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Q3 MOB Report

HR/HTA Closing Drives Record Quarter for MOB Pricing

Third quarter data shows record pricing & sales volume but September suggests values may have peaked.

November 2022

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Medical office building (“MOB”) sales volume topped $7.0 billion in the third quarter of 2022, the largest quarterly sales volume in over 15 years, and average cap rates matched the all-time low average cap rate set in the first half of 2022. The immense transaction volume in Q3, which brought annualized volume to $19.7 billion, was a 12-month gross sales volume record. This being said, the sales volume and pricing was bolstered from the large merger that closed in the third quarter and detailed in latter paragraphs between two publicly-traded REITs.

The number of properties exchanged in the second quarter totaled 476, which was a notable increase from the second quarter’s 298 properties, and over 18 percent higher than the number of properties sold on average in 2021. Typically, the number of properties transacted per month in a quarter is near-1/3, with the exception of December which approached 50 percent of the 4th quarter’s volume, however September’s transaction volume was noticeably different than July and August as only 89 (18.7 percent) of the quarter’s volume traded in the quarter. The declination in number of properties transacted doesn’t appear to be driven by closings from the HR/HTA merger as those were spread across several months, but rather a noticeable dropping off in transaction volume likely driven by the Federal Funds rate rising almost 3.0 percent from July to September, one of the quickest hikes in the last ten years. This rise in interest rates appeared to slow down transactions dramatically in September as it negatively impacted cap rates.

At the end of the third quarter, average MOB cap rates of 6.2 percent equated to what a market-based debt yield would be considered in factoring the current interest rate environment (SOFR+200-300), therefore you would expect cap rates to rise.

Source: Based on an H2C analysis of industry data from RCAnalytics.

The record pricing and volume was primarily driven by the closing of the Healthcare Trust of America (NYSE: HTA) by Healthcare Realty Trust (NYSE: HR), and follow-on spinouts of HRE executed as part of the transaction. The closing was for $7.75 billion and 452 properties (does not include non-MOB consideration totaling $3.0B).

HR sold HTA-owned assets as sub-portfolios including a $300.0 million, nine-property portfolio to Nuveen, a package of two MOBs in California to CBRE Investment Managers for $134.8 million and a 120,000-SF MOB to Indiana University Health, among others. The weighted average cap rate of the spinouts was reported by HR at 4.8%, which likely pulled down average MOB cap rates to the all-time low average recorded.

One of the largest healthcare real estate portfolio brought to market and closed in the third quarter was handled by H2C: A 19-property blood plasma collection facility portfolio located across 13 states and closed for a low-six percent cap rate. The closing price will be published when all four tranches close (three of four have closed) but the portfolio garnered interest ranging from institutional private equity firms, healthcare real estate acquirers, net-lease investors and publicly-traded REITs. The deal was ultimately transacted with a newer entrant to the healthcare real estate space, highlighting the strong demand for healthcare real estate assets from new entrants due to the perceived “stickiness” the tenants offer.

Source: Based on an H2C analysis of industry data from RCAnalytics.

Health system real estate activity continues to pick up and was highlighted in the third quarter with Memorial Sloan- Kettering acquiring its MOB in Manhattan totaling 110,000 square feet for $185.5 million ($1,682 per square foot). The purchase was from the developer of the building, a New York-based developer, and it continues a trend of some health systems acquiring long-term, core assets that are adjacent and/or on-campus. Notably, H2C has led two similar transactions for health systems over the last 12 months.

On the other side of the spectrum, health systems have taken advantage of the record pricing for medical office buildings highlighted by San Diego-based Scripps Health’s monetization of several adjacent-to-campus MOBs to Alexandria to which Alexandria will develop a life science campus utilizing the footprint of the buildings, with Scripps maintaining a minority ownership stake. The short-term sale/partial leaseback provided $106.2 million in proceeds to Scripps Health for three MOBs.

It is expected that health system real estate activity will pick up in the fourth quarter of 2022 and into 2023 as systems re-prioritize strategic initiatives following the COVID-19 pandemic and seek to bolster their cash positions.

Regional Review

The Midwest U.S. had the largest dollar volume of sales in the third quarter with nearly $2.0 billion in transactions. Additionally, three other regions across the U.S. (Southeast, Southwest, and West) saw transactions volumes exceeding $1.0 billion of transaction activity. Notably this marks the first time that multiple regions broke such that threshold within the same quarter. Over 475 properties transacted in the U.S. in the third quarter according to RCA data.

Source: Based on an H2C analysis of industry data from RCAnalytics.

Northeast Region

In September, MedProperties Realty Advisors and Wisconsin-based Physicians Realty Trust acquired Calko Medical Center, a 140,000-square-foot multi-tenant property at 6010 Bay Parkway. The nine-story healthcare facility in Bensonhurst was acquired for $81.5 million or approximately $582 per square foot. Completed in 2013, tenants in the building include Maimonides Medical Center, Brooklyn Surgery Center and Genesis Fertility & Reproductive Medicine. The property also features an emergency center, pathology laboratory and pharmacy.

Also in September, Memorial Sloan Kettering Cancer Center, after purchasing the majority of the Lipstick Building for $300 million, just acquired 90,000 square feet at 321 East 61st Street for $185 million or approximately $2,055 per square foot. Memorial Sloan Kettering moved into the building in 2020. Both deals were aimed to facilitate cost savings, drive operational efficiencies, consolidate staffing and move closer to the main campus.

Mid-Atlantic Region

In September, Heitman acquired Shady Grove Professional Centers I and II, two multi-tenant medical office buildings that total 103,249 square feet in Rockville, Maryland adjacent to the Adventist Healthcare Shady Grove Medical Center. The buildings are 87%-leased to a variety of tenants and are anchored by Capital Digestive Care, Johns Hopkins and independent physician groups. The multi-specialty clinical buildings feature more than 15 medical specialties and ambulatory surgery centers with 18 operating and procedure rooms. Aside from surgery centers, the properties include top specialty practices such as gastroenterology, MRI and imaging, pediatrics, primary care, family care and ophthalmology among others. Located adjacent to the 329-bed Adventist Healthcare Shady Grove Medical Center, the market leading acute care center in the area. The facilities were purchased for a total of $46.8 million or approximately 453 per square foot.

Also, Flagship Healthcare Properties acquired Cary Medical Pavilion for $14.3 million or approximately $199 per square foot. The Properties are located at 101 and 105 SW Cary Parkway and measure a total of 71,900 square feet. They house the Cary Dermatology Center, Wake Ophthalmology Associates, Select Physical Therapy, Synergy Face & Body spa and various other doctor and medical offices. The two buildings are only a mile and a half from WakeMed Cary Hospital.

West Region

In August, CIT, a division of First Citizens Bank, served as lead arranger for $67.5 million in financing for the acquisition and future expansion of the Northwest Specialty Hospital in the Greater Spokane market region. The property consists of a multi-specialty surgical hospital with 32 beds, eight operating rooms, two procedure rooms, two anesthesia recovery units, an endoscopy center and a connected 36,000-square-foot medical office building located in Post Falls, Idaho, part of the Greater Spokane market.

Also, Catalyst Healthcare Real Estate (Catalyst) and National Real Estate Advisors, LLC (National) acquired the Great Falls Clinic Campus, a 244,500 square foot, three-building campus in Great Falls, Montana. The campus currently consists of a surgical hospital, an ambulatory surgery center (ASC), and a medical office building (MOB). The surgical hospital is undergoing a 58,800 square foot expansion that will increase the number of in-patient and ICU beds while enhancing other inpatient services. The ASC recently completed a renovation project adding an operating room, bringing the total count to four. The 108,000 square foot MOB is attached to the surgical hospital and provides services including imaging, oncology, and orthopedics. All three assets are master leased to the Great Falls Clinic and are strategically located to provide a variety of healthcare services to the Central Montana Region. The $63 million expansion project will provide tremendous growth opportunities for the Great Falls Clinic to meet the growing demand for healthcare services in Montana.

In September, Agora Realty & Management (Agora) acquired a 75,000-square-foot medical office building, Tarzana Medical Plaza, located at 5525 Etiwanda Avenue in San Fernando Valley. The three-story building is 90 percent occupied, with tenants that include Providence Healthcare Systems, Cedars-Sinai Medical Care, and Unilab Corporation. Agora acquired the building for $30 million or for approximately $400 pre square foot. Agora will complete an interior and exterior renovation to upgrade the value-add opportunity. The interior renovation will include upgraded elevator cabs, modern corridor finishes, lighting upgrades, expanded and renovated lobby areas with enhanced wayfinding. The team will also add solar panels to reduce operating costs. The building is strategically located next to the new Providence Cedars-Sinai Tarzana healthcare campus set to open April of 2023, with access directly into the hospital.

Southwest Region

In September, Big Sky Medical acquired Pyramid Towers, a two-building office facility located in Dallas, Texas. Comprised of 291,328 rentable square feet, the acquisition marks the largest medical office asset to trade hands in the state since 2018. Located just south of the North Central Surgical Hospital and Carrell Clinic Center, Pyramid Towers has established itself as a strategic location for Baylor, Scott & White Health Systems and Dallas Plastic Surgery Institute. Big Sky will maintain a strong focus on repositioning the asset through capital improvements including spec suites, lobby upgrades and restroom renovations.


Also, The Pima Medical Institute Building at 2121 N Craycroft Road in Tucson sold for $23.0 million or approximately $307 per square foot in a sale leaseback agreement. The buyer was Realty Income Corporation REIT. The 74,815 square-foot building was constructed in 1985 on what later became the Pima Medical Institute Flagship campus encompassing 50,000 square-foot in buildings and a 25,000 square- foot courtyard. The former school was repurposed and the interior completely remodeled to showcase large classrooms, spacious study areas, real-world labs and training facilities as well as a nursing simulation lab with arena seating. Pima Medical Institute (PMI) is an employee-owned, private, accredited medical career college.

Midwest Region

In August, MedCraft Investment Partners acquired Prairie Commons Medical Office Building located at 3563 Prairieview Street, Grand Island, Nebraska for $25.6 million or approximately $416 per square foot. The 61,515 square foot, multi-tenant medical office building was completed in 2022 and sits on 4.55 acres located on the new Grand Island Regional Medical Center campus. The Grand Island Regional Medical Center is a regional hub for healthcare, retail, office and seniors in the community. The new, on-campus MOB is a multi-tenant building anchored by two collaborative health systems, Mary Lanning Memorial Hospital and Bryan Health, and is a destination campus for oncology care. The Class A building was developed by Chief Industries.

Also in August, Global Medical REIT acquired a three-building medical office complex totaling 110,780 square feet in Toledo for $17.2 million or approximately $155 per square foot. The Regency Medical Campus features a surgery center, exam rooms, numerous physician and patient amenities. The campus offers mission critical care facilities strategically located in a heavy residential area with great access to a large surrounding patient base and four major hospitals (Anne Mercy Hospital, Promedica Toledo Hospital, Flower Hospital in Sylvania, and The University of Toledo Medical Center). The investment presents a stable investment with entrenched tenancy and easily accessible locations. The facilities offer significant improvements and fixtures imperative to the care offered, specifically a comprehensive surgery center (11% of total portfolio square feet) which several tenants utilize for their specific practice. The facilities include extensive exam rooms, numerous physician and patient amenities and well-appointed waiting and treatment areas.

Southeast Region

In August, Big Sky Medical acquired Swaid Vestavia Medical Center, a multi-specialty medical facility located at 1021 Montgomery Highway, Vestavia Hills, AL for $27.2 million or approximately $679 per square foot. The new construction facility spans 40,000 square feet and consists of an ambulatory surgery center and medical office space. Tenants at the property include the Surgical Institute of Alabama, Vestavia Diagnostics, Swaid Clinic, Bramlett Orthopedics, Birmingham Vascular Associates, Pain Management Services, Lab First and Champion Physical Therapy.

In September, AW Property Company acquired Woolbright Medical Plaza, two institutional-grade medical office buildings totaling 33,154 square feet in Boynton Beach, Florida. Located at 1700 and 1800 Woolbright Road, Woolbright Medical Plaza is positioned less than a mile from the 401-bed Baptist Heath Bethesda Hospital East, part of the largest health system in South Florida. Furthermore, the property is near Boulevard Rehabilitation Center, HCA Florida JFK Hospital, Delray Medical Center and Bethesda West Hospital. Woolbright Medical Plaza is 93% leased to a variety of nationally and locally recognized physician groups providing radiology/imaging, ENT, primary care, dentistry and physical therapy services. Anchor tenants include Akumin Corp., ENT Associates of South Florida and Kindred Healthcare. TopMed, the seller, successfully converted and rebranded the office complex to a medical office plaza and increased the occupancy from 63% to 93%.

About H2C Securities Inc. ("H2C")

H2C is a strategic advisory and investment banking firm committed to providing superior advice to healthcare organizations, higher education institutions, andrelated companies throughout the United States. H2C’s professionals have a long track record of success in healthcare and higher education mergers and acquisitions, capital markets, and real estate transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value.

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