News Release: Changing Tides: More Markets and Investors in the Medical Office Portfolio Mix

Demand remains robust as private REITs and private equity join the hunt for portfolios

BOSTON, April 28, 2014 – Healthcare in the United States is changing on many fronts – from the Affordable Care Act to a growing and increasingly aging population – and the shift isn’t isolated to care and coverage. The commercial healthcare real estate has been kept on its toes this past year, but the maturing of the sector upheld one steadfast fact: investors’ demand for medical office buildings and outpatient facilities (MOBs). According to Jones Lang LaSalle’s (JLL) Capital Markets healthcare experts, $1.77 billion transacted in 10 MOB portfolio sales in 2013. Although these sales volumes are slightly lower than last year’s peak of $2 billion, they rank high historically among recent top-performing years.

“Investors have a zealous appetite for all types of healthcare real estate. The investment landscape changed rapidly in 2013 with private REITs and private equity emerging as the top buyers of MOB portfolios.  In 2012, that title was held by public REITs, which accounted for two-thirds of MOB portfolio transactions,” said Mindy Berman, Managing Director at JLL.

The Rise of Private REITs and Private Equity

While public REITs still actively seek MOB portfolio assets, private REITs and private equity are more actively gaining market share, particularly through multi-asset property acquisitions. Public REITs were not as aggressive in 2013 due to changes in their share value as well as a lack of large enterprise acquisition or REIT to REIT opportunities that deliver the fundamentals public REITs require. Sellers remain largely institutional investors, private owners and developers as 85 percent of healthcare real estate still remains in the hands of hospitals and healthcare providers who are not actively monetizing their real estate.

Portfolios Change, Opportunities Remain

There are several differences among MOB portfolio properties from 2012 to 2013. In 2012, portfolio sales were heavily driven by developers with new, stabilized properties that could be sold at peak pricing.  In 2013, virtually no developer sales of any great scale occurred as most major holdings ready for disposition had already been sold.  Instead, portfolio sales were fueled by institutional owners. Harrison Street Real Estate Capital, a major real estate fund manager, is currently offering a multi-state healthcare portfolio which is one such example of this recent trend.  The 12-property portfolio with medical office buildings and hospitals totaling 655,661 square-feet in six states, is located primarily across the country’s Sunbelt markets. It is nearly fully occupied with many long-term single tenant leases with for-profit and not-for-profit healthcare providers.

Fundamentals will Secure Demand

MOB portfolios remain a preferred investor target in 2014 due to scale of opportunity associated with a property class that offers stable occupancy and secure cash-flow, responsive to the needs of a growing and aging population. Many portfolios feature medical offices and outpatient centers, as the delivery of care shifts and technology advances. Concluded Berman, “Regardless of the evolving healthcare landscape, demand for healthcare real estate is here to stay.”

About Capital Markets

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2013 alone, JLL Capital Markets completed $99 billion in investment sale and debt and equity transactions globally. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.

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