MOB prices still rising, caps still falling
Q3 2006 SALES TRANSACTION DATA INDICATES A CONTINUATION OF THOSE TRENDS
By Murray W. Wolf
When it comes to medical office buildings (MOB), comprehensive information about national transactions is hard to come by.
For example, if you conduct searches for MOB deals using CoStar Group Inc. and Real Capital Analytics Inc., you will get widely different results. The variances are not surprising, considering that those two commercial real estate information providers track sales of different minimum sizes. They also research slightly different markets and even have somewhat different definitions of what constitutes a “medical” office building.
But Marcus & Millichap Real Estate Investment Brokerage Co. takes that data, as well as information from other sources, to compile what might be the most complete MOB sales data available.
Marcus & Millichap’s data is still probably far from comprehensive, emphasizes Yitzie Sommer, a senior research manager with the firm’s New York-based research team. But it’s the most complete data we’ve seen here at Healthcare Real Estate Insights™, and the folks at Marcus & Millichap are kind enough to share it with us – and you – on a quarterly basis.
For the third quarter of last year (Q3 2006), Marcus & Millichap found 90 MOB sales transactions totaling about $771.75 million. That was up considerably from the same quarter one year ago, when the firm recorded 74 transactions with a total dollar volume of about $745 million.
But the Q3 2006 totals were down substantially from Q2 2006, for which the firm found 101 transactions totaling more than $856.2 million. That was also down from Q1 2006, for which the firm found 96 transactions totaling more than $806.7 million.
(Q4 2006 data has not yet been released. It can take a couple of months for transactions to appear in public records.)
Average price per square foot (PSF) dipped slightly during Q3 2006 to $214, compared with $221 in Q2, according to Marcus & Millichap’s calculations. But that was still more than the $213 PSF recorded in Q1 and the $188 recorded during the same quarter of the previous year.
Capitalization rates slipped again in Q3 2006, Marcus & Millichap found. The average cap rate for deals during the quarter was about 7 percent – believed to be the lowest level in at least a decade – compared with about 7.35 percent during Q2 2006.
Mr. Sommer cautions that we shouldn’t read too much into quarter-to-quarter PSF and cap rate fluctuations because a few disproportionately large deals with unusual prices or cap rates can skew the overall results.
However, based on Marcus & Millichap’s historical data, there is no denying that MOB prices have kept rising while cap rates have continued to decline. MOB prices have increased steadily since average prices were less than $112 PSF in 2001, the firm’s research indicates, while cap rates have been falling steadily from their 2001 level of about 10 percent.
After first crossing the $200 PSF price threshold in Q1 2006, average prices now appear to have moved firmly beyond the $200-plus PSF level, while average cap rates seem on the brink of sinking below 7 percent. q
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Top 10 reported Q3 2006 MOB sales transactions
| Property Name | City, State | Price (000s) | Square Feet | Price/PSF | Cap Rate |
| 13461 Sunrise Valley Drive | Herndon, Va. | $48,300 | 126,000 | $383 | N/A |
| 5 Garfield Ave. | Hinsdale, Ill. | $36,000 | 169,329 | $213 | N/A |
| Union Medical Campus | Colorado Springs, Colo. | $21,700 | 151,299 | $143 | 8.1% |
| Mercy Health Medical Buildings | Cincinnati, Ohio | $20,000 | 190,000 | $105 | N/A |
| Chesterfield Valley MOB II | Chesterfield, Mo. | $15,750 | 64,455 | $244 | N/A |
| 3820 Medical Park Dr. | Austell, Ga. | $13,512 | 43,672 | $309 | N/A |
| 10700 Medlock Bridge Rd. | Duluth, Ga. | $13,000 | 64,000 | $203 | N/A |
| St. Luke’s Medical Center MOB | Phoenix | $12,130 | 52,800 | $230 | 5.8% |
| Cartersville Physician’s Center | Cartersville, Ga. | $11,300 | 60,000 | $188 | N/A |
| Gwinnett Professional II | Lawrenceville, Ga. | $11,240 | 44,947 | $250 | N/A |
Source: Compiled by Healthcare Real Estate Insights™ from a variety of published sources.
Disclaimer: This list is based on the data available and is not intended to be comprehensive. Wolf Marketing & Media, publisher of Healthcare Real Estate Insights™, is not responsible for its accuracy.
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