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Notes From The BOMA Medical Office Conference

Posted: May 11th, 2010 | Author: | Filed under: Construction, Finance and Lending, Investment, Trends | Tags: , , , , , | No Comments »

There was a BOMA conference on Medical Office Building (MOB) and Healthcare Facilities in Chicago last week in Chicago. The CRE Insider blog attended and did a great job outlining the conference.

Like other commercial real estate asset classes, MOB too is faced with too much capital and too little product. In other words, if you are a seller – it is a good time to consider selling. This is especially true if you plan on taking capital gains and not exchanging into another asset as capital gains taxes will very likely be headed up soon.

Anyhow, here are some key points from the article, but visit the blog for all the notes:

  • Cap rates have compressed 50-75 bps since a year ago and range anywhere from 7.5% for on-campus, Class A MOB to 9.5%-10% for off-campus, Class B.
  • The REITs have had a buying spree, particularly Healthcare Trust of America. HTA has been raising $2-$4 million a day on average and has not been shy about putting it into acquisitions. In our opinion, HTA alone has caused cap rates for Class-A to compress by ±25 bps from a year ago.
  • Foreign investors are showing “tremendous interest,” as one panel participant put it, in the medical real estate market due to the higher relative returns and lower volatility compared with many European markets. Healthcare reform has, however, kept some foreign capital at bay due to a perceived uncertainty of outcome in its application.
  • National developers are looking to partner with local developers
  • Regionalization of health systems will lead to new freestanding emergency departments with some MOBs as a way to limit costs while expanding footprint size

and the last one is our favorite, because we’ve felt this is the direction healthcare is going to go in:

  • There is a growing trend to redevelop retail space to medical use because:
    • Retail provides immediate access to an existing consumer base
    • Providers can leverage stronger branding of their names
    • There will be a higher need for primary care as the insurance rolls expand
    • Occupancy costs are generally lower, especially in the current real estate market
    • Retail vacancy can provide immediate occupancy
    • End-cap users, like Blockbuster, are leaving and providing premium locations
    • Hospitals and providers want to be near their customers
    • Retailers can leverage increased daytime traffic, particularly as most medical consumers going to these locations tend to be women