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Feature Story: Provider puzzle: To own or not to own MOBs?

BOMA MOB conference panel ponders the inflation-driven impact of rising construction costs and rents

By John B. Mugford

The panel on health systems buying MOBs included (from left to right): moderator Jason Ruggles of Ochsner Health, Matt Crawford of Bon Secours Mercy Health, Kyle Marden of HCA and Angel Benschneider of Baylor Scott & White Health. (HREI photo)

The percentage of medical office buildings (MOBs) developed and owned by third parties has increased steadily in recent years. But will rising rents prompt hospitals and health systems to reverse that trend?

That was the crux of the matter for a panel of health system real estate executives during the recent BOMA International 2022 MOB + Healthcare Real Estate (HRE) Conference, which was held from May 4-6 in Nashville. The session was titled, “Brace for Impact, How the Industry Will Be Impacted by Health Systems Buying MOBs.” It was moderated by Jason Ruggles, VP of corporate real estate with Jefferson, La.-based Ochsner Health.

Health systems owned 44 percent of the country’s MOBs as of the end of 2021, according to the HRE data firm Revista, making them by far the largest landlord cohort in the space. But Revista’s first quarter (Q1) 2022 Medical Real Estate Report indicates that third-party development firms continue to gain a larger share of the country’s HRE development pie – accounting for about 45-46 percent of all projects in the past two years – and that health systems accounted for only 7 percent of all MOB purchases by volume in 2021, their lowest total as a group in the past seven years.

However, faced with inflation-driven increases in construction costs and rents, third-party owners are likely to seek higher rental rates from their tenants in 2022 and beyond. Will rising rents prompt hospitals and health systems to develop and acquire an even larger share of the MOB market?

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