Medical Office Looks Good for Buyers and Sellers

CHICAGO—As reported in GlobeSt.com, new buyers are crowding to get into the medical office sector, and the bidding process can get heated when properties do hit the market. Inland Private Capital Corp. just sold four freestanding medical office properties located in IL and MA, its first set of acquisitions when it got into the sector about four years ago, for a gross sale price of $45.7 million.

“It’s an asset class that has legs,” Dan Zatloukal, executive vice president – head of portfolio and asset management for Inland Investment Real Estate Services, tells GlobeSt.com. Ever since Inland acquired this portfolio, the properties “performed exactly as planned.” That explains the extraordinary level of interest, which came from an array of private buyers located across the US.

Barrington Orthopedic Specialists, Ltd. leases three of the properties. Located between 20 and 35 miles northwest of downtown Chicago, the properties include a 30,000-square-foot building located at 864 Stearns Rd. in Bartlett, a 14,700-square-foot property at 120 E. Higgins Rd. in Elk Grove Village and a 40,000-square-foot location at 929 W. Higgins Rd. in Schaumburg. Jordan Physician Associates, Inc. leases the fourth property, a 30,803-square-foot building about 40 miles south of Boston at 46 Obery St. in Plymouth, MA.

Public REITs may have, temporarily at least, pulled back from the medical office sector, but Keith Lampi, president and chief operating officer of Oak Brook, IL-based Inland Private Capital Corp., tells GlobeSt.com that sellers have not suffered. “There is obviously an ebb and flow of interest from the large institutional players,” but private money has stepped up to fill that breach.

And as a net buyer, “we also see that competitive landscape,” he says. Since 2014, when it jumped into the medical sector, the company has assembled a portfolio of more than $400 million in assets. And by the end of 2018, IPC hopes to bring that up to about $500 million.

IPC wants to keep buying because, after so many years of expansion, the medical office sector provides safety. “How do you find value at this point in the cycle?” Zatloukal asks. It’s hard to beat an asset class that maintains an occupancy rate over 90% even in the teeth of the worst recession in decades. “The healthcare sector has a certain amount of resiliency. We’ve taken that to heart.”

“There is clearly a market for both buyers and sellers,” he adds. “I don’t see any meaningful softening in the near-term.”