But industry sources say pending big deals will spur a second-half rally
By John B. Mugford
One of the assets included in Healthpeak’s 14-MOB Q2 portfolio acquisition was the 54,250 square foot 601 Watkins Centre Parkway in Midlothian, Va., which sold for $23.7 million, according to Revista. It is occupied by Bon Secours Mercy Health. (Photo courtesy of Healthpeak)
The first half of 2021 was rather quiet in terms of medical office building (MOB) sales, according to statistics from two of the research firms that compile healthcare real estate (HRE) facility data.
That slow first half could, at least on the surface, put two rather strong yearly MOB sales streaks in jeopardy, according to statistics compiled by two of the healthcare real estate (HRE) sector’s main research firms: New York-based Real Capital Analytics (RCA) and Arnold, Md.-based Revista. Both provide a wide array of real estate statistics for their subscribers.
As for RCA’s data, the yearly MOB sales volume has topped $10 billion for six straight years. According to Revista’s statistics, the MOB sales volume has topped $11 billion for six straight years. It should be noted that the two research firms use some different criteria and data sources in compiling their statistics, meaning their stats, while they are typically close, do not always match.
But as noted, the first half of 2021 started rather slowly, according to both firms. RCA’s statistic indicate that MOB sales in the second quarter (Q2) of 2021 totaled $2.4 billion, a strong increase of about 42 percent from Q1, when sales were just $1.4 billion – the lowest quarterly volume since Q1 2014.
As for Revista’s data, the Q2 volume came in at $2.7 billion, adding to the Q1 volume of $2 billion for a first half total of $4.7 billion.
However, despite the slow start to the year, a number of professionals involved in MOB sales say there is strong evidence – in the form of large portfolios likely to close in coming months – that the volume should rebound and, most likely, keep the RCA and Revista streaks intact.
“I know we had a slow start to the year, but there is so much portfolio activity in the market right now that I find it hard to believe that the MOB sales volume will drop below $10 billion (according to RCA statistics) for the final year-end volume,” Christopher Bodnar, vice chairman of the U.S. Healthcare and Life Sciences Capital Markets team with CBRE Group Inc. (NYSE: CBRE), tells HREI™. “I think we may end up having one of the biggest fourth quarters on record, as there is a lot of focus right now by sellers to close MOB sales in 2021 in order to avoid any potential tax legislation that gets implemented in 2022.”
Jay Miele, senior managing director with the Healthcare Capital Markets team with Newmark Group Inc. (NYSE: NMRK) agrees.
Despite the slow start, “I don’t think this will be a down year by any means,” Mr. Miele tells HREI. ”There is a significant amount of portfolio activity that has recently closed or will within the next couple of months. Those portfolios alone probably account for $3 billion to $4 billion of sales. Taking into account second half activity, the MOB market will maintain volumes levels like we’ve seen over the past few years.”
The reason for the second half surge, according to MOB brokers, is the strong interest investors of all types, including large institutional investors, are showing in acquiring the product type, which have proven to be recession- and pandemic-resistant.
“There is no shortage of capital looking to acquire MOBs, and the aggressive pricing is bringing sellers to the table, particularly portfolio sellers,” Mr. Miele notes.
Other statistics from Q2 indicate that the average capitalization (cap) rate, or first-year expected return, according to RCA, was
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