences will need to find a new talking point.
During InterFace Conference Group's opening "State of Industry" session last Wednesday, May 12, the panelists agreed that if there has ever been a black swan event, COVID-19 was it. Yet, they noted, the HRE space has fared extraordinarily well during the past 15 months despite the virus and the global economic recession it spawned.
In fact, the pandemic has potentially expanded opportunities for HRE development, financing and investment, the panelists said. For starters, they said that health systems might now be more likely to tap into third-party sources to own and/or develop facilities they occupy.
"I think (the pandemic) has put a focus on the desire to have a flexible balance sheet and have cash at the ready," said Philip J. "PJ" Camp, principal and co-founder of New York-based Hammond Hanlon Camp (H2C), which provides a wide variety of investment banking services to health systems and real estate firms involved in the space.
"So, ... this has some health systems thinking about monetizing real estate, thinking about bringing in third-party owners to develop new real estate asset types," he added. "I do think that's a trend we're going to see as a result of the pandemic."
Moderated by Murray W. Wolf, publisher of HREI, the InterFace "State of the Industry" session was subtitled "An Investment, Development and Leasing/Operations Update." In addition to Mr. Camp, the other panelists were: Lance M. Hardenburg, managing partner and CEO of Dallas-based Caddis Healthcare Real Estate; Darryl E. Freling, managing principal with Dallas-based MedProperties Realty Advisors LLC; Benjamin Ochs, CEO of Media, Pa.-based Anchor Health Properties; and Michael Arvin, EVP of strategy and development with Grapevine, Texas-based New Era Partners.
Mr. Hardenburg noted that he agrees with Mr. Camp concerning a potential uptick in monetizations and third-party ownership of health system-occupied MOBs.
As an example, he said Caddis recently met with an executive of one of the firm's "longtime health system partners" who noted that the organization is considering tapping into third-party capital not just because of "what's transpired during COVID" or as a way to preserve capital, but to "reexamine" the system's balance sheet and consider allocating more of its capital into providing healthcare services instead of owning real estate.
"What we're finding is as long as (the health systems) are comfortable that they can control the land," Mr. Hardenburg noted, "and as long as they're comfortable in knowing that the developer or the owner sitting across from them is an experienced operator and a long-term holder of the asset ... well, we're finding out that this is going to be a discussion throughout 2021,'22 and '23. I think it's a shift that's going to happen and that is going to take some time to play out."
In addition to a potential shift in the MOB ownership landscape, another panelist, Mr. Freling of MedProperties, said the pandemic is likely to accelerate the recent trend of health systems and providers offering more services in off-campus facilities closer to where their patients live.
"For a long time, we've seen hospital systems (adopt) ambulatory strategies to move the delivery of lower-acuity services to off-campus suburban facilities," he noted -- although he added that some systems were slower than others to adopt such a strategy and instead continued to provide many elective surgeries on their hospital campuses.
But when those systems, in preparation for a "surge of COVID-19 patients ... were holding beds open and they had to shut down their elective procedures, ... which are a high-margin part of the business, they lost all of that revenue. Those that had stand-alone suburban facilities saw those open up much more quickly when the restrictions on electives were lifted.
"So, as an impact as it pertains to real estate ..., I think you're going to see an acceleration of this movement to push ambulatory service services and electives off campus," Mr. Freling said, "so that in the event that something like this ever happens again, those systems don't get caught with their pants down and lose all that all that revenue -- and not necessarily from a regulatory standpoint but simply to keep their beds open and available for a possible surge."
During the remainder of the discussion, the panelists covered a wide range of topics, such as how well MOBs have held up as an investment during the pandemic, how so many new sources of capital have become interested in HRE facilities, how the development of MOBs remains strong relative to how the pandemic has hurt so many other sectors, and others.
For a longer version of the story touching on those topics and more, please visit HREInsights.com. (Subscription required)
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Most MOB and life sciences REITs had a solid Q1
After reduced activity in 2020, they have resumed acquisitions so far this year
NATIONAL -- Most of healthcare real estate investment trusts (REITs) reported their first quarter (Q1) earnings during the past couple of weeks. Here are some highlights of Q1 and year-to-date activities by some of the MOB and/or life sciences-focused healthcare REITs we haven't reported previously.
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DOC acquired a 96,768 square foot MOB in Wesley Chapel, Fla, for $35.3 million during Q1. It is anchored by AdventHealth and Moffitt Cancer Center, according to the REIT's earnings report.
Photo courtesy of DOC
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■ Physicians Realty Trust. Although Milwaukee-based Physicians Realty Trust (NYSE: DOC), a REIT focused on MOBs, did not make any major acquisitions during Q1, it has, since the close of the quarter, made two investments for a total of about $36.2 million, according to its Q1 financial results report. Those include a $35.3 million purchase of a three-story, 96,768 square foot MOB in Wesley Chapel, Fla., anchored by Altamonte Springs, Fla.-based AdventHealth, which has an AA rating from Standard & Poor's (S&P), and Moffitt Cancer Center, with an A- rating from S&P. Its other acquisition was of a medical condominium unit in an MOB in the "Pill Hill" area of Atlanta. For more information, please visit HREInsights.com.
■ Healthcare Trust of America Inc. In reporting its Q1 financial results, Scottsdale, Ariz.-based Healthcare Trust of America Inc. (NYSE: HTA) noted that it acquired two MOBs during the quarter for a total of $32.5 million. The MOBs have a total of 117,000 square feet and are in Raleigh-Durham, N.C., and Columbus, Ohio. Since the end of Q1, HTA also "closed on or executed exclusive (LOIs)" on investments totaling about $154 million at initial cap rates of between 5.5 to 6 percent. The deals are expected to close in Q2. HTA also reported that it completed MOB developments with a combined value of about $51 million in Miami and Bakersfield, Calif. For more information, please visit HREInsights.com.
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One of HR's Q1 acquisitions was a pair of MOBs totaling 122,000 square feet for $22.5 million located on the Baylor Scott & White Medical Center - Grapevine (Texas) campus.
Photo courtesy of HR
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■ Healthcare Realty Trust. MOB-focused Nashville-based Healthcare Realty Trust (NYSE: HR) is off to a fast start in 2021, making acquisitions totaling $76.6 million in Q1 and another $52.1 million since the close of the quarter. In its Q1 financial report, HR indicates it acquired seven MOBs in Q1 with a total of 275,000 square feet. After Q1, HR acquired three MOBs in the Los Angeles, San Antonio, and Colorado Springs, Colo., markets as part of a joint venture with New York-based TIAA. Year-to-date as of May 5, HR had acquired "10 buildings totaling 405,000 square feet for $128.7 million" at average cap rates of 5.5 percent. For more information, please visit HREInsights.com.
■ Global Medical REIT. For Bethesda, Md.-based Global Medical REIT Inc. (NYSE: GMRE), which is focused on acquiring and owning net-leased MOBs, Q1 turned out to be a somewhat active quarter for acquisitions. It closed on facilities with a total of 120,032 square feet for a total investment of $42.8 million. The MOBs were acquired at a weighted average cap rate of 7.6 percent, according to the REIT's Q1 financial results. Following the end of the quarter and through May 5, Global Medical REIT purchased five MOBs with a total of 188,016 square feet for an aggregate price of $58.2 million at a weighted average cap rate of 7.2 percent. For more information, please visit HREInsights.com.
■ Ventas Inc. In reporting Ventas Inc.'s (NYSE: VTR) Q1 financial results, Debra A. Cafaro, chairman and CEO, said: "Our strong, diverse and high-quality portfolio delivered better than expected financial results in the first quarter, driven by outperformance in our senior housing operating portfolio (SHOP) and ... our (MOB) and triple-net businesses." Occupancies in the REIT's senior housing and SHOP portfolios improved by 280 and 190 basis points, respectively, "from pandemic lows." Q1 investment activities included a $272 million acquisition of life science facilities next to Johns Hopkins Medical Campus in Baltimore. For more information, please visit HREinsights.com.
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Montecito acquires 29,375 s.f. MOB in San Antonio next to future Methodist hospital
SAN ANTONIO -- Nashville, Tenn.-based Montecito Medical recently acquired a 29,375 square foot MOB in the Westover Hills area of San Antonio for an undisclosed price. Completed in 2020, the fully occupied MOB at 5715 Rogers Road is anchored by San Antonio-based Methodist Healthcare, which leases 13,336 square feet, and also houses South Texas Radiology and San Antonio ENT. According to Montecito, not only is the MOB located in the "fast-growing, high-income" Westover Hills area, but it is adjacent to a 70-acre site on which Methodist operates a freestanding emergency department and has plans for a future hospital. For more information, please visit HREInsights.com.
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Echo Development acquires a 15,500 square foot, fully occupied MOB near Dallas
ROWLETT, Texas -- Chicago-based Echo Development Group Inc., which acquires and develops healthcare, industrial and retail facilities, recently acquired a 15,500 square foot MOB in Rowlett, a Dallas suburb. According to HRE data firm Revista, the seller was Cleveland, Ohio-based Woodside Health, an MOB-focused real estate firm. Echo did not disclose the price for the fully occupied MOB anchored by Texas Cardiac Associates, which is affiliated with Dallas-based Baylor Scott & White Health. The purchase expands Echo's "footprint into Texas, a market we have been targeting for some time," said Principal Jon Boyajian. For more information, please visit HREInsights.com.
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60,000 s.f. MOB proposed for a site next to Cotton Medical Center in Pasadena, Calif.
PASADENA, Calif. -- A 60,000 square foot MOB has been proposed for a site in Pasadena next to the two-building, 115,000 square foot Cotton Medical Center, an outpatient complex adjacent to Huntington Memorial Hospital. Walnut Creek, Calif.-based Meridian acquired the complex in 2016, spent $10 million on improvements and sold it in 2019 to Nashville, Tenn.-based Healthcare Realty Trust (NYSE: HR). The proposed four-story Cotton West MOB would be flanked by a new parking structure. Pasadena Now reports that the size of the proposed MOB has been scaled back nearly 50 percent since it was first proposed in 2017. For more information, please visit PasadenaNow.com.
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Atlanta-based Northside Hospital network acquires MOB in Tucker, Ga., for $10M
TUCKER, Ga. -- Atlanta-based Northside Hospital, a network of five hospitals and numerous outpatient locations in Greater Atlanta, is continuing its expansion in the suburbs. The Atlanta Business Chronicle reports that the system recently acquired an MOB in Tucker, about 20 miles northeast of Atlanta, for $10 million. A spokesperson said the system plans to use the facility as an outpatient location. The MOB sits on a 5-acre site at 1462 Montreal Road, just off U.S. Interstate 285 and a short distance from Northlake Mall. The seller was Birmingham, Mich.-based The Reinhart Group (TRG). For more information, please visit BizJournals.com. (Subscription required)
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Northside acquires 34,282 s.f. MOB near its hospital in Duluth, Ga., for $6M
DULUTH, Ga. -- In more news from Northside, the system recently acquired another suburban MOB, this one a 34,282 square foot facility near a hospital it operates in Duluth, nearly 30 miles northeast of Atlanta. According to HRE data firm Revista, Northside paid $6 million, or $175 per square foot (PSF), for the Duluth Professional Building at 3790 Pleasant Hill Road. The facility sits amid a complex of buildings across Pleasant Hill Road from the 353-bed Northside Hospital Gwinnett. The 59.3 percent occupied MOB, which includes a surgery center, was completed in 1990. The seller was Atlanta-based Highgate Properties. For more information, please visit RevistaMed.com. (Subscription required)
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MedCraft developing, K-A constructing $8M ASC on outpatient campus in Tucson, Ariz.
TUSCON, Ariz. -- Construction started recently on a future $8 million, 17,000 square foot ambulatory surgery center (ASC) on an outpatient campus in southeastern Tucson flying the flag of TMC (Tucson Medical Center) HealthCare. Minneapolis-based Kraus-Anderson is constructing the facility being developed by Minneapolis-based MedCraft Healthcare Real Estate, which owns the other building on the campus, a 44,000 square foot MOB it acquired in May 2020. MedCraft landed a number of new tenants, and the campus now offers primary, specialty and urgent care services. The ASC can be expanded by an additional 3,000 square feet. For more information, please visit HREInsights.com.
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Private REIT Four Springs Capital buys UNC Health-occupied MOB in Chapel Hill, N.C.
CHAPEL HILL, N.C. -- Lake Como, N.J.-based Four Springs Capital Trust on May 5 closed on the $14.9 million purchase of a 25,761 square foot MOB in Chapel Hill occupied by a number of groups affiliated with locally based UNC (University of North Carolina) Health and UNC Physicians Network. According to HRE data firm Revista, the seller of the five-year-old Weaver Crossing MOB at 1181 Weaver Dairy Road was Charlotte, N.C.-based Bayrock Investment Co. Four Springs is a private real estate investment trust (REIT) focused on acquiring, owning and managing single-tenant industrial, medical, office and retail properties. For more information, please visit RevistaMed.com. (Subscription required)
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UNC Health seeks CON for $251.9 million, 40-bed hospital in Triangle Business Park
TRIANGLE BUSINESS PARK, N.C. -- In more news concerning UNC Health, the system has submitted a Certificate of Need (CON) application to the state to construct a $251.9 million, 40-bed hospital with room for expansion in a "booming" area of Durham County. The project, which would include an MOB, is proposed for a 34-acre site in Research Triangle Park, about 12 miles east of the system's flagship UNC Medical Center. UNC recently entered into a non-binding letter of intent (LOI) to acquire the site from Raleigh, N.C.-based Highwoods Properties Trust (NYSE: HIW) for $35 million, according to the Triangle Business Journal. For more information, please visit BizJournals.com.
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Roswell Park cancer center to move satellite clinic to new $23M MOB in Amherst, N.Y.
AMHERST, N.Y. -- Buffalo, N.Y.-based Roswell Park Comprehensive Cancer Center recently announced that it plans to move a satellite chemotherapy infusion clinic from its current location in Amherst to a future MOB planned near the U.S. Interstate 90 and 290 interchange in the Buffalo suburb. Buffalo-based Ciminelli Real Estate Corp. is developing the future three-story, 49,950 square foot, $23 million MOB at 203 Park Club Lane, next to a building where the system houses its Breast Care of WNY clinic. In addition to offering infusion services, Roswell Park will offer oncology services in the space. For more information, please visit BizJournals.com. (Subscription required)
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Houston-area firm starts development of 53,000 s.f. MOB in growing Conroe, Texas
CONROE, Texas -- Sugar Land, Texas-based Egrets Group has started the development of a three-story, 53,000 square foot MOB in a growing area of Conroe, about 35 miles north of Houston. According to Community Impact Newspaper, the future MOB at 3786 FM 1488 will include practices providing primary care, imaging, podiatry, dermatology, physical therapy, sports medicine and pain management. The company is partnering with "physicians who will office there to jointly own and build the facility," said Irfan Abji, principal with Egrets, which is also developing an adjacent retail facility with an urgent care center. For more information, please visit CommunityImpact.com.
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Steward Health Care plans a $227M replacement for its hospital in Texarkana, Texas
TEXARKANA, Texas -- Dallas-based Steward Health Care, a physician-own system with 35 hospitals, plans to break ground in September on a $227 million, 123-bed replacement hospital for Wadley Regional Medical Center in Texarkana. The full-service hospital, which will be flanked by a 143,000 square foot MOB on a site a few miles from the current downtown campus, will include an emergency department (ED) and space to be expanded up to 291 beds. Dr. Sanjay Shetty, president of Steward North America, said as the Ark-La-Tex region "continues to flourish, its citizens deserve Steward's brand of world-class healthcare." For more information, please visit HREInsights.com.
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Steward plans July groundbreaking for new hospital in growing St. George, Utah
ST. GEORGE, UTAH -- In more news from Steward, the network plans to break ground in July on a new hospital in fast-growing St. George, in the southwestern corner of Utah. While the size of the hospital has not been announced, Steward stated that it expects the hospital to open in late 2023 and provide a "full range of care," including orthopedics, cardiovascular, neurosurgery and outpatient services. With its population having grown 19 percent in the last decade and expected to double by 2060, St. George is medically "underserved" with just one acute-care hospital. It will be Steward's sixth hospital in Utah. For more information, please visit HREInsights.com.
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Flagship hired by owner to manage three MOBs in Tennessee with 202,000 square feet
KNOXVILLE and HENDERSONVILLE, Tenn. -- To clarify a news item that HREI ran on May 12, Charlotte-based Flagship Healthcare Properties was recently retained by a third-party owner to provide leasing, property and asset management services for three MOBs with a total of 202,000 square feet of space in Knoxville and Hendersonville, a suburb of Nashville. The three MOBs, two of which are in western Knoxville, have a combined occupancy rate of 93 percent. The company's team is led by Rex Noble, executive VP of asset management, and Polly Matherly, local property manager. Flagship now manages five MOBs in Tennessee. For more information, please visit HREInsights.com.
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Undisclosed investor acquires 35.5-acre life science campus in Maryland cluster
ROCKVILLE, Md. -- A 35.5-acre life science campus in Rockville, outside of Washington, D.C., containing two office and lab buildings as well as a pair of developable pad sites recently traded, according to a team with Jones Lang Lasalle Inc. (NYSE: JLL) that represented the undisclosed seller. The price and buyer were not disclosed for the Shady Grove Life Science Portfolio, which is "at the epicenter of ... Maryland's premier life science cluster." As noted, the campus includes two buildings with a total of 94,257 square feet, two sites with "250,000 square feet of entitled life science density," and "three ground leases." For more information, please visit HREInsights.com.
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Trending healthcare industry news
What's making headlines around the web this week
■ Occupancies are stabilizing at skilled nursing facilities. For the first time in quite a while, the month-over-month occupancy rate at the country's skilled nursing facilities (SNFs) saw an increase, with the occupancy increasing to 71.2 percent in February from 70.7 percent in January, according to information from Annapolis, Md.-based National Investment Center for Seniors Housing and Care (NIC) and its NIC MAP Vision data service. In a recent news release, NIC noted that not only does recent data support a stabilization of occupancies at SNFs as the country works its way out of the COVID-19 pandemic, but so does anecdotal evidence from operators. "February's NIC MAP data underscores what some skilled nursing facility operators have been saying the past few months: they are starting to see occupancy stabilization," said Beth Burnham Mace, NIC's chief economist. "Data from the next few months will be extremely important, as it will signal whether this is the start of a longer trend toward recovery." Perhaps one important reason for the improvement in occupancies is that hospitals have resumed providing elective surgeries and, as a result, more patients are being discharged to SNFs. This "may be responsible for greater share of Medicare Advantage revenue, thereby boosting occupancy," said Bill Kauffman, senior principal at NIC. "Occupancy is still near historic lows and many facilities will need to see substantial increases in occupancy in order to stabilize the balance sheet." As Mr. Kauffman noted, SNF occupancies remain near historically low levels, with February's occupancy rate of 71.2 percent still 13.7 percentage points below pre-pandemic levels. Yet NIC says there is cause for optimism moving forward, especially with COVID-19 case counts at SNFs "down 98 percent since December 2020 and the launch of the long-term care vaccination program." Additionally, more than four in five operators in senior housing and skilled nursing are reporting an increase in lead volume since the beginning of the year, according to NIC's latest Executive Survey Insights." For more information, please visit HREInsights.com.
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