Just when it looked like cap rates for MOBs could not go any lower – following a sale in mid-2021 that took place at what was then an all-time record low of 3 percent – a sale took place in early 2022 at an even lower first-year estimated yield.
In January, according to the Healthcare Capital Markets team with Jones Lang LaSalle Inc. (NYSE: JLL), which represented the undisclosed private seller, Houston-based Lionstone Investments acquired the 146,510 square foot Newport Lido Medical Center, a complex with two MOBs.
According to industry sources, the price was about $125 million, or about $853 per square foot (PSF).
The cap rate, according to sources, was an estimated 2.75 percent, about 25 basis points lower than what was believed to be the previous all-time low MOB cap rate of 3 percent, recorded in mid-2021. In that deal, a partnership of Media, Pa.-based Anchor Health Properties and Morgan Stanley Real Estate Investing acquired an MOB in Burlingame, Calif., for $64.4 million.
According to the Healthcare Capital Markets team with Jones Lang LaSalle Inc. (NYSE: JLL), which represented the undisclosed private seller and did not provide details about pricing, the property is one of Southern California’s premier medical office building (MOB) complexes.
JLL Senior Managing Director that the offering of the two-MOB Newport Lido Medical Center, which is on the campus of the 434-bed Hoag Hospital Newport Beach (Aa3 rating from Moody’s), garnered strong interest from numerous investors.
“We were anticipating very strong interest,” Kovac says. “But the strong bids and the final pricing far exceeded what we expected. We ended up receiving 20 offers, and there were three or four rounds of very aggressive bidding.”
Although JLL would not comment, industry sources say Lionstone acquired the facility on behalf of West Sacramento, Calif.-based CalSTRS (the California State Teachers’ Retirement System), which is looking to acquire more medical and life science facilities and is the largest education-related pension program in the world and the second-largest pension fund in the United States. It has about $306.7 billion in assets.
The reason for the strong interest?
“This has long been considered the premier medical office property in Southern California, maybe on the West Coast,” Mr. Kovac adds. “It is fully occupied with 50 tenants, including many of the best doctors and physician groups in the area, and basically has been fully occupied for decades. Hoag Hospital occupies about 15 percent of the space and would take more, but tenants rarely, if ever, leave the buildings.”
Located at 351 and 361 Hospital Road, Newport Lido Medical Center includes two surgery centers: Hoag Hospital Newport Beach Surgery Center and Prime Surgical Center. The facilities were built in 1963 and 1991 and renovated several times over the years.
The seller owned the properties for more than 30 years.
According to JLL’s offering memorandum released in 2021, 34 percent of the leases in the two-MOB complex are “rolling (over) in 2022,” meaning the new buyer has the “opportunity to immediately increase the in-place rents, which are below the current fair market for comparable properties.”
JLL’s team also included Senior Managing Director Andrew Milne, Managing Director John Chun and Director Matt DiCesare, with support from Niema Beglari, Trent Jemmett and Chad Prescher. Blake Bokosky and Mark DeGiorgio in JLL’s Orange County office provided “local expertise.”
John B. Mugford
Healthcare Real Estate Insights
Phone | 952.210.5840