What’s happening in the medical office building market in 2014?
Data supplied by Real Capital Analytics Inc reveal a slight downturn in early 2014 for sales of medical office properties. That is somewhat surprising considering the very strong 4th Quarter 2013 results for this market segment.
Nationally, we have seen a number of notable sales above the $5 million mark. These include the sale of Rockville, MD based Washington Real Estate Investment Trust (NYSE: WRE) to Chicago based Harrison Street. This transaction developed in tranches, with the final tranches resulting in the transfer of 20 medical office buildings to the buyer in early 2014 .
Other medical office transactions show a relatively steady market developing, with an average price per square foot of $245. That is a slight reduction over year-end 2013. Cap rates around 6.7% are seen in the deals.
Brokerage firms are reporting strong demand. The national healthcare group at CBRE estimates investors have allocated over $8 billion for medical office building transactions in 2014.
Here’s an example concerning the medical office marketplace. I’ve recently worked on a transfer of medical office building interests for a client in Southern California. This complex deal involved three main campus-style buildings on separate parcels as well as a fourth land parcel permitted for a future medical office building.
Our Reed Smith team guided the buyer through the purchase, negotiating the loan documents with a California based fund. We also provided assistance with the finance Head Lease, sublease arrangements and ownership interests of the investors. The intricate consummation of the transfer included a simultaneous land swap as part of the closing process. This was achieved in record time, allowing our buyer to quickly sell off one asset under a separate contract.
While certainly not an everyday transaction, this example demonstrates the length to which investors will reach to purchase desirable medical office properties in strong markets.