The fourth quarter resulted in the largest
medical office building sales volume in
United States history, leading to a
record-setting year for medical office
building investment volume.
Approximately $8.3 billion in transaction
volume was reported by Real Capital
Analytics in 2014, making it the most
active year in the medical office building
industry’s history. The annual transaction
volume represents a 27.8 percent increase
from the prior year’s record-setting
volume of $6.5 billion.
This past year also saw one of the most
competitively priced medical office
building markets in history. The average
cap rate during the year was 7.1 percent,
which was the lowest since the 6.9
percent average in 2007, a time when the
market was at its peak. A favorable
financing environment, highlighted by
historically low interest rates, helped drive
demand in a highly competitive market.
Lack of available product and yield
compression across virtually all
commercial real estate asset types
resulted in demand for medical office
buildings that significantly outweighed
supply and facilitated aggressive pricing
among buyers.
In recapping a record-setting year in the
medical office building industry, several
key transactions are worth highlighting:
PinnacleHealth Portfolio Monetization
PinnacleHealth completed the largest
healthcare real estate monetization
HAMMOND HANLON CAMP LLC
Medical Office Building Quarterly Update
posted on February 26, 2015
Mega Deals Push Medical Office
Investment Volume to an All-Time High
transaction by a hospital system in recent
years. In the first phase of the
PinnacleHealth portfolio monetization
process led by H2C, five medical office
buildings and one hospital with a
combined total of 645,225 square feet
were sold for $132 million. The second
phase consisted of the $43 million sale of
three properties, two of which are located
on the campus of Community General
Osteopathic Hospital, a 200-bed acute
care hospital located in a suburb of
Harrisburg. The successful completion of
the first and second phase brought the
total size of the portfolio monetization to
$175 million.
NorthStar Realty Acquires Griffin-
American Healthcare REIT II
NorthStar Realty Finance Corp. made a
notable entry into the medical office
sector with the acquisition of Griffin-
American Healthcare REIT II on December
3, 2014. NorthStar Realty acquired all of
the outstanding shares of Griffin-
American in a stock and cash transaction
valued at $4 billion. The portfolio totals
289 properties, of which 127 are medical
office buildings. The deal follows
NorthStar’s $1 billion acquisition of a
seniors housing and skilled nursing
portfolio announced in March.
Ventas Acquires American Realty
Capital Healthcare Trust
Ventas, Inc. (NYSE: VTR), the nation’s
largest healthcare REIT, acquired
American Realty Capital Healthcare Trust
Inc. (Nasdaq: HCT). The $2.6 billion deal
was announced on June 2, 2014 and
closed on January 19, 2015. American
Realty Capital’s portfolio featured 78 MOBs, 29 seniors housing communities, 13 senior housing leased properties, 14 skilled nursing facilities, seven hospitals and two land parcels. The acquisition was a strategic fit for Ventas as it not only added over four million square feet to the company’s real estate portfolio, but also enhanced its client base with over 20 new health systems.
CNL Healthcare Trust Acquires Medical Office Portfolio
During the fourth quarter, CNL Healthcare Trust acquired a portfolio of nine Class A medical office buildings from Meadows and Ohly. Located throughout North Carolina and Georgia, the portfolio is comprised of 881,726 square feet. The$238 million transaction is among the largest medical office building transactions in the U.S. in 2014.
Healthcare Trust of America Acquires Medical Office Portfolio
Scottsdale, Arizona-based Healthcare Trust of America (NYSE: HTA) acquired a portfolio of six medical office buildings during the second quarter of 2014 from ProMed Properties. The buildings, located in Boston, Baltimore and Miami, comprise about 440,000 square feet. The total transaction price of about $200 million corresponds to a price per square foot of about $450.
During 2014, medical office building sales
saw their largest annual transaction
volume in history. Throughout the past
year, $8.3 billion in transactions were
reported, which significantly exceeded the
$6.5 billion in transaction volume during
2013. A total of $3.4 billion in transactions
was reported in the fourth quarter of 2014,
representing the most active quarter in the
history of the medical office building
sector.
medical office cap rates now exceed office
cap rates by only 40 basis points. The
average price per square foot during the
year was $236, a significant increase from
the prior year’s average of $225.
The strong demand for the medical office
building sector remains evident in the
year’s pricing metrics. The average cap
rate for medical office buildings during
2014 was 7.1 percent, which was slightly
more aggressive than the prior year’s cap
rate of 7.3 percent and significantly more
aggressive than the average cap rate of 7.9
percent from two years prior. The spread
between cap rates in medical office and
office properties continued to tighten and
Investment Sale Volumes and Pricing Trends
MOB Sales Volume in Thousands and Cap Rates Trends
is physically connected via sky-bridge to
the hospital and is 97 percent occupied by
a diverse group of healthcare tenants,
including an ambulatory surgery center
leased by Adventist Health.
Healthcare Trust of America, Inc. acquired
the St. Francis Medical Pavilion in
Honolulu, Hawaii from Pacific Medical
Buildings. The seven-story, 92,560 square
foot building sits on seven acres and
features 780 parking spaces. The building
is 86 percent occupied and is located on
the campus of the Liliha Kupuna Village, a
199-bed skilled nursing facility. The
transaction price of $60 million
West Region
corresponds to an astounding $648 per
square foot.
CNL Healthcare Trust acquired the Lee
Hughes Medical Building, a 76,758 square
foot Class A medical office building for
approximately $29.9 million. Built in 2008,
the building is located on the campus of
the 500-bed Glendale Adventist Medical
Center in Glendale, California. The building
4Q14
Industry Rate Benchmark Trends
Southwest Region
Cap Rate Trends
Olympus Ventures, a family office located in
Minneapolis, Minnesota, acquired the Red
Rocks Medical Center from Development
Solutions Group. The 117,649 square foot
medical office building is located in Golden,
Colorado and is primarily leased by HCA
HealthOne and National Jewish Health. The
transaction price of $52 million corresponds to a per square foot price of $442.
MB Real Estate acquired a portfolio of three
medical office buildings from Healthcare Trust of America, Inc. The three medical office
buildings are located in Sun City, Arizona and
total 131,420 square feet. Major tenants
include Cigna Medical Group and Restora
Healthcare. The transaction price of $42
million equates to $320 per square foot.
Price per Square Foot Trends
ABOUT HAMMOND HANLON CAMP LLC
Hammond Hanlon Camp LLC (“H2C”) is a healthcare-focused
strategic advisory and investment banking firm with a
dedicated real estate advisory and transaction practice.
With offices across the country in New York, Chicago, Atlanta,
and San Diego, H2C is uniquely positioned to help your
company meet its financial goals. The firm’s principals have
been lead advisors on billions of dollars of transactions in the
healthcare industry, offering the experience and industry
knowledge to achieve the most favorable results.
The H2C approach has resulted in loyal clients and
longstanding relationships. Please contact one of our senior
professionals today to find out how we can help your company.
NEW YORK
623 Fifth Avenue
29th Floor
New York, NY 10022
212.257.4500
ATLANTA
3333 Piedmont Road
Suite 700
Atlanta, GA 30305
404.937.1350
SAN DIEGO
11682 El Camino Real
Suite 320
San Diego, CA 92130
858.242.4800
CHICAGO
311 South Wacker Drive
Suite 5425
Chicago, IL 60606
312.508.4200
HCP, Inc. (NYSE: HCP) acquired two medical
office buildings from Meridian Realty. The
two buildings are located in Louisville,
Kentucky and comprise 321,325 square
feet. The transaction price of $50.5
represents a 10 percent increase over the
2007 transaction price of $45.9 million.
Physicians Realty Trust acquired a portfolio
of 12 medical office buildings from Columbus Regional Health. The transaction was structured as a partial sale-leaseback. The portfolio is comprised of 274,181 square feet and is located throughout Alabama and Georgia. The $31.2 million transaction price represents a cap rate of about 8.1 percent.
REAL ESTATE INVESTMENT BANKING PRACTICE
The real estate investment banking professionals at H2C have
successfully served as advisor for over 20 years on real estate
transactions in excess of $10 billion nationwide.
For more information on our real estate advisory group, please
contact one of the following H2C professionals:
Philip J. Camp
Principal
212.257.4505
John P. Nero
Vice President
212.257.4502
Mid-Atlantic/Northeast Region
Jay J. Miele
Managing Director
212.257.4515
Sean J. Gilbert
Senior Analyst
212.257.4511
Massachusetts-based real estate developer,
Waterstone Development, bought a
252,000 square foot medical office building in Manhasset, New York and leased it to North Shore-LIJ Health System. North-Shore LIJ Health System will enter into a 30-year lease, after which, Waterstone will convey the building to the health system. The Class A medical office building had asking rent of $35 per square foot, however the health system’s new lease is for substantially less. North Shore LIJ will be adding additional doctors’ offices and other outpatient services to the Manhasset building.
CNL Healthcare Trust expanded its
footprint in New England with the
acquisition of the Newburyport Medical
Center. The Newburyport Medical Center is a 43,280 square foot, Class A, multi-tenant medical office building located in suburban Boston. Built in 2008, the property is 100 percent occupied. The transaction price of $18 million,
represents a cap rate of 6.8 percent.
quarter. American Realty Capital Healthcare Trust II, Inc. completed the acquisition of three medical office buildings from a private buyer. The three properties total 165,000 square feet and are located throughout Indiana. The acquisition price of $46 million
corresponds to a cap rate of 6.5 percent.
Health Care REIT (NYSE: HCN) completed
the sale-leaseback of the Nasseff Specialty
Center from Allina Health System. The
119,199 square foot facility is located in St.
Paul, MN and will be 100 percent occupied
by Allina Health System. The transaction
price of $34.0 million represents a price per
square foot of $286, which exceeds the
national average of $235 per square foot
by over 20 percent.
Midwest Region
Southeast Region
The Midwest region experienced the
largest medical office building sales volume throughout the country during the fourth