Feature Story: The top 10 healthcare real estate stories of 2022

A look at some big deals and JVs; slowing MOB sales; health system struggles

By John B. Mugford

The economy is taking its toll on HRE, but most involved in the space remain confident in its long-term prospects. (HREI photo)

As we entered 2022 and it looked as if the COVID-19 pandemic was finally in the rearview mirror, most of professionals involved healthcare real estate (HRE) were confident that good things were on the horizon for the sector.

This was indeed true in the early part of the year. Medical office building (MOB) sales were robust, totaling $8.6 billion in the first two quarters. Development projects were taking place at a strong clip. And health systems were buoyed by a financial windfall from government subsidies to help them through the pandemic and a surge in elective surgeries and procedures.

At that point, it seemed as if 2022 would see a continuation of the HRE space’s impressive performance of 2021. The sector and its primary product type, medical office buildings (MOBs), withstood a Black Swan – COVID-19 and the subsequent shutdowns of most industries – and once again proved itself worthy of all the hype, including the growing list of institutional investors entering the space.

After all, 2021 was a record year for MOB sales, with the volume coming in at $18.3 billion, according to data from HRE research firm Revista and its RevistaMed service.

As noted, this momentum carried over into the first part of 2022, making HRE a juggernaut of a real estate asset class. Perhaps the only complaints coming from those involved in the space concerned the all-time high pricing for MOBs. The median capitalization (cap) rate, or estimated first-year return, dipped to 5.5 percent in Q1, according to RevistaMed data, making it difficult for many long-term HRE investors to compete for purchases. Also, developers complained about rising construction costs, which they said would force them to raise rents to levels that many tenants could not afford.

For the most part, however, all was looking fine and dandy in the world of HRE.

But then inflation hit, and hit hard, with the yearly consumer price index (CPI) topping 8 percent for much of the year – reaching a pinnacle of 9.1 percent in June – according to the U.S. Department of Labor. This led the U.S. Federal Reserve to raise its Federal Funds Rate seven times 2022. With its most recent hike in Dec. 14, the target federal funds range rose to 4.25 to 4.5 percent, the highest level in 15 years.

Yet, despite all of the headwinds, most professionals involved in the HRE sector remain bullish on its long-term prospects. U.S. healthcare spending is projected to continue to grow, the country’s population is going to continue to age, and the gradual, decades-long shift to outpatient care accelerated during and after the pandemic – all strong indications that more healthcare services, and real estate, will be needed

With this in mind, let’s take a look at our annual, albeit subjective, look at the top 10 HRE stories of the year.

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