In the first quarter of 2016, there were 163 transactions of medical office buildings totaling more than $1.8 billion in volume, according to estimates by CBRE, the nation’s largest real estate services provider, in its latest “National Healthcare Real Estate Investor Update.”
By far the largest transaction occurred last January, when a joint venture between Chicago-based Heitman Capital and Denver-based NexCare Group paid $199 million to acquire the 227,628-sf First Hill Medical Pavilion in Seattle.
That facility, which last year underwent an extensive renovation and 63,000-sf addition, is positioned adjacent to the Swedish Medical Center campus that’s part of Providence Health & Services healthcare system, which leases 65% of First Hill. (The architect of the reno and expansion was CollinsWoerman; the GC was Lease Crutcher Lewis.)
CBRE observes that the healthcare section continues to be “one of the strongest job generators in the American economy.” Quoting Bureau of Labor Statistics data, CBRE notes that between April 2015 and April 2016, healthcare produced 482,000 jobs, or roughly 18% of the 2.7 million nonfarm jobs formed in the U.S. during that period.
Last year, the number of uninsured Americans stood at 9.1% of the total population, the first time in the country’s history that number had fallen below 10%. Last year’s future compares to 16% in 2010, the year the Affordable Care Act was enacted.
CBRE also points to a recent Accenture study of six years of hospital margin data and patient satisfaction scores. Top-ranking hospitals achieved markets that, on average, were 50% higher than those with average scores. The top hospitals’ revenue growth also outpaced their operating expenses.
The healthcare sector could become even more attractive to certain investors after new regulations went into effect in April that mandate greater transparency and disclosure for non-traded REITs in such areas as per-share valuation and dividend distribution.
The new regs prohibit the public offering of securities of a REIT or direct participation program unless the sponsor agrees to annually disclose (at a minimum) the per-share value of each security.
“Investors of non-traded healthcare REITs now stand to benefit from these regulations aimed at fundamentally revising this investment product that has long been characterized with nontransparent share prices and high commissions,” CBRE writes. “Healthcare real estate is still very much in demand and will continue to attract broker-dealers to offer the non-traded REIT products. The existing sponsors in the market are expected to continue to thrive while making it more difficult for new sponsors to enter the space.”
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