A company affiliated with Baptist Health South Florida just paid $11.3 million for a medical office property directly across from the hospital.
Baptist Health Enterprises bought the 43,000-square-foot Plaza Galloway at 9055 Southwest 87th Avenue for $263 per square foot.
Plaza Galloway sold the five-building property, which is managed by Joanne Mitchell. Plaza Galloway initially bought the property for $2.5 million in 1999, records show.
Baptist Health South Florida is led by Brian Keeley and operates 10 hospitals, along with a network of more than 50 outpatient facilities. The non-profit hospital company has been aggressive in acquiring real estate in South Florida in recent years. Baptist Health did not immediately respond to a request for comment.
Paul Silverstein of RE/MAX Advance Realty’s Commercial Division represented the seller in the transaction.
The property sits on 2.93 acres and was built in 1973. The project is one of the last remaining redevelopment opportunities near the hospital complex, according to a press release.
Baptist Health is also under contract to pay $41.5 million for the development site of the Collection Residences in Coral Gables, court documents show.
Baptist Health has been expanding throughout South Florida in recent years. It recently opened a four-story, 60,000-square-foot outpatient facility at Crescent Heights’ mixed-use development at 709 Alton Road in Miami Beach.
Source: The Real Deal
Plaza Galloway sold the five-building property, which is managed by Joanne Mitchell. Plaza Galloway initially bought the property for $2.5 million in 1999, records show.
Baptist Health South Florida is led by Brian Keeley and operates 10 hospitals, along with a network of more than 50 outpatient facilities. The non-profit hospital company has been aggressive in acquiring real estate in South Florida in recent years. Baptist Health did not immediately respond to a request for comment.
Paul Silverstein of RE/MAX Advance Realty’s Commercial Division represented the seller in the transaction.
The property sits on 2.93 acres and was built in 1973. The project is one of the last remaining redevelopment opportunities near the hospital complex, according to a press release.
Baptist Health is also under contract to pay $41.5 million for the development site of the Collection Residences in Coral Gables, court documents show.
Baptist Health has been expanding throughout South Florida in recent years. It recently opened a four-story, 60,000-square-foot outpatient facility at Crescent Heights’ mixed-use development at 709 Alton Road in Miami Beach.
Source: The Real Deal
Paul Silverstein of RE/MAX Advance Realty’s Commercial Division represented the seller in the transaction.
The property sits on 2.93 acres and was built in 1973. The project is one of the last remaining redevelopment opportunities near the hospital complex, according to a press release.
Baptist Health is also under contract to pay $41.5 million for the development site of the Collection Residences in Coral Gables, court documents show.
Baptist Health has been expanding throughout South Florida in recent years. It recently opened a four-story, 60,000-square-foot outpatient facility at Crescent Heights’ mixed-use development at 709 Alton Road in Miami Beach.
Source: The Real Deal
Baptist Health is also under contract to pay $41.5 million for the development site of the Collection Residences in Coral Gables, court documents show.
Baptist Health has been expanding throughout South Florida in recent years. It recently opened a four-story, 60,000-square-foot outpatient facility at Crescent Heights’ mixed-use development at 709 Alton Road in Miami Beach.
Source: The Real Deal
Source: The Real Deal
Hospitals often view their medical office building (MOB) investments differently than doctors that own their medical facilities. Doctors can build equity owning MOB’s during their career, with an expectation to cash out equity near retirement by either selling to a practice partner based on a market appraisal, or by structuring a Sale/Leaseback transaction with an investor to create a higher net present value of the MOB asset.
Hospitals typically have more complex issues to assess. Most have an investment portfolio consisting primarily of equities. Some hospitals consider MOB’s to be part of their investment portfolio. Other health care systems do not, and view their MOBs strictly from an accounting standpoint as an operating asset. A hospital system typically owns buildings they occupy with other owned MOBs rented to doctors and other health care providers.
Owner-Occupied MOBs
Hospital-occupied medical office buildings are good candidates for sale/leaseback transactions to monetize value in cases where the hospital has limited access to capital for property improvements, expansion or to free up cash to fund operations. However, it is not always necessary for health care providers to monetize owner/occupied MOB’s if they have strong credit with good access to capital at reasonable rates.
Tenant-Occupied MOBs
Hospital-owned, tenant occupied MOB’s have recently become a higher priority to sell for several reasons. MOBs are investments that tie up hospital capital that could more effectively be utilized on more strategic investments. Vacant MOB spaces provide zero-to-negative returns on this capital. Due to soft office market conditions across the US, many hospitals have increased vacancies with the opportunity cost of this capital tied up in their MOBs.
The estimated value of MOB holdings is added to the health care provider’s investment portfolio which hospitals use to analyze “MOB holdings percentage” of total investment. When the ratio of “MOB Holdings” as a percentage of total portfolio assets increases, portfolio risk also increases from an investment perspective due to the lack of geographic and industry diversification inherent in MOBs. This is especially true if patient volumes decrease as is the case currently in many markets. There are significant concerns today when effects of our uncertain economic conditions combine with uncertainty posed by health care reform. Special attention to safe diversification of the hospital’s overall investment portfolio is warranted.
Sale/leaseback of select hospital occupied buildings and/or straight sales of tenant occupied buildings can provide that asset diversification and improve the cash positions at a time when cash can be utilized to take advantage of more strategic opportunities.
An example of this strategy can be seen in the transaction where Carle Foundation Hospital sold its 92,000 sf MOB in Bloomington, IL for $24.25 million or $264 per square foot at an 8.5% cap rate, according to Robert Tonkinson, former CFO of the Carle Foundation based in Urbana, Illinois.
New Statutes: Stark Law
Two new statutes recently enacted by Congress will bring greater governmental scrutiny and action. Enforcement of these rules will cause headaches for hospitals and will likely motivate many to consider exiting commercial real estate or forming strategic partnerships with MOB real estate specialists. The “ 2009 Fraud Enforcement and Recovery Act” (FERA) and the “Patient Protection and Affordable Care Act” (PPACA) will have an impact on a hospital’s decision to self-disclose Stark Law violations related to hospital-physician leasing arrangements.
The impact of these rules on MOBs could be significant and cause many health care firms to sell their MOBs to third parties, if only to avoid the potential risks. Hospitals that wish to retain their MOB interests may consider outsourcing MOB management to commercial MOB specialists as an added layer of insulation from Stark Law liability. The most transparent and savvy way out of this newly heightened government scrutiny, however, may be to monetize MOB’s with sales or sale/master leasebacks. This avoids the inherent potential conflict posed by a doctor that refers patients to a hospital, and later asks the same hospital for six months free rent to sign a new lease. In this situation, the negotiation is driven by Federal Health Care Regulations with heavy fines awarded to hospitals that don’t live within these strict rules that are designed to protect patients by elimination of waste, fraud and unfairness within the federal healthcare reimbursement system. When a doctor asks a private investor MOB owner for six months free rent to sign that same new lease next to the hospital, it becomes a simple business decision driven by market forces, without the negative baggage of perceived conflicts of provider-owned MOBs.
MOB Values Up
The Deaconess Clinic of Evansville, Indiana sold five MOB’s totaling 260,500 sf for $45.26 million or $174 psf at an 8.25% cap rate in March 2010 using a 14-year term master lease back. According to Real Capital Analytics, the average annual sale price for MOB sales in major cities across the country of $5 million and up, has risensteadily from$140 psfin 2002 … to $218 psf at the top of the overheated market in 2006 … to $226 psf by the end of the second quarter of 2010.
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
Owner-Occupied MOBs
Hospital-occupied medical office buildings are good candidates for sale/leaseback transactions to monetize value in cases where the hospital has limited access to capital for property improvements, expansion or to free up cash to fund operations. However, it is not always necessary for health care providers to monetize owner/occupied MOB’s if they have strong credit with good access to capital at reasonable rates.
Tenant-Occupied MOBs
Hospital-owned, tenant occupied MOB’s have recently become a higher priority to sell for several reasons. MOBs are investments that tie up hospital capital that could more effectively be utilized on more strategic investments. Vacant MOB spaces provide zero-to-negative returns on this capital. Due to soft office market conditions across the US, many hospitals have increased vacancies with the opportunity cost of this capital tied up in their MOBs.
The estimated value of MOB holdings is added to the health care provider’s investment portfolio which hospitals use to analyze “MOB holdings percentage” of total investment. When the ratio of “MOB Holdings” as a percentage of total portfolio assets increases, portfolio risk also increases from an investment perspective due to the lack of geographic and industry diversification inherent in MOBs. This is especially true if patient volumes decrease as is the case currently in many markets. There are significant concerns today when effects of our uncertain economic conditions combine with uncertainty posed by health care reform. Special attention to safe diversification of the hospital’s overall investment portfolio is warranted.
Sale/leaseback of select hospital occupied buildings and/or straight sales of tenant occupied buildings can provide that asset diversification and improve the cash positions at a time when cash can be utilized to take advantage of more strategic opportunities.
An example of this strategy can be seen in the transaction where Carle Foundation Hospital sold its 92,000 sf MOB in Bloomington, IL for $24.25 million or $264 per square foot at an 8.5% cap rate, according to Robert Tonkinson, former CFO of the Carle Foundation based in Urbana, Illinois.
New Statutes: Stark Law
Two new statutes recently enacted by Congress will bring greater governmental scrutiny and action. Enforcement of these rules will cause headaches for hospitals and will likely motivate many to consider exiting commercial real estate or forming strategic partnerships with MOB real estate specialists. The “ 2009 Fraud Enforcement and Recovery Act” (FERA) and the “Patient Protection and Affordable Care Act” (PPACA) will have an impact on a hospital’s decision to self-disclose Stark Law violations related to hospital-physician leasing arrangements.
The impact of these rules on MOBs could be significant and cause many health care firms to sell their MOBs to third parties, if only to avoid the potential risks. Hospitals that wish to retain their MOB interests may consider outsourcing MOB management to commercial MOB specialists as an added layer of insulation from Stark Law liability. The most transparent and savvy way out of this newly heightened government scrutiny, however, may be to monetize MOB’s with sales or sale/master leasebacks. This avoids the inherent potential conflict posed by a doctor that refers patients to a hospital, and later asks the same hospital for six months free rent to sign a new lease. In this situation, the negotiation is driven by Federal Health Care Regulations with heavy fines awarded to hospitals that don’t live within these strict rules that are designed to protect patients by elimination of waste, fraud and unfairness within the federal healthcare reimbursement system. When a doctor asks a private investor MOB owner for six months free rent to sign that same new lease next to the hospital, it becomes a simple business decision driven by market forces, without the negative baggage of perceived conflicts of provider-owned MOBs.
MOB Values Up
The Deaconess Clinic of Evansville, Indiana sold five MOB’s totaling 260,500 sf for $45.26 million or $174 psf at an 8.25% cap rate in March 2010 using a 14-year term master lease back. According to Real Capital Analytics, the average annual sale price for MOB sales in major cities across the country of $5 million and up, has risensteadily from$140 psfin 2002 … to $218 psf at the top of the overheated market in 2006 … to $226 psf by the end of the second quarter of 2010.
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
The estimated value of MOB holdings is added to the health care provider’s investment portfolio which hospitals use to analyze “MOB holdings percentage” of total investment. When the ratio of “MOB Holdings” as a percentage of total portfolio assets increases, portfolio risk also increases from an investment perspective due to the lack of geographic and industry diversification inherent in MOBs. This is especially true if patient volumes decrease as is the case currently in many markets. There are significant concerns today when effects of our uncertain economic conditions combine with uncertainty posed by health care reform. Special attention to safe diversification of the hospital’s overall investment portfolio is warranted.
Sale/leaseback of select hospital occupied buildings and/or straight sales of tenant occupied buildings can provide that asset diversification and improve the cash positions at a time when cash can be utilized to take advantage of more strategic opportunities.
An example of this strategy can be seen in the transaction where Carle Foundation Hospital sold its 92,000 sf MOB in Bloomington, IL for $24.25 million or $264 per square foot at an 8.5% cap rate, according to Robert Tonkinson, former CFO of the Carle Foundation based in Urbana, Illinois.
New Statutes: Stark Law
Two new statutes recently enacted by Congress will bring greater governmental scrutiny and action. Enforcement of these rules will cause headaches for hospitals and will likely motivate many to consider exiting commercial real estate or forming strategic partnerships with MOB real estate specialists. The “ 2009 Fraud Enforcement and Recovery Act” (FERA) and the “Patient Protection and Affordable Care Act” (PPACA) will have an impact on a hospital’s decision to self-disclose Stark Law violations related to hospital-physician leasing arrangements.
The impact of these rules on MOBs could be significant and cause many health care firms to sell their MOBs to third parties, if only to avoid the potential risks. Hospitals that wish to retain their MOB interests may consider outsourcing MOB management to commercial MOB specialists as an added layer of insulation from Stark Law liability. The most transparent and savvy way out of this newly heightened government scrutiny, however, may be to monetize MOB’s with sales or sale/master leasebacks. This avoids the inherent potential conflict posed by a doctor that refers patients to a hospital, and later asks the same hospital for six months free rent to sign a new lease. In this situation, the negotiation is driven by Federal Health Care Regulations with heavy fines awarded to hospitals that don’t live within these strict rules that are designed to protect patients by elimination of waste, fraud and unfairness within the federal healthcare reimbursement system. When a doctor asks a private investor MOB owner for six months free rent to sign that same new lease next to the hospital, it becomes a simple business decision driven by market forces, without the negative baggage of perceived conflicts of provider-owned MOBs.
MOB Values Up
The Deaconess Clinic of Evansville, Indiana sold five MOB’s totaling 260,500 sf for $45.26 million or $174 psf at an 8.25% cap rate in March 2010 using a 14-year term master lease back. According to Real Capital Analytics, the average annual sale price for MOB sales in major cities across the country of $5 million and up, has risensteadily from$140 psfin 2002 … to $218 psf at the top of the overheated market in 2006 … to $226 psf by the end of the second quarter of 2010.
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
An example of this strategy can be seen in the transaction where Carle Foundation Hospital sold its 92,000 sf MOB in Bloomington, IL for $24.25 million or $264 per square foot at an 8.5% cap rate, according to Robert Tonkinson, former CFO of the Carle Foundation based in Urbana, Illinois.
New Statutes: Stark Law
Two new statutes recently enacted by Congress will bring greater governmental scrutiny and action. Enforcement of these rules will cause headaches for hospitals and will likely motivate many to consider exiting commercial real estate or forming strategic partnerships with MOB real estate specialists. The “ 2009 Fraud Enforcement and Recovery Act” (FERA) and the “Patient Protection and Affordable Care Act” (PPACA) will have an impact on a hospital’s decision to self-disclose Stark Law violations related to hospital-physician leasing arrangements.
The impact of these rules on MOBs could be significant and cause many health care firms to sell their MOBs to third parties, if only to avoid the potential risks. Hospitals that wish to retain their MOB interests may consider outsourcing MOB management to commercial MOB specialists as an added layer of insulation from Stark Law liability. The most transparent and savvy way out of this newly heightened government scrutiny, however, may be to monetize MOB’s with sales or sale/master leasebacks. This avoids the inherent potential conflict posed by a doctor that refers patients to a hospital, and later asks the same hospital for six months free rent to sign a new lease. In this situation, the negotiation is driven by Federal Health Care Regulations with heavy fines awarded to hospitals that don’t live within these strict rules that are designed to protect patients by elimination of waste, fraud and unfairness within the federal healthcare reimbursement system. When a doctor asks a private investor MOB owner for six months free rent to sign that same new lease next to the hospital, it becomes a simple business decision driven by market forces, without the negative baggage of perceived conflicts of provider-owned MOBs.
MOB Values Up
The Deaconess Clinic of Evansville, Indiana sold five MOB’s totaling 260,500 sf for $45.26 million or $174 psf at an 8.25% cap rate in March 2010 using a 14-year term master lease back. According to Real Capital Analytics, the average annual sale price for MOB sales in major cities across the country of $5 million and up, has risensteadily from$140 psfin 2002 … to $218 psf at the top of the overheated market in 2006 … to $226 psf by the end of the second quarter of 2010.
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
The impact of these rules on MOBs could be significant and cause many health care firms to sell their MOBs to third parties, if only to avoid the potential risks. Hospitals that wish to retain their MOB interests may consider outsourcing MOB management to commercial MOB specialists as an added layer of insulation from Stark Law liability. The most transparent and savvy way out of this newly heightened government scrutiny, however, may be to monetize MOB’s with sales or sale/master leasebacks. This avoids the inherent potential conflict posed by a doctor that refers patients to a hospital, and later asks the same hospital for six months free rent to sign a new lease. In this situation, the negotiation is driven by Federal Health Care Regulations with heavy fines awarded to hospitals that don’t live within these strict rules that are designed to protect patients by elimination of waste, fraud and unfairness within the federal healthcare reimbursement system. When a doctor asks a private investor MOB owner for six months free rent to sign that same new lease next to the hospital, it becomes a simple business decision driven by market forces, without the negative baggage of perceived conflicts of provider-owned MOBs.
MOB Values Up
The Deaconess Clinic of Evansville, Indiana sold five MOB’s totaling 260,500 sf for $45.26 million or $174 psf at an 8.25% cap rate in March 2010 using a 14-year term master lease back. According to Real Capital Analytics, the average annual sale price for MOB sales in major cities across the country of $5 million and up, has risensteadily from$140 psfin 2002 … to $218 psf at the top of the overheated market in 2006 … to $226 psf by the end of the second quarter of 2010.
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
This is not a misprint. We are actually getting higher prices today for large MOBs in major cities than we did at the peak of the real estate cycle just a few years ago. So what’s the catch? Unlike other segments of commercial real estate that have seen falling values, there is exceptional demand today supporting stronger-than-ever values for large MOB’s with strong-credit tenants on long term leases in major US markets.
But what about smaller MOB deals in smaller markets? I personally brokered the sale of 53 MOBs with an average sale price of $1,031,000 per transaction, located in tertiary markets in Florida, North Carolina, South Carolina, Georgia and Illinois from 2002 through the second quarter of 2010. I created the nearby bar charts to compare annual MOB big sales (i.e. $5+ million) in big markets (reported by Real Capital Analytics) to my smaller MOB sales (i.e. $1 million) in small markets over the past nine years. From 2002 through 2005, there was an average MOB price difference of only $20 psf between the big deals/big markets and the small deals/small markets.
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
Over that 2002-2005 period, cap rates for large transactions averaged only 0.6% lower than the small deal/small market prices. But the gap started to widen from 2006 thru 2008, when the big MOB deals averaged $30 psf higher and the cap rates for big deals compressed to average 1.5% lower than the cap rates for the small deals.
There was a striking difference from 2009 through Q2-2010 as big deals in big markets pulled away and averaged $80 psf higher than the small deals in small markets, with the cap rate differential moderating to only 1.1 percent. This condition over the last two years reveals an interesting trend. The more sophisticated investors (like hospital systems) that own big MOB’s in big cities realized that in addition to the other good reasons to sell mentioned previously, the top of market to sell for highest price is actually now, so they are selling.
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
Doctors predominately own smaller MOBs in smaller markets and are somewhat isolated from the realities of the current favorable market condition for MOBs. They have tended to remain on the sidelines during these last two years believing their MOB values are down like the rest of the real estate market, when in fact the opposite is true.
The majority of small MOB sales over the last two years were mostly distressed, vacant properties that sold at very low prices, creating the disparity of $80 psf between large ($5+ million) and small ($1 million) recorded MOB transactions. This should change, however, in 2011as the gap between large and small MOB deals narrows when doctors in smaller markets realize MOBs have escaped the declines of other segments and that now is one of the best times ever to sell medical office space at strong valuations.
Source: South Florida Hospital News
Source: South Florida Hospital News
Florida Hospital leaders broke ground last week on an emergency department that will expand the health care system’s network to better serve residents of Oviedo and surrounding communities in Seminole County.
The emergency department will have 24 patient rooms (including two pediatric-friendly rooms to make ER visits less stressful for young patients); respiratory therapy; diagnostic imaging, including CT scans, X-ray and ultrasound; and a full-service laboratory.
The facility, slated to open in fall 2019, will be staffed by a comprehensive clinical team including board-certified emergency physicians and emergency nurses.
“We are excited to add this ER to our growing network of care,” said Jennifer Wandersleben, CEO of Florida Hospital’s Winter Park Memorial Hospital. “Many Oviedo residents already entrust physicians within the Florida Hospital network with their health care, and we are making it easier to access our emergency services. As we transition to AdventHealth, our mission is to make our patients feel whole — by treating the mind, body and spirit — in a setting that’s close to home.”
The approximately 19,000-square-foot facility, which will be known as AdventHealth Oviedo ER, will be located at 8100 Red Bug Lake Road.
Source: Florida Hospital
The facility, slated to open in fall 2019, will be staffed by a comprehensive clinical team including board-certified emergency physicians and emergency nurses.
“We are excited to add this ER to our growing network of care,” said Jennifer Wandersleben, CEO of Florida Hospital’s Winter Park Memorial Hospital. “Many Oviedo residents already entrust physicians within the Florida Hospital network with their health care, and we are making it easier to access our emergency services. As we transition to AdventHealth, our mission is to make our patients feel whole — by treating the mind, body and spirit — in a setting that’s close to home.”
The approximately 19,000-square-foot facility, which will be known as AdventHealth Oviedo ER, will be located at 8100 Red Bug Lake Road.
Source: Florida Hospital
The approximately 19,000-square-foot facility, which will be known as AdventHealth Oviedo ER, will be located at 8100 Red Bug Lake Road.
Source: Florida Hospital
