MINNETONKA, MN-As commercial real estate in general continues to go through rather tough times, medical office buildings and other types of outpatient healthcare facilities remain the darlings of many investors, including large institutions, real estate investment trusts and various equity funds and partnerships. In fact, so much money is chasing healthcare properties that many professionals say there will be shortage of available properties to meet demand. And that should keep pricing very strong for MOBs and other healthcare products in 2013.
“Cap rates should remain stable in 2013 with the best and newest (facilities) commanding sub 7% cap rates,” says Philip B. Mahler, a managing director with investment banking firm Savills in New York. “Older buildings on campus will still trade, but somewhere in the 7% to 8% range.”Others say the stability of medical tenants and the growing outpatient needs of health systems will continue to make MOBs an investment target. As an example of one company looking to sink a lot of capital into healthcare real estate in 2013, New York-based unlisted REIT ARC Healthcare Trust, which spent more than $500 million on such assets in 2012, plans to spend more than a $1 billion in the sector in 2013. This is just one example of many investors hungry for healthcare real estate.
According to preliminary statistics released in early 2013 by New York-based research firm Real Capital Analytics Inc., 2012 could end up having the highest total MOB sales volume for any year since the firm started tallying such figures in 2001.
As of recent weeks, RCA’s preliminary MOB sales volume total for all of 2012 topped $5 billion, including pending Q4 deals. RCA’s quarterly and yearly sales volumes include deals of $5 million and more. (RCA was preparing to release its final report for 2013 MOB sales in late January.)
Even if 2013 does not end up with the highest sales volume on record, it was certainly a very strong year, as the year-to-date sales volume had topped $4 billion through Q3. That marked just the third time since 2001 that the MOB volume had topped $4 billion in a year – and 2012 saw that total topped through just three quarters.
However, even though a number of sales professionals and investment bankers foresee 2013 as a strong one for sales, they also warn that the recent expiration of a Bush-era capital gains tax break for high-income sellers of real estate could have an effect on sales in the coming year – at least early in 2013.
Thomas W. “Tommy” Tift III, president of Atlanta-based HealthAmerica Realty Group LLC says: “The capital gains tax has gone up by 5% on people that make more than $400,000, and the additional 3.8% Obamacare capital gains tax is in effect … for a total of an 8.8% increase in capital gains. I think this could result in less sales volume this year but more refinancing because interest rates are so low.”
John Mugford is the Editor of Healthcare Real Estate Insights, the nation’s first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.