An aggregation strategy can add diversification that is often accretive
By Erik Tellefson
Medical office buildings (MOBs), likely more so than many healthcare real estate assets, are often a single-asset real estate class. MOBs are often sold, purchased and financed as single assets, with the ultimate aggregation strategy goal of the purchaser being to put together multiple MOBs for a portfolio sale or to refinance/recapitalize as a portfolio.
This strategy can be effective. Below are some hypothetical examples of how it may work.
If one owns two single-tenant, longer-term leased MOBs in addition to a multi-tenant MOB with a moderate short-term roll, a sale or recapitalization of all three assets dilutes the roll for portfolio purposes and presents a portfolio with lower rolling tenants.
Provided one owns five 50,000 square foot MOBs, four of which are 90 percent occupied and the fifth is 60 percent occupied, the average occupancy across all five sold or recapped as a portfolio would be 84 percent, making the portfolio more saleable or financeable than the 60 percent-occupied MOB.
Aggregating assets can result in geographic diversity, diversity amongst tenancy, hospital/health system diversity and asset type diversity. The result of diversifying assets is often fewer potential concentration issues representing a more desirable net result for buyers or lenders.
Portfolios of MOBs typically represent larger deals that attract a different type of acquirer/lender. There will probably be lenders for a single $3 million MOB; however, there are likely more lenders for a portfolio of five MOBs worth $3 million each. The same dynamic applies to $10 million and $20 million MOBs or any combination. While bigger isn’t always better, bigger frequently attracts larger buyers and lenders.
The overriding result of portfolio aggregation often is accretive relative to single MOB assets through smoothing of the roll, propping up individual assets, diversification and larger transactions; portfolios represent different transactions than single MOBs.
Single asset MOB acquisitions/financing remains very viable and an aggregation strategy often results in accretive MOB portfolios.
Erik Tellefson is the managing director of GE Capital, Healthcare Financial Services’ (HFS) medical office/medical properties loan originations segment.
This article provides general information and should not be used or taken as business, financial, tax, accounting, legal or other advice, or relied upon in substitution for the exercise of your independent judgment. For your specific situation or where otherwise required, expert advice should be sought.
The views expressed in these articles reflect those of the authors and contributors and not necessarily the views of GE Capital or any of its affiliates (together, “GE”), and should not be deemed as a recommendation to purchase or sell any securities or investments mentioned. Although GE believes that the information contained in this publication has been obtained from and is based upon sources GE believes to be reliable, GE does not guarantee its accuracy and it may be incomplete or condensed.
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