Industry Pulse: $3 billion MOB portfolio sale on the horizon?

For an update version of this story, please see: Industry Pulse: Duke Realty CEO declines to comment on rumors of potential MOB portfolio sale

Unconfirmed news report about a possible sale by Duke Realty was a hot topic at March 8 HRE conference in Los Angeles

By John B. Mugford

Unconfirmed reports say Duke Realty might sell its medical office portfolio. (Photo courtesy of Duke Realty)

At the InterFace Healthcare Real Estate West conference in Los Angeles on March 8, most of the talk among the 300 or so attendees has centered on the recently released proposal from Republican lawmakers in Washington for replacing the Patient Protection and Affordable Care Act (PPACA), aka Obamacare.

However, there was also plenty of talk about a possible medical office building (MOB) portfolio sale that could be in the works and could garner as much as $3 billion. According to unnamed sources, Indianapolis-based Duke Realty Corp. (NYSE: DRE), which in recent years sold off its general office building portfolio to put its focus on its MOBs and industrial properties, was exploring the possibility of selling its MOB portfolio.

Healthcare Real Estate Insights has reached out to Duke Realty’s corporate office but has not yet received a reply.

The company’s MOB portfolio, most of which was developed by Duke Realty and the company it acquired in entering the healthcare real estate (HRE) sector in the 2000s, Indianapolis-based Bremner Healthcare Real Estate, has 86 buildings with about 6 million square feet of space. Duke’s overall commercial real estate portfolio currently contains 561 properties – 455 industrial properties – with about 139.6 million square feet, according to its website.

According to sources, the idea of selling the MOB portfolio, for which Duke Realty had received an offer in recent years, is to shift its focus to its industrial properties, as those facilities are seeing increased valuations and are driving higher rents as internet shopping has soared, meaning that e-retailers need more space to store goods they sell online.

Another motivation for a sale could be the high prices that MOBs are currently reaping, as the property type is in high demand from a variety of investor types.

According to sources, potential buyers of the MOB portfolio could include the country’s larger real estate investment trusts (REITs) and/or some of the large private equity firms that would like to enter the MOB space, which is considered a recession-resistant asset class.

According to an article by Reuters, the company is working with New York-based investment bank Morgan Stanley (NYSE: MS) on the possible sale. To read that article, please click here.

As noted, Duke Realty has grown its portfolio organically, as it has been one of the largest MOB developers in recent years. Its pipeline, according to sources and through recent interviews with Duke Realty executives, tops $1 billion. Of course, not all of those projects will necessarily come to fruition, but it is an indication that the company has strong relationships with a number of health system and provider clients.

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