PHC 2nd Quarter 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

Amazon’s Latest Deal Marks $3.9 Billion Bet on Brick-and-Mortar Healthcare

Amazon agreed to buy 1Life Healthcare establishing the online retail giant in the healthcare industry with a plan to disrupt it. One Medical, owned by 1Life, has 188 primary care facilities that provide virtual and in-office services, and competes with another Amazon experiment. This deal gives Amazon a turnkey entry into part of the healthcare market valued at upwards of $300 billion. However, it also opens the tech giant to risk as it acquires a not-yet-profitable firm in a highly competitive industry. This is not Amazon’s first move into healthcare,  acquiring online pharmacy PillPack in 2018 and the healthcare startup HealthNavigator in 2019. Last year, Amazon expanded its in-house Amazon Care program to its employees nationwide, immediately drawing comparisons to Amazon’s 2017 purchase of Whole Foods – its $13 billion entry into customer-facing brick-and-mortar operations. Similarly, we saw Amazon purchase an up-and-running brand with hopes that its tech and management expertise could disrupt a new sector. Now, it’s a waiting game to see how Amazon’s perseverance in the healthcare industry compares to that of the grocery sector. One Medical has operations in 25 markets across the country and described its physical locations as “well-appointed” in federal filings. The company claims 767,000 members, a number it conceded in its most recent quarterly report would need to grow to achieve profitability. It recorded a $254.6 million loss in 2021.

Abbott Laboratories Life Science Campus in Minneapolis Trades Hands

JLL Capital Markets, working alongside CBRE, announced it has closed the sale of Abbott Laboratories Life Science Campus, a four building, 280,289-square-foot life science portfolio in Minneapolis, Minnesota.  JLL and CBRE co-marketed the property on behalf of the seller, a joint venture between Eagle Ridge Partners and Syndicated Equities. Virtus Real Estate Capital (“Virtus”) acquired the portfolio. Abbott Laboratories Life Science Campus is fully leased to A+ investment grade credit tenant, Abbott Laboratories. The portfolio contains cGMP (“Current Good Manufacturing”) certified clean room, lab, and manufacturing space, as well as office and warehouse space. Across the four buildings located on 19.13 acres in the southwest submarket, there are 26 dock doors, 7 drive-ins, clear heights of 12-18 feet, and 640 parking spaces. Abbott Laboratories Life Science Campus has convenient access to the area’s vast transit system, including the Light Rail Transit system, regional freeways, and the Minneapolis-St. Paul International Airport.

Healthcare Real Estate New Construction

Vanderbilt Plans $500 Million Expansion of Nashville Hospital

Vanderbilt University Medical Center plans to build a $500 million medical tower at the primary hospital in Nashville, TN. The new building will be designed to serve as an inpatient facility with an expected completion date in 2027. The tower will be constructed above a parking deck between 21^st Avenue South and Medical Center Drive. The new tower will provide 180 new beds whereas the current facility has been consistently strained, operating at more than 90% capacity. The 470,000 square foot structure will be connected to the main hospital building by multiple pedestrian bridges over existing streets. Another building on the campus will be demolished as a step in the process. VUMC is independent from the 14,000-student university but maintains an academic affiliation with its medical school. Vanderbilt Health System serves patients in middle Tennessee, northern Alabama, and portions of Kentucky. In addition to its Nashville hospital, the system also operates clinics in suburban and rural areas.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Remains an Attractive Option Despite MOB Sales Drop In 2^nd Quarter

The healthcare real estate industry, specifically MOB Sales, broke records the previous four quarters cumulatively, with Q4 2021 being the highest ever recorded at $7.3B.  In the past few years, the quarterly average is in the $3B range with Q3 2021 at $5.7B, Q4 at $7.3B, and Q1 2022 at $4.6B.  The preliminary numbers for Q2 2022 are $3.6B, which is still considered strong and above recent historical averages.  However, it does indicate things seem to be coming back to “normal” with the excess of capital that flooded multiple market sectors – which is understandable and somewhat expected due to current inflation, multiple recent interest rate hikes, and what seems to be the conclusion of the financial reaction to the pandemic from the past two years.  Other market statistics for healthcare real estate remain strong: occupancy rates remain stable around 92%, and rental rates continue an upward trend with the national average around $23.72 per square foot with an annual increase close to two percent (2%).  However, in addition to a drop in MOB sales, there is an expected drop in new construction starts which are expected to continue trending moving forward while the current volatility in the market remains.  It seems the white-hot trends for healthcare real estate the past twelve to eighteen months peaked after Q1 2022 and will stabilize for the foreseeable future while remaining an attractive option for investors.

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

PHC 1st Quarter 2022 Real Estate Newsletter

PHC 1st Quarter 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

Life Science Firm, Seagan, Plans for 270,000 Square Foot Facility in Everett, Washington

The new facility which Seagan will commit to a long term lease is scheduled to be completed in 2024 and will office approximately 200 works will be focused on manufacturing the company’s cancer treatment medicines. The Seattle area is on of the nation’s 12 largest biotech clusters where the pipeline of life science projects has reached approximately 25 million square feet.

Montecito Medical Acquires MOB in Hazelton, Pennsylvania

The 73,255 square foot, multi-tenant, two story building is 100% leased to Lehigh Valley Health Network.  The building includes a 13,500 square foot ASC.  The purchase price was not disclosed but believed to be approximately $29.2M in a transaction where Montecito partnered with AEW Capital Management.

PMB & Dignity Health Break Ground on a 45,000 SF MOB in Gilbert, Arizona

The two story project is the third MOB located near the Dignity Health Mercy Gilbert Medical Center developed by PMB.  The new facility is scheduled to be completed in 2023 will include Dignity Health East Valley’s graduate medical program and supporting imagining services via Arizon Diagnostic Radiology.  The building is designed in a cost-effectie manner to ensure rents are close to market.

A $650M Business Investment Project For Development of a 500,000 Square Foot Biomanufacturing Facility in Manhattan, Kansas

Governor Laura Kelly announced her administration’s most significant economic development project to date. Scorpion Biological Services, a subsidiary of Heat Biologics, Inc., is commencing on a planned development of a new 500,000 square foot biomanufacturing facility in Kansas. The $650 million business investment project will create 500 new, high-paying jobs in Manhattan within the next seven years and support the development of vaccines.

Healthcare Real Estate Trends

MOB Sales: Estimated more than $3.8B in Q1 2022 concludes highest 12-month total

The first quarter of 2021 for MOB Sales was not impressive with a $2.1B total.  However, the final total for 2021 was $18.3B which is 15.3% higher than the next highest total confirmed by Revista ($15.5B in 2017).  The first quarter of 2022 has continued that path with preliminary numbers indicating a volume of $3.8B, which is up 90% form first quarter 2021 and the second highest first quarter MOB sales recorded by Revista since the record of first quarter 2017 ($3.9B).  This strong start to 2022 has totaled more than $20B in the past 12 months, which is the largest volume recorded by Revista for such a timeframe.

Pinnacle Real Estate Group Assessment

The Second Quarter 2022 Likely to Continue on its Impressive Path

The healthcare real estate industry for First Quarter 2022 continued on the unprecedented momentum generated in the past three quarters.  With the current reality of inflation, the ongoing issues with global supply chain issues, the war in Ukraine, combined with the First Quarter 2022 of the overall economy showing signs of a looming recession the healthcare real estate industry continues to show resiliency and maintain on its impressive path.  In the past few months, the sector of healthcare real estate that has firmly grabbed the baton and is clearly leading the industry are Life Sciences, or sometimes referred to as BioTech.  Life Sciences Real Estate (LSRE) is generating its own momentum and demanding attention throughout the entire healthcare real estate industry.  Life Sciences involves the study of living organisms: biology, botany, zoology, microbiology, and other related subjects such as biotechnology, pharmaceuticals, medical devices and therapeutics.  LSRE facilities will typically involve a combination of office, lab, and Research and Development (R&D).  Venture capital funding in U.S. life sciences has grown 328 percent during the last five years which included $32.5 billion in 2021.  There is currently 172.5 million square feet of LSRE in the U.S. with a current vacancy rate of 4.8% that raised average annual rental rate to $67.05 per square foot and cultivated 31.6 million square feet of new construction projects.  Investments in LSRE reach $21.4 billion in 2021, which is 62% increase from 2020.  We believe LSRE will aggressively continue on this path for the foreseeable future and continue to lead healthcare real estate on its impressive trend.

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

PHC January 2022 Real Estate Newsletter

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

October 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Easterly, Through JV, Agrees to Acquire 1.2 Million SF VA Portfolio for $635.6 Million.

Easterly Government Properties Inc. (NYSE: DEA) announced last Wednesday, October 13^th, that it has formed a joint venture (JV) to acquire a 1,214,165 square foot portfolio of 10 properties 100 percent leased to the U.S. Department of Veterans Affairs (VA), for a purchase price of about $635.6 million. The acquisitions, which Easterly says will close “on a rolling basis” by the end of 2023, include three properties in Texas, two in Georgia and one each in Tennessee, Kansas, Alabama, Arizona and Florida. The 100 percent build-to-suit, Class A properties are either recently delivered or under construction, and the average lease term is 19.6 years.

Southeast Gateway Medical Office Portfolio Sold.

The Portfolio consists of eleven medical office properties located in some of the most desirable markets in the Southeastern US. The Properties are concentrated within the Atlanta, Nashville and Charlotte MSAs and benefit from the exceptional, high-growth demographic trends that define the region. The Portfolio is 95% leased with a roster of tenants that is 69% composed of health systems and credit quality physician groups, representing a diverse mix of clinical specialties. Health system tenants within the Portfolio include Piedmont Healthcare, Northside Hospital, WellStar Health System, Emory Healthcare, Children’s Healthcare of Atlanta, Vanderbilt Health, TriStar Medical Group / HCA, U.S. Department of Veteran Affairs, Atrium Health, and Novant Health.

Hammes Healthcare Celebrates Groundbreaking.

Construction has been progressing since 2020, converting a Sears building in Marketplace Mall into an ambulatory surgery center, and the ceremony marked the start of the project’s 4-story outpatient clinical tower. UR Medicine’s new ambulatory orthopedic campus will span more than 400,000 square feet to provide clinical care, education, research, and community wellness. Upon opening in late 2022, the ambulatory surgery center will have eight operating rooms with additional pre- and post-operative rooms to support the most complex orthopedic surgical procedures. The new tow is set to open in late 2023 will house health and wellness and admin spaces.

Healthcare Real Estate Trends

Portfolio Sales Dominate Third Quarter

Since late September there have been multiple sizable portfolio transactions in the healthcare real estate industry.  According to Revista portfolio sales represented more than sixty percent (60%) of the $4.6 billion of total MOB sales volume in the third quarter. In addition to the two (2) porfolio transactions mentioned above there were also the following transactions: A portfolio, known as the I-95 Portfolio with properties in Rhode Island, includes twelve (12) assets totaling 573,554 square feet of space was acquired by a Joint Venture of Evergreen Medical Proerties and Bain Capital.  A three (3) MOB portfolio in Federick, Maryland was recently acquired by BentallGreenOak.  A portfolio of twenty-nine (29) facilities in ten (10) states owned by The Inland Real Estate Group received $220 million in financing for the portfolio that includes 720,000 SF of healthcare space.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Continues Its Positive Trajectory in 2021.

Now that the third quarter of 2021 has concluded we can look back and confirm that the Healthcare Real Estate Industry is trending upward with a positive trajectory.  In our previous newsletters we have mentioned our opinions on this trend and would like to confirm with statistics.  The third quarter was a strong for MOBs with a sales total of $4.6 billion, which is the second highest quarterly total since 2015, with first being $4.9 billion of sales in second quarter of 2017.  The year-to-date total for 2021 is $9.6 billion, which assumes that the Healthcare Real Estate Industry will once again reach more than $10 billion of sales for seven (7) consecutive years.  The trailing twelve-month (TTM) total after third quarter 2021 was $13.7 billion was the highest since first quarter of 2018 TTM sales were $14.6 billion.  Overall, we believe that unless the effects of the pending inflation begins to materialize or an unknown critical market issue arises this positive trend will continue through the end of 2021 with the potential for the TTM totals in 2022 quarters to reach 2017 levels over $15 billion.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

September 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

World’s First COVID-Conscious Skyscraper and Medical Center.

An all-in-one residential, hotel, and medical skyscraper in downtown Miami was recently annuonced. Miami Worldcenter is currently the nation’s largest urban core construction project and America’s second-largest real estate development. The 55-story, $500-million, 600-foot-tall Legacy Tower at the Mammoth Miami Worldcenter is the result of a revolutionary joint venture and partnership between Adventist Health, Accor Hotels, Blue Zones, Royal Palm Companies. Who are these companies? Adventist Health is one of the nation’s largest not-for-profit, faith-based hospital and healthcare systems; Blue Zones, the global leader in human longevity research; Accor Hotels, one of the world’s largest hospitality companies; and the Royal Palm Companies — Florida’s preeminent luxury high-rise real estate development firm. The Legacy Tower’s $100-million, 120,000-square-foot, state-of-the-art medical center will be the most technologically advanced health and wellbeing facility in the world, according to Royal Palm Companies CEO, Daniel Kodsi.

KKR Targets $1 Billion in Healthcare Properties.

The New York private equity giant and Cornerstone Companies, a full-service healthcare real estate investment firm, entered a joint venture to acquire and develop a portfolio of diversified medical properties across the country. The pair started off by seeding the portfolio with a recapitalization of 25 healthcare properties owned by Indianapolis-based Cornerstone. Together, they plan to buy more than $1 billion in real estate at a time when demand for healthcare services and medical testing have increased with the spread of COVID-19.

Purchase of 107,228 Square Foot MOB in Maine.

Davis Medical Investors LLC has acquired the 10-story, 107,228-square-foot 84 Marginal Way building on 1.37 acres in Portland’s popular Bayside district. The Class A, 100 percent leased building is anchored by InterMed, Maine’s largest private medical practice. 84 Marginal Way is InterMed’s flagship location and it delivers a wide variety of services including: internal medicine, pediatric medicine, family practice, physical therapy, obstetrics and gynecology, dermatology, emergency medicine, cardiology, audiology, and sports medicine.

Healthcare Real Estate Trends

Recapitalization of Three (3) Healthcare Real Estate Portfolios.

In the past couple of weeks, there have been announcements of three (3) fairly significant Recapitalization transactions in the healthcare real estate industry. A $245M, 31 building portfolio, totaling 545,813 square feet across 10 states was announced by JLL who represented Montecito Medical Real Estate in arranging the terms with AEW Capital Management.  CBRE announced the recapitalization of the RG Real Estate (RGRE) portfolio comprised of a 10 MOB properties totaling 222,337 square feet in the Atlanta, Georgia MSA. Newmark represented Global Nephrology Solutions (GNS) involving a portfolio of 15 dalysis and MOB facilities totaling 160,854 square feet in Arizona and Florida.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Taking Advantage of Recent Popularity through Recapitalization and Monetization.

In last month’s August newsletter, we assessed that healthcare real estate, primarily because of its stability through the pandemic, has become a respected and highly sought-after sector of commercial real estate industry the past twenty plus months from an investment perspective. Popularity has created a trend for retail and office type properties to be transitioned / redeveloped into healthcare facilities.  The newfound popularity combined with other factors including the sustaining lower cost of capital, is creating another trend of Recapitalization and Monetization for healthcare entities.  As mentioned above, recently there are three (3) separate healthcare entities that have finalized fairly significant transactions related to this trend.  The reason being, healthcare entities are taking advantage of the steadily increasing values of their commercial real estate assets and using it for a variety of scenarios, that for the most part, fortify the entities’ current financial situation and capability going forward. This Recapitalization and Monetization opportunity could help the healthcare entity stabilize its overall financial situation if it experienced a downturn during the pandemic or has any existing financial struggles.  This trend can allow a healthcare entity to upgrade and expand its facility or overall portfolio.  It can also provide opportunities to partner and joint venture with legitimate Capital entities for current and future needs. This trend may not be suitable for every healthcare entity, but we do believe unless something drastically changes the current market conditions, this trend of Recapitalization and Monetization within healthcare real estate will continue going forward and provide opportunities for varying sectors in both the healthcare and commercial real estate industries combined.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

August 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Texas Children’s $201 Million Expansion in Houston

Texas Children’s is planning to reconfigure the real estate at its existing 15-story tower at 6620 Main St., which is getting renamed Main Tower, as well as changing its operations across the street at 6651 Main St. Texas Children’s bought 6620 Main St. from Baylor St. Luke’s Medical Center in 2016. Baylor College of Medicine vacated two of three of its floors in 2020 and still leases one floor in the building, a Texas Children’s spokeswoman said. The first phase of the expansion plan is expected to be completed in the spring of 2022. The full expansion is expected to be completed in 2024. The two buildings will be connected by a newly constructed skybridge. In total, the project gives Texas Children’s another 190,000 square feet of usable space within its existing buildings.

Biotech Firm Artiva Leases Large Space for New Headquarters in San Diego

San Diego-based Artiva, which develops cancer-related therapies and treatments, leased 52,000 square feet at a building currently under redevelopment by owner Alexandria Real Estate Equities at 5505 Morehouse Drive. The space will house new research, manufacturing and laboratory facilities after Alexandria completes construction in 2022, as Artiva expands from its current location in the city’s University Town Center neighborhood.

Anchor Purchases MOB in San Diego Area

Anchor has closed on a 54,703 square foot, two story medical office building located in the Oceanside/Vista submarket of San Diego. This select building is one of the top remaining third-party owned assets in the San Diego MSA. The building is located conveniently by the Tri-City Medical Center, a 320-bed hospital district campus serving the North San Diego County. The facility contains an on-site pharmacy, secured subterranean physician parking, open atrium, and ample on-site parking for patients and visitors. Anchor will provide go forward asset and property management at this location.

Healthcare Real Estate Trends

MOB Delays and CAP Rates

MOB project completions continue to slow in 2Q, down to 17 million square feet in annual deliveries. This is the lowest pace of deliveries in the last 6 years and represents a 32% decrease from the annual run rate of 25.1 million SF in deliveries in 1Q2020- just before the onset of COVID and all the related shutdowns, restrictions and labor shortages. Despite all of these headwinds, project starts have remained remarkably stable, suggesting the pandemic has largely been causing project delays after breaking ground.  In addition, CAP rates for MOB properties are continuing a trend of compressing during the past several years.  Updated 2^nd quarter, 2021 Revista data reveals the median MOB cap rate was 5.8%.  This was down from 6% in 1Q21 and 6.3% one year ago.  This compression is consistent with heightened investor demand.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Continues to Gain Momentum and Popularity

The world has significantly changed and continues to change in the past twenty plus months on varying levels and wide-ranging aspects.  One of those changes is with the previous perception and now reality of healthcare real estate.  Prior to the beginning of 2020 the general consensus within the commercial real estate industry was healthcare was a niche subsection of the industry due to its inherent differences to other sectors along with its more complicated and specialized aspects. Because of that it only involved only a relatively small group and was not considered on the same level as industrial, retail, office, and multi-family which resulted in healthcare properties historically receiving higher CAP Rates compared to their cohort sectors. With the combination of recent factors the past twenty months to include but not limited to: the COVID-19 pandemic and reaction to it, the “Amazon Effect” on retail, the “Zoom/Teams Effect” on office buildings, the resiliency of the healthcare industry, along with several other factors, the previous perception and reality of the healthcare real estate has now drastically changed which we believe will continue indefinitely.  Not only has the environment since early 2020 leveled the playing field it has turned some factors completely upside down.  The “retailization” of Medical space, also known as “Medtail”, where retail properties are being converted to medical has been gaining momentum is now continuing into office properties. With the combining factors of increasing construction costs, delays on new development projects, and increased funds flowing into the healthcare sector, the “officeization” or “Medfice” type projects, both new terms we believe will start to quickly catch, seems destined to become a continued growing aspect of the commercial real estate industry in the foreseeable future.  To conclude, we believe healthcare real estate is removing the niche perception and becoming a popular component of the commercial real estate industry.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

July 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

$1 Billion Hospital Campus to Serve As Centerpiece of Remade Landmark Mall in Alexandria, Virginia

Foulger-Pratt to redevelop the 52 Acre tract into a walkable urban village to include medical office buildings, multifamily units, retail, commercial, and entertainment offerings.  At the heart of the redevelopment project is a new $1 Billion hospital and medical campus for Inova which would replace nearby Alexandria Hospital and employ roughly 2,000 health care workers. The $2 billion proposal also calls for affordable housing, outdoor parks, a new fire station, and a transit hub that would anchor the city’s proposed bus rapid transit network, DASH, and Metrobus. Construction at the site could begin as soon as 2023, with the first buildings potentially opening in 2025.

CaroMont Health Kicks Off Construction for New Hospital, Medical Campus in Belmont (N.C.)

The CaroMont Regional Medical Center – Belmont is set to open in mid-2023. On 28 acres, the campus will include a 66-bed hospital, 16-room emergency department, labor and delivery unit, operating rooms and surgical capabilities, and diagnostic testing and imaging services. A medical office building and parking deck are also part of the plan. Estimates show the hospital could take as many as 16,000 patients in the first year and, in addition, create 150 new jobs. The project will also offer educational opportunities for students in Belmont Abbey College’s health science programs.

Hospital Chain Will Lease Part of Former Toys “R” Us in Eatontown, New Jersey

Edison-based Hackensack Meridian Health has committed to 45,600 square feet for an outpatient facility and urgent care center serving Central New Jersey at the Monmouth Plaza shopping center located at 133-137 Highway 35 in Eatontown, New Jersey.  The new Hackensack Meridian location, slated to open in the second quarter of 2022, was cobbled together from the 80,592-square-foot shopping center’s closed Eastern Mountain Sports and DSW stores and a portion of a closed Toys “R” Us.

Real Estate Economy Trends

Prices Rise Faster Than Expected in June for Both Consumers and Businesses

Federal Reserve Chairman Jerome Powell continued to emphasize that inflation is transitory during his testimony to the House Financial Services Committee last week. However, he also admitted that inflationary effects have been larger and more persistent than expected. While there are signs that current inflation pressures are generally tied to the aftermath of the pandemic, longer-run forces might shift the economic landscape and merit some consideration. Powell’s testimony came a day after the Bureau of Labor Statistics released its consumer price index report for June, which showed the headline figure growing by 0.9 percent — the highest month-over-month number in 13 years. Combined with the previous three months, when the consumer price index grew by at least half a percentage point each month, inflation has grown by 2.9 percent over the past four months — an annualized rate of 8.7 percent. The less-volatile core inflation index, which excludes food and energy, also grew by 0.9 percent in June.

Pinnacle Real Estate Group Assessment

The Inflation Factor in Healthcare Real Estate

There continues to be more than the usual amount very large real estate transactions, hundreds of millions to more than billions of dollars, within the healthcare industry the past few months at unprecedented market terms which has generally accelerated, if not inflated, the values.  As indicated in last month’s newsletter Assessment, we believe this trend will continue through the end of the year or until the expected pending inflation begins to become a reality.  With the recent information shared by Federal Reserve Chairman Jerome Powell and Bureau of Labor Statistics released its consumer price index report for June, mentioned above, it seems that inflation is a foregone conclusion, and the last remaining question is, when will it, inflation, start effecting the markets, including healthcare?  The current aggressive healthcare real estate market seems like a frenzy before inflation hits, which there are indications that has factored into the current situation.  Because of that, our current assessment is that this aggressive trend, specifically in the healthcare real estate market and somewhat created by the perception of pending inflation, will continue for the foreseeable future and beyond any potential impact of inflation.  The reason being the momentum the healthcare real estate market has established the past year combined with the reaction to the country and world reopening after the Pandemic should maintain the path regardless of potential inflation effects.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

June 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Medical Properties Trust To Buy 18 Springstone Hospital Facilities for $760 Million

Medical Properties Trust has agreed to acquire 18 Springstone inpatient behavioral health hospitals in a $760 million sale-leaseback deal. The transaction also involves acquiring an interest in Springstone’s operations for $190 million. The seller of the properties is San Francisco-based private equity firm Welsh, Carson, Anderson & Stowe. Louisville, Kentucky-based Springstone provides behavioral health services in its purpose-built, inpatient facilities in nine states, with five in Texas, four in Ohio, two in Arizona and Indiana, and one each in Washington, Colorado, Kansas, Oklahoma and North Carolina.

Steward Health Care to Build New $227 Million Wadley Regional Medical Center

The company is to break ground on a new state-of-the-art hospital just northwest of its current location in Texarkana. The project includes a medical office building while offering full range of hospital services such as orthopedics, cardiovascular, 24/7 emergency room, neurosurgery, maternity care, and other outpatient services. The new hospital will have 123 beds with an option to expand to as many as 291. The project is supposed to be completed around May of 2024. Construction is slated to begin in September of 2021 and take 32 months following. Wadley’s current location will be fully operational as construction takes place.

Renovated Richmond Building Sees Nearly $30 Million Jump in Price

A medical office building in Richmond, Virginia, that sold for $3 million five years ago has traded hands in a $32.5 million deal following a full-scale renovation. Montecito Medical paid about $359 per square foot to acquire Brookfield Commons, a 90,598-square-foot, three-story building located at 6600 W. Broad St. in Midtown. The sale price is a significant jump for a 1977-vintage property that once housed the headquarters of the Virginia Department of Transportation before going into foreclosure in 2014.

Healthcare Real Estate Trends

Medical Office Buildings Make Up Over One-Third of Orange County Office Sales in 2021 

Sales volume for medical office properties in 2020 reached nearly $480 million locally, compared to the market’s five-year average of $360 million, annually. Investment in medical office this year is around $180 million, roughly halfway through the year. Nashville-based Healthcare Realty Trust purchased two properties accounting for nearly $60 million in volume in the second quarter. This brings the REIT to around $200 million in acquisitions in Orange County since early 2020. In April, it paid $31 million, or around $544 per square foot, for The Laguna Building in Laguna Hills, California. The property was around 80% leased at the time of sale by a wide range of medical tenants including SimonMed Imaging, Pacific Cardiovascular Associates and Nvision Eye Centers. The seller, Bay Area-based Meridian Property Company, acquired the asset for $19.9 million in 2017. A month later, Healthcare Realty Trust bought the adjacent Saddleback Professional Center for $24.6 million, or roughly $337 per square foot. The property was around 82% leased at the time of sale and is home to a California Bank & Trust office, as well as multiple medical tenants. The property was previously acquired for $15.9 million in 2017.

Pinnacle Real Estate Group Assessment

Premium Prices for Healthcare Real Estate Properties Are Being Realized

What we have noticed over the past few months is that commercial real estate properties within the healthcare industry are receiving premium prices in recent transaction in multiple markets across the country.  We believe that the current trend for these higher prices is directly connected to the perception and reality that healthcare entities and their real estate are inherently more stable than other industries and types of properties, especially during the pandemic and the reaction to it that occurred the past sixteen (16) plus months. A collaborative factor that has also contributed to the trend is that a good portion of wealthy entities have experienced unprecedented wealth expansion in the past year and seem anxious to deploy those recent increases into new investment opportunities. We believe this trend will continue through the end of the year or until the expected pending inflation begins to become a reality.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

May 2021 Real Estate Newsletter

April 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Tampa General Hospital and Kindred Healthcare Break Ground on Freestanding Inpatient Rehabilitation Hospital. Anchor Health Properties has begun construction on a new 59-bed, 87,649 square foot inpatient rehabilitation hospital which will offer expanding services to the regional Tampa Bay, FL community. The facility will have all private rooms and offer state-of-the-art technology. Transitional living apartments designed to simulate a residential apartment will enable patients to heal in a personalized and private environment as they prepare to return to independent living. Patients will also experience specially planned rooms to for dialysis treatments and programs dedicated to neurological conditions, stroke, brain injury, and amputation recovery.

Healthpeak Properties Plans to Double Size of Biotech Campus in Torrey Pines. One of the nation’s largest holders of biotech and medical office real estate has made plans to expand its Callan Ridge life science campus in the coastal village of La Jolla, California, one of the primary biotech development regional hubs, and among San Diego’s most expensive office markets.  Healthpeak, based in Denver, Colorado, plans to replace an existing 90,000 square foot building with a two-building campus totaling 185,000 square feet.

Sabra Health Care REIT Acquires Assisted Living Facility in Augusta, Georgia.  The property includes a 75,000 square foot facility with 100 residential units and is close to 90% occupied.

Healthcare Real Estate Trends – Vacant BIG BOXES Being Backfilled by Healthcare and Technology

Health Family Care & Wellness Center Opening in Eatontown, New Jersey.  Monmouth Medical Center and Children’s Specialized Hospital, which are both part of RWJBarnabas Health, have started development on a four-story, 82,000 square foot Health Family Care & Wellness facility at Monmouth Mall. The facility will offer women’s and pediatric healthcare services, wellness education and resources, a laboratory and blood drawing station, and an urgent care center. It is being developed by Rendina Healthcare Real Estate and is expected to be completed in October 2021.

Outpatient Facility to Open at Former Sears in Moorestown, New Jersey.  Pennsylvania Real Estate Investment Trust (PREIT) confirmed Cooper University Health Care is scheduled to open a 165,000 square foot outpatient facility in the old Sears store at Moorestown Mall. Cooper University Health has the only state-designated Level I Trauma Center in South Jersey and is home to MD Anderson Cancer Center at Cooper and the Children’s Regional Hospital at Cooper. It also has a network of more than 100 medical offices and four urgent-care centers throughout the region.  PREIT, which emerged from Chapter 11 proceedings in December after confirming an agreement with Strategic Value Partners, has plans to redevelop Moorestown Mall to include 1,000 apartments units as well as a hotel.

Amazon Converting Vacant Mall into Distribution Center.  The Cortana Mall in Baton Rouge, Louisiana is scheduled for demolition will become a new 3,000,000 square foot distribution center for Amazon.  This project is part of the company’s aggressive expansion of its already impressive distribution network, as they are considering opening 1,000 delivery stations across the nation.  Several weeks ago, Amazon announced plans to open a last-mile delivery station at the former Knoxville Center Mall site in Tennessee which closed in January of last year.  The existing mall facility will be demolished, and a new 220,00 square foot facility will be constructed.  Previously, Amazon transformed the former Rolling Acres Mall in Akron, Ohio into a 640,000 square foot robotics distribution center.

Pinnacle Real Estate Group Assessment

Overall Healthcare Real Estate Market is Healthy and Adjusting.  The previous year has presented numerous issues and obstacles to a multitude of industries and sectors, including commercial real estate.  The COVID-19 pandemic seems to be stabilizing with the distribution of vaccines combined with consistently decreasing positive case numbers. As a result of these positive changes, the healthcare sector of commercial real estate is relatively healthy and has adjusted to turn the struggles of other industries into opportunities. Healthcare entities are pursuing opportunities to transform properties that were once considered retail into healthcare facilities. A prime example includes using vacant stores as temporary COVID-19 vaccine sites, turning them into new long-term healthcare-based development projects. The healthcare real estate industry has devised creative project solutions and we expect this trend will continue as the struggles of retail facilities and the juxtaposition of the expanding healthcare industry remains an environment to cultivate these opportunities.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com