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

 

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

 

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

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.

Southwest Region
Cap Rate Trends
Price per Square Foot Trends

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                        

pcamp@h2c.com                          

 

John P. Nero

Vice President

212.257.4502

jnero@h2c.com

 

Mid-Atlantic/Northeast Region

Jay J. Miele

Managing Director

212.257.4515

jmiele@h2c.com

 

Sean J. Gilbert

Senior Analyst 

212.257.4511

sgilbert@h2c.com

 

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 

healthcare. real estate. redefined.