MOBs Still Rule the Outpatient Space

At the Colliers National Healthcare Conference September 12-13 in Chicago, Fred Bayon of the Advisory Board shared his insights with the audience. HREInsights.com shared the following report: Of the five main outpatient facility types, medical office buildings (MOBs), urgent care centers and ambulatory surgery centers (ASCs) have the most positive outlooks and futures in the healthcare and healthcare real estate (HRE) sector. 

On the other hand, the outlook is not quite as positive for micro-hospitals, which have a "moderate" outlook, and freestanding emergency departments (FEDs), which have a "negative" outlook. That's according to a scorecard, if you will, compiled by well-known healthcare research and consulting firm The Advisory Board Co., which is based in Washington, D.C., and is part of Eden Prairie, Minn.-based Optum.

 Providing insights into the Advisory Board's rankings and outlooks for the various outpatient property types was the company's Fred Bayon, managing director. He did so during a 100-minute presentation that covered a wide range of topics affecting the healthcare sector during The Colliers National Healthcare Conference, held Sept. 12-13 at the Hyatt Centric Chicago Magnificent Mile.

 Near the end of his presentation, which included plenty of insight into current healthcare policy and disruptors to the status quo, Mr. Bayon gave the firm's outlook on the various property types.

 As has been the case for several years, The Advisory Board is most optimistic about the short- and long-term prospects for MOBs. The rise of MOB development and investment has occurred in large part because they allow hospitals and health systems the best and most economical way to enter new markets, to protect market share, to provide convenient access to patients and to help facilitate the coordination of care.

 "The MOB market continues to be a positive, intriguing play for hospitals, health systems and investors," Mr. Bayon told the audience.

 Those players, he noted, are and will remain interested in MOBs for years to come because they "are conveniently located, essentially for Medicare patients and commercially insured patients. (Health systems) do not want their patients to have to come downtown, (they) don't want you to come into the maze that is the big hospital campus. Instead, they want you to go somewhere where there is parking and where there is a pleasant atmosphere, because that's where they think they can drive volumes."

 The Advisory Board gives its next highest ranking to ASCs -- which, even though they carry some risk because of the lower-profit margins they deliver -- will continue to experience increased volumes in years to come, he said.

 Mr. Bayon noted that volumes in ASCs are expected to increase by nearly 28 percent by the year 2027, driven in large part by ongoing policy changes by the Centers for Medicare and Medicaid (CMS) that will "reimburse Medicare procedures done in ASCs. For example, total knee (replacement) and some cardiac procedures" have recently been added to the list of procedures that, when done in ASCs, will be reimbursed by Medicare.

 Also receiving a positive score, or outlook, from The Advisory Board are urgent care centers, which the firm is "pretty bullish on," Mr. Bayon said.

 Even though The Advisory Board is not as bullish on micro-hospitals, Mr. Bayon noted that the firm is "neutral" on the facility type, as those that are placed in the right locations can provide benefits for health systems, especially when they are expanding into new markets.

 However, it gives FEDs (free-standing emergency departments) a "negative" rating, in part because they could drive unnecessary ED utilization and because CMS could look to decrease reimbursement moving forward.

Healthcare Realty is finding buying opportunities

REIT says it could make MOB purchases totaling up to $325 million in 2019 

Healthcare Realty Trust acquired the six-story, 89,990 square foot Magnolia Medical Tower in Fort Worth during the second quarter. (Photo courtesy of JLL)

NASHVILLE, Tenn. -- With such strong first half of acquisition activity and more purchases in the pipeline, Nashville-based Healthcare Realty Trust Inc. (NYSE: HR), which is focused on medical office buildings (MOBs), has had to increase its investment guidance for 2019.

During a recent earnings conference call with securities analysts summing up the publicly traded real estate investment trust's (REIT's) financial performance and investment/development activity in the second quarter (Q2) and first half of 2019, Todd Meredith, president, CEO and director of Healthcare Realty, said: "Our acquisition pace is up notably, and we are pleased to report nearly $200 million of completed acquisitions at mid-year. We see continued momentum, and we've increased our guidance for the year."

That new 2019 acquisitions guidance, or the REIT's predicted acquisition activity, was raised to the $225 million to $325 million range for the full year, said Robert Hull, executive VP of investments, during the July 30 call. As of June 30, Healthcare Realty's portfolio consisted of 201 properties with a total of 15.3 million square feet of space and an estimated value of $5.5 billion. About 93 percent of its portfolio are MOBs.

Mr. Hull added that the REIT's first-half acquisitions, which totaled $195 million and exceeded expectations, were at an average capitalization (cap) rate, or first-year expected return, of 5.5 percent. The company made acquisitions totaling $102 million in Q2 and had "another $75 million (of pending acquisitions) in advanced discussions" as of July 30, he said.

"Cap rates have remained consistent in the low- to mid-5s for higher quality, on-campus MOBs," Mr. Hull noted. "With investor interest in medical office remaining high and a stable interest-rate environment, we don't foresee a large move in either direction for cap rates."

Mr. Meredith attributed the REIT's strong acquisition activity to a number of factors.

One of them, he noted, "involves the practice of deeply embedding ourselves in targeted, high-growth markets. Using a team-based approach, we gather local intelligence, systematically collect and analyze market data, and identify desirable properties and potential developments that are not available to the broader market."

He also said Healthcare Realty is "seeing increasing benefits from the company's solid reputation in the MOB space. Healthcare Realty is known for completing transactions smoothly, following through reliably, and taking great care of our properties and tenants."

In addition, Mr. Meredith said the REIT's cost of capital "has strengthened and afforded us the ability to invest more accretively. We are capitalizing on attractive market conditions to unearth more investments using our proactive sourcing process."

Mr. Hull added the Healthcare Realty has also been funding plenty of MOB developments as well, as it recently completed a $12 million redevelopment of an MOB it owns in Charlotte, N.C., and is nearing completion of a 151,000 square foot MOB on the campus of UW Medicine Valley Medical Center in the Seattle market. It is also planning a $19 million MOB in Colorado, a $36 million MOB in Texas and a potential $26 million MOB redevelopment project in Tennessee.

David Emery

In other recent news from Healthcare Realty, the REIT announced Sept. 11 that Executive Chairman David Emery has taken medical leave and has stepped down as chairman. Mr. Emery, who had been receiving treatment for pancreatic cancer, will remain a board member while on leave and has been named chairman emeritus.

Mr. Emery led the team that founded Healthcare Realty in 1992 and oversaw its initial public offering on the New York Stock Exchange in 1993, raising $117 million to fund an initial portfolio of 21 properties. As chairman and CEO, Mr. Emery guided Healthcare Realty's steady growth to a company that now has 282 employees and owns 200 properties valued at more than $5.7 billion.

Mr. Meredith, president and CEO, said, "On behalf of my colleagues at Healthcare Realty, we are grateful for David's vision and leadership. We are fortunate to know David as a great friend and mentor. He is an inspiration to us all. We wish David and his family the best during this difficult time." The REIT's board of directors elected its lead independent director, J. Knox Singleton, to serve as independent chairman.

For a copy of Healthcare Realty's Q2 earnings news release, including a link to a recording of its earnings conference call, please visit HREInsights.com.

The Sanders Trust to add 13 beds, 8,100 s.f. to rehab hospital it owns in Tulsa, Okla.

TULSA, Okla. -- Birmingham, Ala.-based The Sanders Trust (TST) has announced plans to add 13 beds and 8,100 square feet to an inpatient rehabilitation hospital in Tulsa that it acquired in 2018. TST acquired the 40-bed PAM Rehabilitation Hospital, which is in the city's in the city's Shadow Ridge medical district, for $24.5 million. The facility is operated by Enola, Pa.-based Post Acute Medical (PAM), which has 34 locations nationwide. Rance M. Sanders, president and CEO of TST, said the project will "assist PAM in expanding operations at their Tulsa hospital and facilitate their continued successful service." For more information, please visit HREInsights.com.

Investor acquires an MOB with ASC and urgent care in Lake Worth, Fla., for $12.6M

LAKE WORTH, Fla. -- A fully leased, 31,847 square foot multi-tenant MOB in Lake Worth, about 60 miles north of Miami, recently traded for $12.6 million, or $396 PSF, according to data from HRE research firm Revista. The new owner of the Lake Worth Medical Center at 7408 Lake Worth Road is Aventura, Fla.-based PriMed Realty, according to Revista, whose data shows that the sale closed on Sept. 18 at a capitalization (cap) rate of 7.23 percent The seller of the off-campus MOB, which houses a surgery center and the Gardens Urgent Care of Lake Worth, was Hilliard, Ohio-based Equity Inc. For more information, please visit RevistaMed.com. (Subscription required)

Provider acquires vacant warehouse in Buffalo, N.Y., for medical clinic conversion

BUFFALO, N.Y.

-- A local not-for-profit healthcare services provider, People Inc., recently paid $5.5 million for a vacant industrial building in Buffalo that it plans to convert into a medical facility. According to data from HRE research firm Revista, People Inc. acquired the building and 2.5 acres of land at 766 Hertel Ave. from Amherst, N.Y.-based Uniland Development Cos., which is planning a mixed-use project on 20 acres it owns there. According to Buffalo Rising, the future facility will have 33,000 square feet and be an expansion of People Inc.'s 13,000 square foot Elmwood Health Center just down the block. For more information, please visit BuffaloRising.com.

HealthCap Partners acquires 37,302 s.f. MOB in Toledo, Ohio, for $4.31 million

TOLEDO, Ohio -- Dallas-based HealthCap Partners, led by Managing Partner Chrisman S. "Chris" Jackson, last week closed on the purchase of a 37,302 square foot, off-campus MOB in Toledo. According to real estate researcher Real Capital Analytics (RCA), HealthCap paid $4.31 million, or $116 PSF at a cap rate of 8.1 percent. The fully occupied Executive Medical Complex was completed in 1989 and houses tenants offering rehabilitation, allergy and immunology, dental services and others. HealthCap's last acquisition was in July, when it bought an 80 percent occupied, 23,000 square foot MOB in Tempe, Ariz. For more information, please visit RCA.com. (Subscription required)

Flagship completes development of orthopedic ASC in Granite Falls, N.C.

GRANITE FALLS, N.C. -- Charlotte, N.C.-based Flagship Healthcare Properties has completed the development of a 20,995 square foot ambulatory surgery center (ASC) at RiverCrest Medical Park in Granite Falls, 65 miles northwest of Charlotte. The ASC, the first orthopedic-focused outpatient surgery center in the region, was built for Prime Surgical Suites, an affiliate of Lenoir, N.C.-based Caldwell UNC Healthcare. Thorn Baccich, VP with Flagship, said the company is "proud to have played an important role in delivering a state-of-the-art healthcare facility that will benefit residents of Caldwell County." For more information, please visit HREInsights.com.

Work is underway for 45,675 s.f. MOB in Santa Clarita, Calif., medical corridor

SANTA CLARITA, Calif. -- Construction is underway on a future MOB in a growing medical corridor just off U.S. Interstate 5 and close to Henry Mayo Newhall Hospital in Santa Clarita, about 35 miles northwest of Los Angeles. The future three-story, 45,675 square foot MOB at 27335 Tourney Road is the third joint venture project between Santa Clarita-based JSB Development and McCombs Inc., according to the San Fernando Valley Business Journal. Tourney Place Building 6 is scheduled for completion in Q2 2020. Craig Peters and Richard Ramirez of a local office with CBRE Group Inc. (NYSE: CBRE) are leading the leasing campaign. For more information, please visit SFVBJ.com.

Private doc acquires 21,200 s.f. MOB and valuable property in Pasadena, Calif., for $11.75M

PASADENA, Calif. -- A private doctor recently acquired a 21,200 square foot MOB on a site with development potential in the heart of the Pasadena's medical and arts district for $11.75 million, according to Pasadena Business Now. The seller was Hollywood, Calif.-based developer Markwood, which acquired the property at 66 Hurlbut St. for $7 million in 2014. The current tenant, Pasadena-based Pacific Clinics Inc., is on a lease that expires in June 2023. The MOB is a couple of blocks from Huntington Memorial Hospital. Evan Lewitt and Will Poulsen of the Los Angeles office of Jones Lang LaSalle (NYSE: JLL) represented the seller. For more information, please visit PasadenaNow.com.

HCP establishes commercial paper program, with notes of up to $1 billion

IRVINE, Calif. -- HCP Inc. (NYSE: HCP) has established an unsecured commercial paper program, allowing the publicly traded REIT to issue, from time to time, unsecured short-term debt securities with varying maturities. According to HCP, funds available through the commercial paper program can be borrowed, repaid and re-borrowed from time to time, with "the maximum aggregate face or principal amount of notes outstanding not to exceed $1 billion at any one time." The proceeds of the notes will be used for general corporate purposes, and HCP expects to use its revolving credit facility as a liquidity backstop for the repayment. For more information, please visit HREInsights.com.

Ken Smondrowski joins Transwestern's healthcare team in Greater D.C., region

BETHESDA, Md. -- Houston-based Transwestern Commercial Services (TCS) has hired Ken Smondrowski as VP -- Healthcare Advisory Services. In his role with TCS, Mr. Smondrowski is based in the company's Washington, D.C., area office in Bethesda and will advise owners and users of MOB space on portfolio management, asset acquisition and disposition, and lease negotiation and administration. Prior to joining TCS, Mr. Smondrowski was with Bethesda-based Health-Pro Realty Group, where he focused on transactions in the D.C. region. "I'm excited to combine my experience with the talented professionals on (TCS') national Healthcare Advisory Services team...," Mr. Smondrowski said. For more information, please visit HREInsights.com.

SPECIAL FEATURE

Trending healthcare industry news

What's making headlines around the web this week 

■ In what might be considered the calm before the storm, all is still relatively quiet on the hospital construction front in Florida. A recent article in Construction Dive notes that even though there was widespread belief that once Florida's CON law came off the books, as it did on July 1, 2019, there would be a surge in new hospital and healthcare construction projects. However, such a surge -- or even numerous announcements about new projects -- has yet to materialize. Even so, Liz Dudek, director of healthcare affairs in the Tallahassee, Fla., office of international law firm Greenberg Traurig, told Construction Dive that she has a "general sense" that a number of providers are indeed considering new hospital projects in Florida now that they don't have to adhere to the restraints of the CON, which allowed the approval of new projects just twice per year. "(Providers) might feel that they can select the right location and build whatever the right mix of services is for them," said Ms. Dudek, who previously served a long tenure with Florida's administrator of the CON law, the Agency for Health Care Administration (AHCA). "[They can] make it all the things that it needs to be." Ms. Dudek noted that healthcare construction activity was robust prior to the repeal of the CON law, fueled, in large part, by a strong economy. She adds that it is still too early to tell whether the repeal of the CON law, which has a goal of keeping healthcare costs in check, will actually lead to a spate of new construction. For more information, please visit ConstructionDive.com.

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