Publisher’s Letter: Still bullish on MOBs

Strong short-term results; good long-term prospects

Dear Reader:

Full disclosure: The Publisher’s Letter is nearly always the last article written as we put together this magazine. One reason is that there always seems to be something more urgent for me to work on, so this letter tends to get pushed down the priority list. Another reason is that waiting allows me to review all the other articles for ideas.

As I read through the other content for this edition, I couldn’t help but feel quite good about what is happening in the healthcare real estate (HRE) space. Aside from the fact that we hit an eight-year low in occupancy rates for senior housing, his magazine is full of mostly good news.

For example, last quarter was one of the six best ever for medical office building (MOB) sales, with many additional assets in the pipeline. There also seems to be quite a bit of new MOB development, as well as new hospital construction.

We also have some stories this month that are just “neat” (as my mother, a former grade school teacher, would say), such as how Cornerstone Companies pursued a “small is beautiful” philosophy to patiently build one of the largest integrated HRE firms in the country without taking a dime of institutional money. Or how the founders of Harrison Street Real Estate Capital recognized the opportunity in the HRE space before most others – and how their prescience has now been rewarded to the tune of a $450 million payday for selling 75 percent of the company to Colliers International.

And although we didn’t include it in the magazine – although I guess I am doing that now – I also really enjoyed reading the most recent investor presentation from Scottsdale, Ariz.-based Healthcare Trust of America Inc. (NYSE: HTA), which explains why HTA, as the nation’s largest owner of medical office buildings (MOBs), remains so bullish on the property type.

In the long-term, HTA foresees a healthcare delivery landscape that is going to continue shifting to outpatient settings, where the company says providing care, procedures and surgeries are more cost-effective and are preferred by private and government insurance payers. This shift is illustrated by data that HTA cites from the American Hospital Association (AMA), which notes that annual U.S. inpatient admissions have steadily dropped to about 104 per 1,000 people in 2014 from about 145 in 1990. On the other hand, annual outpatient visits per 1,000 people have steadily increased during that same time, rising from about 1,100 in 1990 to nearly 2,100 in 2014.

HTA says that MOBs are the main beneficiaries of the rising number of outpatient visits, which should continue to increase as a result of overwhelming demographics. HTA notes that 10,000 people are turning 65 years old every day in the United States, and that people in that age cohort make four times as many doctor visits – mostly to MOBs – than the younger population.

It sounds like we will continue to be reporting good news for many years to come.

Murray W. Wolf, Publisher

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