H2C INDUSTRY INSIGHTS • REAL ESTATE
3Q20 Medical Office Building Report
Health Systems Make Strategic Moves in Second Full COVID-19-Impacted Quarter
October 29, 2020
Health systems lead third-quarter activity as cap rates show modest compression during a quarter that saw lower transaction volume.
This is H2C’s second quarterly medical office building (“MOB”) report reflecting the full impact of the COVID-19 pandemic. While COVID-19 continues to weigh on transaction volumes, with volumes totaling only $1.6 billion, marking the lowest quarterly transaction volume since Q1 2014, the MOB sector continues to show remarkable resilience in pricing. Average cap rates saw a slight decline of five basis points in Q3 2020, with the average cap rate for MOBs falling to 6.55 percent.
Health system-based activity made up over 25 percent of the transaction volume in the third quarter, with systems selling and acquiring MOBs. Publicly traded REITs continued to be net sellers, continuing a reversal that began in Q2, when REITs switched from transacting as net acquirers. This reversal is notable given that REITs had been net acquirers of MOBs for four years up until the impact of the COVID-19 pandemic. Select REITs continue to monetize non-core assets and have curtailed acquisitions due to depressed stock prices. While many healthcare REITs have seen improvement in stock prices since the depths of the market decline in March 2020, the majority still trade below their Q1 2020 peaks.
Despite the limited transaction volume, MOB transaction pricing continues to hold steady, indicating a sustained level of market interest in the MOB space, particularly from private and institutional investors. As cited in previous H2C reports, investors view the MOB space as a “safe haven,” where assets serve necessary and growing uses in the provision of healthcare. The uncertainty caused by the COVID-19 pandemic seen in other real estate asset classes, such as retail and hospitality, is increasing investor interest in the stability of the MOB space, which benefits from significant long-term tailwinds, such as an aging population and increased healthcare spending.
Philip J. Camp
Brady R. Stern
Matthew T. Tarpley
E. Chris Byrns
Mitchell J. Levine
Stuart L. Gilbert
Evan T. Gaines
212 257 4534
3333 Piedmont Road
Atlanta, GA 30305
ABOUT HAMMOND HANLON CAMP LLC
Hammond Hanlon Camp LLC (“H2C”) is an independent strategic advisory and investment banking firm committed to providing superior advice as a trusted advisor to healthcare organizations and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare mergers & acquisitions, capital markets, real estate, and restructuring transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value. Hammond Hanlon Camp LLC offers securities through its wholly-owned subsidiary H2C Securities Inc., member FINRA/SIPC. For more information, go to h2c.com
H2C REAL ESTATE INVESTMENT BANKING
The real estate investment banking professionals at H2C have successfully served as advisor for over 20 years on real estate transactions in excess of $12.5 billion nationwide. For more information on our real estate advisory group, please contact one of the adjacent H2C professionals.
Kelly T. Duong
Hammond Hanlon Camp LLC
623 Fifth Avenue
New York, NY 10022
311 South Wacker Drive
Chicago, IL 60606
4655 Executive Drive
San Diego, CA 92121