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CAPITAL MARKETS: Spotlight on JLL Capital Markets

Mindy Berman imparts her MOB knowledge and gives a market update

By Erik Tellefson

As part of my Capital Markets column – and in an effort to share thoughts on the healthcare real estate market from diverse viewpoints – I’ll be featuring commentary from some of my colleagues in the medical office community. This month, I spoke with Mindy Berman of JLL.

Erik: Mindy, can you please let us know about your group and what you do?

Mindy: It’s not well known that JLL’s Healthcare Capital Markets group is pretty big and we do a lot of different things. We have eight people dedicated exclusively to healthcare in Boston, Dallas and New York. We’ve grown since 2010 into a fully-integrated capital solutions business doing investment sales, saleleasebacks, monetization, build-to-suits, financing and advisory work for both provider/operator clients and investor and developer clients – for medical office, hospitals, post-acute and seniors housing.

Erik: We lend on both medical office as well as medical properties. It looks like you have had some medical properties in the market that recently closed. Congratulations on the close and can you describe your view on the medical properties component of the MOB asset class? Are some types of these assets more easily sold or financed than others?

Mindy: Erik, don’t you finance everything?! Obviously, stabilized and stabilizing medical office properties and portfolios are a natural for solid interest and terms. Bite-size deals that appeal to you and smaller local banks as well as big portfolios for Capital One are easy pickings. The magic really comes from being able to underwrite and extract good terms or good solutions on start up or lease up, or specialty properties where there is a more limited pool of lenders.

Erik: Medical office lending volume in 2017 for Capital One has been strong with the combination of more private  investors winning deals that use first mortgage financing, as well as institutional equity coming in with larger transactions. Have you seen the same themes and do you expect them to continue through 2018?

Mindy: Yes, absolutely! There’s been a flood of new capital into medical office. In particular, much of it is coming from institutional funds that use leverage, whether it’s core, core-plus or value-add. I know many of these investors value relationships like Capital One which knows the sponsors and has transaction history and documents. REIT capital is still strong but the overall volume of activity has grown, so everyone’s investing a lot.

Erik: From our perspective, medical office deals continue to get bigger both on average and on the top end. Do you  think the days of big deals are limited and the industry will go back to primarily middlemarket transactions ($15 million to $35 million) as in years past or that big deals will become the new normal?

Mindy: We’re seeing great opportunities across the spectrum – the eye-popping multi-billion and multi-$100 million portfolios – but also great middle-market deals with terrific IRR opportunities that aren’t splashed across the front page of the paper. Remember, the average MOB is still only 40,000 square feet and $16 million, best case. The portfolios of REITs and other long-time investors have matured so they’re recycling a lot of oneoff properties in a more systematic way, opening the door for the entrepreneurial investors who can roll up their sleeves and know how to create value.

Erik: My advice to potential buyers and sellers on getting financing or anything transactional has been if you have the components of a deal that works it may be the best idea to pull the trigger and close it down. In today’s climate of relatively low interest rates, strong cap rates and most publications agreeing that MOB acquisition demand is outstripping supply, does the aforementioned advice hold and do you have any input for buyers or sellers in the market today?

Mindy: Time always feels like our enemy. We’ve enjoyed an unbelievable ride of low rates and continuously lower cap rates for quality medical office. Who would have thought? But if you survey the broader investment market, other property classes have pretty much peaked. Medical office has been a late bloomer. Don’t take the market for granted and get it done.

Erik Tellefson is Managing Director with Capital One Healthcare and leads medical office and medical property lending. He has 18 years of experience in commercial real estate finance, including 13 years focused on healthcare, and works with clients to finance acquisitions, refinance existing debt, support working capital needs and fund growth initiatives.

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