Medical office building (MOB) sales have certainly been a bit sluggish since the onset of the COVID-19 pandemic, but not as slow as might’ve been predicted when the crisis first hit.
In fact, according to the latest Revista MOB sales data, the volume was about $2 billion in Q3, matching the $2 billion recorded in Q2. While the Q3 figure is still preliminary, it brings the year-to-date volume for 2020 to about $7.2 billion. It should be noted that Revista’s statistics include only sales involving “pure” MOB outpatient facilities (not administrative buildings) in deals of $2.5 million or more.
“Total volume is actually holding pretty steady,” said Revista Principal Hilda Martin during the firm’s Oct. 20 virtual 3Q Medical Real Estate Update and Outlook. “And if you look at the year-to-date total of $7.2 billion, that’s not far off from last year’s volume of $7.8 billion (through the first three quarters). In fact, a lot of investors, such as Anchor (Health Properties), MBRE, now Remedy Medical Properties, Hammes and Montecito Medical are remaining quite active.”
While the year-to-date volume is indeed stronger than might have been anticipated, Q4 will need to be a strong one for 2020 to keep pace with recent yearly volumes, as Q4 2019’s volume was a very strong $4.3 billion, bringing last year’s total volume to $12.2 billion.
According to Revista statistics, the last five years have seen MOB sales top $10 billion, with the last three years topping $12 billion. The all-time best record volume recorded by Revista was 2017, when MOB sales came in at $15.9 billion.
James Schmid, a managing principal and chief investment officer with Anchor Health Properties, was part of the Revista webinar, along with the company’s CEO, Ben Ochs. The company expects to invest anywhere from $400 million to $500 million in MOB acquisitions in 2020.
“The first half of the year, especially from February through June, saw a very limited among of transactions,” Mr. Schmid said during the presentation. “Some (deals) that had been under contract (prior to the pandemic) traded during that time, but there was a fair amount of disruption in the debt markets. And obviously, the equity REITs traded off for a good portion of that time, so it took a segment of the investment population out of the market.
“But our observation is that for the third quarter and the fourth quarter, people are trying to make up for lost time,” Mr. Schmid continued. “And there was a lot of comfort gained with the performance of MOB owners’ portfolios during that time.”
Mr. Schmid added that he foresees more of a return to “normal, historical volumes” for the remainder of the year and into 2021, with a number of portfolio deals and recapitalizations taking place.
Revista data shows that cap rates have remained fairly steady for MOBs so far in 2019, averaging about 6.4 percent for all deals, with portfolio transactions garnering a premium with an average cap rate of 5.9 percent.
Ms. Martin noted that private equity buyers have dominated the MOB investor pool so far in 2020, accounting for about 80 percent of the volume. Also, single property sales have accounted for about 65 percent of the volume year-to-date.