PHC January 2022 Real Estate Newsletter

The Pinnacle Real Estate Group consists of a combination of professionals who use their extensive experience in both valuation and transaction services within the healthcare real estate industry to guide clients through multiple types of arrangements in a time-efficient and cost-effective manner.

This Newsletter covers recent activity and conditions specifically impacting the national healthcare real estate market and those who are learning how to succeed in it.  The Pinnacle Real Estate Group has compiled the following current market information from sources such as CoStar, CBRE, and HREI.

Healthcare Real Estate Transactions and New Construction

National Real Estate Advisors and Catalyst Healthcare Real Estate Invest $420 Million Across Two Portfolios

National Real Estate Advisors, LLC (“National”), an investment manager developing and managing large-scale projects on behalf of its clients, through its recently formed joint venture with Catalyst Healthcare Real Estate (“Catalyst”), has completed the acquisition and recapitalization of two multi-state healthcare portfolios totaling $420 million. The portfolios consist of 40 properties totaling 1.2 million square feet, spanning 13 states including: Alabama, Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Massachusetts, North Carolina, Tennessee, Texas, and Virginia. The portfolios are 92% leased and 88% of the total leased space is comprised of health systems and regional physician groups.

Newmark Completes $815 Million Sale of Charles Park in Cambridge, Massachusetts

Newmark announces the $815 million sale of Charles Park, a two-building office complex and associated parking garage located in Cambridge, Massachusetts. The 408,259-square-foot Charles Park comprises two Class A office buildings—One Rogers Street and One Charles Park—complemented by a 656-space, seven-level parking garage. It features reusable in-place infrastructure for life science development, including large floor plates that can provide up to 65,000 square feet of contiguous space on one level, 13′ to 17′ ceiling heights and substantial loading capacity with five loading docks and two freight elevators.

Regency Sells San Diego Retail Property Ahead of Planned Conversion to Biotech Space

Regency Centers Corp. has sold a large San Diego retail property to biotech-focused Alexandria Real Estate Equities for $125 million, ahead of the buyer’s planned conversion of the site into a mixed-use development emphasizing the high demand for life sciences offices and laboratories. The 33-year-old Costa Verde Center, spanning about 178,000 square feet at 8508-8650 Genesee Ave. in the city’s University Town Center neighborhood was sold “for the proposed development of office/laboratory space.”

Healthcare Real Estate Trends

Biotech Construction not Keeping Pace with Rapidly Rising Nationwide Demand

Escalating demand for new life science laboratory space is outpacing speculative construction in one of the nation’s fastest-growing types of commercial real estate. A new report from brokerage CBRE points to several cities where the amount of speculative lab space under construction trails demand from companies scouting those regions for life science space. While about 21 million square feet of biotech space is under construction in the nation’s 12 largest life sciences markets, tenants are in the market for 23.8 million square feet. Much of this activity was underway before the pandemic, and the push for coronavirus vaccines and treatments has ramped up the flow of venture and government funding, spurring biotech firm expansion. Developers in the biggest biotech hubs are finding much of their speculative space preleased long before expected project completion dates.

Pinnacle Real Estate Group Assessment

The healthcare real estate industry for Calendar Year 2021 exceeded most expectations, broke records, and generated an unprecedented amount of momentum.  For varying reasons, primarily caused by reactions to the pandemic, the healthcare industry positioned itself as a stable, well performing, and attractive investment asset that in some aspects in a relatively quick amount of time leapfrogged over traditional retail and office properties from the perspective of large institutional investors.  We believe this trend will continue for Calendar Year 2022 for numerous reasons including the surge created within the past nine plus months will simply perpetuate through a majority of this year without much resistance.  However, the question that some are considering is when will the known obstacles begin to slow down the momentum built. The primary looming obstacle is inflation, which to some seems like it should have already occurred at this point, and it is more a matter of when than if.  Another obstacle that has surfaced the past year and will likely cause issues on a variety of levels and within numerous industries going forward, including healthcare real estate, are global supply chain issues which will directly impact timing and costs associated with new development construction projects as well as inventory of goods and supplies.  Overall, we expect healthcare real estate to continue its success but like other industries there will be obstacles to consider for Calendar Year 2022.

For more information, please contact:

Mike Vandaveer, Director

720-599-7883

MVandaveer@AskPHC.com

Chris Louis, ASA, MAI, Director

720-598-1439

CLouis@AskPHC.com

Tony Price, Analyst

720-386-3540

TPrice@AskPHC.com