Jones Lang LaSalle says transaction volumes in 2013 expected to meet or exceed 2012 levels; performance, long-term demand and significant capital raises contribute to favored status
CHICAGO, August 23, 2013 – The Medical Office Building sector continues its reign as one of the most sought-after product types in commercial real estate following record-setting pace for medical office building and portfolio sales in 2012. According to research conducted by Jones Lang LaSalle’s Healthcare Capital Markets practice, more than 120 medical office building properties valued in excess of $1.8 billion were sold in the first half of 2013, while seven portfolios have been on the market or closed with a total estimated value of $1.7 billion.
The vigorous pace of sales activity is showing no real signs of a slowdown and JLL predicts that year-end 2013 volumes for property and portfolio sales should meet or exceed 2012 levels.
“Investor appetite and sentiment for this asset class of choice remain as strong as it has been since the start of 2012,” Mindy Berman, Managing Director of Jones Lang LaSalle’s Healthcare Capital Markets group, said. “While straight year-over-year comparisons show a slight decrease in volume, market characteristics are unchanged. Medical office remains one of the most sought-after product types.”
During the first half of 2012, 171 MOBs valued in excess of $2.2 billion were sold. While this represents a decrease from 2013 to 2012, two factors come into play. Berman notes the surge in sales volumes in late 2012 due to the impending increase in capital gains caused a slow first quarter in 2013. However, sales volumes were roughly equal at $1.5 billion when two major transactions in the first half of 2012 and one in 2013 are “discounted.”
| Year | No. of Properties | Total Value | Average Sq. Ft. | Average Value | Average Price/sf | Properties Valued >$25M |
| 2013 |
124 |
$1,830,550,000 |
74,753 |
$14.8M |
$197 |
13 |
| 2012 |
171 |
$2,257,350,000 |
81,701 |
$13.2M |
$161 |
16 |
Sales volume in 2012 included the approximate $700 million acquisition by Ventas of Cogdell Spencer Inc. and a $100 million sale-leaseback by Steward Healthcare. Activity in 2013 includes the acquisition by Realty Income Trust of the net lease REIT, American Realty Capital Trust that included $357 million of medical office buildings.
Mid-Year MOB Property Sales – Add One
“Concerns about a reduction in record sales levels from 2012 due to the surge of activity connected to capital gains changes appear to be unfounded,” Berman emphasized. “Business continues to be strong and the demand side has gained even more strength.”
The drivers for the sustained activity continue to be the relative performance of and demand for medical office and related healthcare properties and the heated pace at which capital is being raised and specifically targeted for MOB acquisitions. In spite of upward interest rate movement and the lower REIT share prices experienced in May, debt and equity capital raise totals in 2012 and the first half 2013 total $18.4 billion and higher, compared to $20.6 billion in 2010 and 2011.
“The exceptional healthcare real estate capital raise continues to outpace new acquisition opportunities, resulting in historic pricing levels and continued cap rate compression,” Berman said.
According to the JLL, the average price per square foot thus far in 2012 is $197, compared to $161 during the same period in 2012. Cap rates for the highest quality properties are averaging between 5.5 and 6.5 percent nationally.
On the portfolio side, medical office building portfolio sales activity continues at high levels, similar to 2012. Seven portfolios have been on the market or closed in the first half of 2013 with total estimated value of $1.7 billion compared to 11 portfolios closed in 2012 totaling $2.04 billion.
In an earlier 2013 white paper, “Record Year for MOB Investment as Portfolio Sales Volume Jumps”, JLL reported that the $2.04 billion in portfolio sales in 2012 was nearly double the prior record year of 2007 when $1.1 billion of multi-asset transactions changed hands. Further, the number of portfolio transactions at 11 was nearly double the average of just under six portfolios trading hands in each year from 2006 on. Significantly, portfolio acquisitions in 2012 represented more than one-third of total MOB sale volume (34.3 percent), surpassing more typical annual concentrations in the 25 percent range.
“Healthcare properties, and MOBs in particular, have been high on real estate investors’ lists for several years,” Berman said. “It is apparent from the mid-year trends that this level of activity could very well remain the standard for the near future.”
Jones Lang LaSalle’s Healthcare Solutions group partners with hospitals and healthcare systems throughout the nation, delivering comprehensive inpatient and ambulatory facility management, strategic consulting, real estate capital advisory, program management, property management, transaction services, lease administration and energy/sustainability advisory services. Through its work, the Healthcare Solutions group connects healthcare business strategies to real estate solutions, driving efficiencies and enhancing quality. For the last five years JLL has been ranked among the top five development firms in the Modern Healthcare Magazine’s Design & Construction Survey. For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center Web page: http://www.us.am.joneslanglasalle.com/UnitedStates/EN-US/Pages/News.aspx
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