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New development providing critical supply as public REITs snap up nearly two-thirds of all offerings
NEW YORK, May 15, 2013 — At first glance, your local doctor’s office or outpatient surgery center may not look like a gold mine for investment. But an aging population along with the reasonably predictable level of healthcare services demand is making this formerly “alternative” property type extremely desirable, especially when bundled together. The success of medical office as an accepted asset class included in many institutional investors’ core real estate holdings is evidenced in the record level of portfolio sales volume in 2012. Spurred by high demand and a similarly high level of investment capital, sales of medical office building (MOB) portfolios exceeded $2 billion in 2012, more than doubling the previous sales record set in 2007, according to Jones Lang LaSalle’s Healthcare experts. Investors are expected to increasingly tap that vein in the year ahead—with MOB portfolio sales easily expected to reach that same height by the end of 2013.
The Urban Land Institute predicts demand for MOBs will increase by nearly 20 percent by 2016, with more than 64 million square feet of additional space needed over the next 10 years. “The healthcare industry is constantly searching for ways to provide more efficient, affordable and accessible healthcare. Aided by exciting advances in medical technology, the shift from inpatient facilities to MOBs and outpatient clinics of all types is continuing at breakneck speed. There will always be a need for critical care in a hospital, but the new direction means outpatient services are the new normal. The way—and the where—Americans will receive their healthcare will continue to change dramatically over the next decade,” said Mindy Berman, Managing Director for Jones Lang LaSalle’s Healthcare Capital Markets practice.
Who’s Selling?Developers have been the most dominant sellers of MOB portfolios over the past six years with more than $3.8 billion in sales, and they’ve also recouped the most value for their investment at $305 per square foot. Developers have been the biggest supplier of new medical office buildings as hospitals have tended to retain their existing owned inventory of medical office. Developer product is likely to be new, Class A, on-campus or hospital-aligned property with the highest value. Hospital monetizations, concentrated during the period of economic downturn in 2008 and 2009, produced an average of $237 per square foot as they tended to be older product and/or sold when the investment market was more challenging.
Who’s Buying?With a veritable chest full of capital, as well as easy access to more even more capital, public REITs have the greatest ability to fund large-scale portfolio transactions. Over the past six years, public REITs, including such entities as Health Care REIT, Healthcare Trust of America, HCP, Healthcare Realty Trust and Ventas (and its acquired REITs), have purchased nearly two-thirds of all portfolio sale volume, or nearly 66 percent.
“The zeal for medical office will continue unabated in the year ahead with seven portfolios comprised of six million square feet of property either closed, under contract or in the market in just the first quarter of 2013. This gold mine in healthcare real estate keeps producing more material for the marketplace,” concluded Berman.
For more information about MOB portfolio sales, please download our latest report.
Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2012 alone, Jones Lang LaSalle Capital Markets completed $63 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $60 billion in global investment sales and buy-side transactions, equating to nearly $240 million of investment trades completed every working day around the globe. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.
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About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.
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