The sale of the Crystal Run portfolio to Griffin-American was among the year's largest physician group credit transactions.

NEW YORK CITY—In a year that saw the largest volume of medical office building sales on record, prices took a sharp dip before soaring steadily upwards while cap rates ended the year on a downward slant. Cap rates in the MOB sector have been generally trending downward since the fourth quarter of 2012, according to advisory group Hammond Hanlon Camp LLC.

The year prior to 2013 saw MOB sales volume of $5.2 billion nationwide, and HHC says it was unsurprising that last eyar saw that tally surpassed by a wide margin. “Over $6.4 billion in transaction volume was reported by Real Capital Analytics in 2013, making it the most active year in the medical office building industry’s young but growing history,” according to HHC’s quarterly update on the sector. “The annual volume represents over $1 billion in additional transaction volume compared to prior peak volumes of between $5.4 and $5.5 billion in 2006 and 2007.”

Pricing in Q4 averaged $248 per square foot, a year-over-year increase of 12% from $222 per square foot recorded in the last quarter of ‘12. HHC says the average cap rate reported for transactions over $5 million was 7.1% in Q4, “which is slightly lower than last quarter’s average cap rate of 7.3% and significantly lower than a year ago, when cap rates averaged 8.0%.” However, RCA data show that MOB cap rates still have a way to go match those commanded by office and multifamily assets.

HHC says the trend of large trades of investor-owned MOB portfolios, “as opposed to hospital and health system monetizations,” continues to account for the large majority of the transactions announced. The largest of these was Harrison Street Real Estate Capital’s acquisition of substantially all of Washington Real Estate Investment Trust’s MOB portfolio.

Announced in Q3 of last year, “the phased transaction will ultimately total over $500 million and consist of over 1.5 million square feet of medical office space located throughout the greater Washington, DC area,” according to HHC. Along with its size, another notable aspect of the deal is that it “positions Harrison Street as a leader in the DC medical office market and denotes the exit of WRIT from medical office building investment,” as the REIT turns instead toward office, retail and multifamily.

In the Northeast and elsewhere, the second half of ’13 saw an uptick in physician group credit transactions. In one of the most notable, Griffin-American Healthcare REIT II Inc. acquired a six-building MOB portfolio in the Hudson Valley region of New York State for approximately $141 million. The facilities were sold by Crystal Run Healthcare, a physician group practice with more than 300 physicians and 40 specialties, pursuant to a sale-leaseback. “With 360,000 square foot of space, the reported price translates to a price of $391 per square foot, and a reported cap rate of 7.1%,” according to HHC.

Another notable ’13 physician group credit deal cited by HHC was the $40-million sale-leaseback of a surgical hospital and adjacent MOB in El Paso, TX. Physicians Realty Trust, a newly-formed self-managed healthcare properties REIT, announced the acquisition late in Q3. Both facilities are 100% leased by the Foundation Surgical Affiliates, LLC, subject to a new 15-year absolute-net lease for the hospital space and a new five-year NNN lease for the MOB.