Memorial Medical Pavilion in Houston, Texas

HOUSTON—The aging US population, combined with emerging differences in the way generations process healthcare information, have been significant drivers in the nation's healthcare industry. For 2017, strong demographic trends support the growing industry and remain a force in investment activity, according to the latest Marcus & Millichap medical office report.

Institutional funds and REITs are actively searching for larger deals and portfolios. And, private capital is emerging as a major option in the $5 million to $20 million price tranche and could begin to take a larger share of transactions this year. A rise in crossover capital is also increasing competition for medical office properties as single-tenant retail investors target similar investment opportunities in this segment for higher yields. For-sale inventory is limited as medical office assets are in high demand with cap rates compressing during the past several years, Marcus & Millichap indicates.

On-campus medical office buildings command premium cap rates, trading at sub-6% initial yields for single-tenant properties, while multi-tenant buildings draw first-year returns in the mid-6 to low-7% range. Off-campus medical office properties with strong tenancy, which often include a healthcare system and long remaining lease terms, are in high demand. These properties fetch initial returns in the mid-6% area, GlobeSt.com learns.

Yields on other off-campus medical assets, including those in need of repositioning or located in secondary or tertiary markets, can trade up to 200 basis points higher. Factors such as quality, location, deferred maintenance and tenancy have an impact on returns for these assets.

A couple of medical facilities have hit the sale books recently or are under development, exemplifying this type of investor interest in the property type throughout the metro.

Everest Medical Properties, in conjunction with a major pension fund, recently acquired four medical office properties in Houston for $58 million. The portfolio of fully leased medical office properties included Memorial Hermann Surgical Hospital and Physicians Pavilion in Sugar Land, and UT Physicians facilities in Sugar Land and Richmond, TX.

AMD Global LLC recently acquired The Heights Hospital and major renovations are underway with anticipated completion in mid-September. AMD partnered with Medical Center Developments to purchase the 192,077-square-foot six-floor hospital located on 3.94 acres at 1917 Ashland St. in the Heights, with the vision of transforming it. The hospital, formerly operated by Select Specialty Hospitals, has been home to St. Joseph Medical Center, which will remain a significant anchor and tenant.

In another AMD medical development, Stream Realty Partners will partner with AMD and Diamond Realty Investments Inc. to develop a five-story medical office building on a 2-acre site in Memorial Villages. Stream's vision is to build a first-class medical facility in an off-campus private setting.

Memorial Medical Pavilion will be a 101,744-square-foot class-A medical office building with a freestanding parking garage. The medical facility is located near Memorial Hermann Memorial City Medical Center and the Texas Medical Center, located just west of Voss with convenient entry from and frontage access along the Interstate 10 feeder, Gaylord and Old Voss. Situated east of Memorial City and with roughly 270,000 vehicles per day along Interstate 10, the building is actively leasing to medical office and first-floor retail tenants, with space currently available on floors one, three and four.

A couple of medical facilities have hit the sale books recently or are under development, exemplifying this type of investor interest in the property type throughout the metro.

Instant Insights /

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