G&L Realty recently sold a portfolio of 8 medical office buildings to a partnership between Health Care REIT (NYSE: HCN) and the Canadian Pension Plan Investment Board (CPP). The partnership, 55% owned by HCN and 45% by CPP will initially own 50.5% of the portfolio. The other 49% is comprised of operating units sold to G&L for $78/share – a 13% premium to HCN’s closing price on August 4. By all accounts, this is CPPS first entry into the US MOB market.
The interesting things about this deal, however, are the pricing and location of these assets. The total value of the deal was $449M for the 8 properties comprising 437,895 square feet. This works out to $1,025 per square foot which makes it the highest priced publicly announced MOB deal (per SF) this year. In their 2Q15 supplemental, HCN reported the initial yield to be 5.8%.
All 8 properties are located in southern California – 2 are located in LaJolla, 2 in Tustin and 4 in Beverly Hills. With the purchase, HCN said it will own over half of the medical space in Beverly Hills. Scott Brinker, HCN’s Chief Investment Officer said that the assets are concentrated in the golden triangle of Beverly Hills. He also said that Beverly Hills has a moratorium on medical space and that because of supply constraints, rents in these buildings have increased by 6% per year over the past decade. Revista data shows current asking rents around these buildings of $77 per SF.
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