CALABASAS, Calif., April 30, 2013 – Exclusive research by Marcus & Millichap Real Estate Investment Services, the nation’s largest real estate investment services firm, reveals that ever-increasing operational costs and potential physician shortages are forcing providers to identify and exploit opportunities to create efficiencies and maximize revenues. Many large practices and health systems have started to look to real estate for assistance in meeting these objectives.
“From an investment perspective, health system mergers and acquisitions stand to elevate the overall credit characteristics of the nation’s medical office sector, resulting in additional high-quality acquisition opportunities, and potentially more favorable financing terms,” says Alan L. Pontius, managing director of the firm’s National Office and Industrial Properties Group (NOIPG). “While a shrinking tenant pool, along with ongoing pressure on reimbursements, may act as headwinds to rent growth in coming years, the lower-risk profile associated with hospital-grade tenants should counterbalance any impact on property prices and cap rates.” Pontius also believes that healthcare industry consolidation and an approaching wave of physician retirements will contribute to further divergence in property performance and values based on asset age, as large providers overlook many aging properties due to their inflexible designs.
When it comes to financing, the medical office sector continues to be a magnet for capital. “Financing remains abundant for institutional-grade medical office buildings, such as performing on-campus assets and select top-quality off-campus properties affiliated with high-credit hospital systems,” says Bill Hughes, senior vice president and managing director of Marcus & Millichap Capital Corp. Hughes also notes that commercial mortgage-backed securities (CMBS) originations in the medical office space increased 60% in 2012.
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