Medical Office Buildings Flood Southeast

RALEIGH, NC-Marcus & Millichap has listed three portfolios of single tenant medical office buildings across North Carolina and South Carolina. Each of the 11 freestanding medical office properties are absolute net-leased with long-term agreements to Novant Medical, a not-for-profit hospital group that serves 3.5 million people.

“With little equity, investors could put these deals together in way that it could create significant excess depreciation that could be used to offset taxable cash flow from other real estate loans,” John Glass, a senior vice president of Investments at Marcus & Millichap, tells GlobeSt.com. “The seller is only requiring 13% down, offering tax payment reductions in years one and two of about $1 million or more.”

The first portfolio offers two properties at a purchase price of $21.8 million. The second portfolio offers four properties at about $30 million. The third portfolio offers five properties at about $30 million. The leases provide for 2% annual rent increases that correspond, on a dollar-for-dollar basis, with increases in debt service on the financing.

“The unique debt structure for each of these portfolios will allow the investor take advantage of this trend with a minimal equity investment,” Glass says. “With these portfolios, the buyer can assume the existing loan with relatively minimal costs and is not required to pay assumption or transfer costs that are typically associated with conduit commercial real estate loans.”

According to Marcus & Millichap Medical Office Research Report Second Half 2010, the passage of the Patient Protection and Affordable Care Act during the first half of 2010 will have a far reaching, long-term impact on the healthcare sector, expanding coverage to as many as 32 million previously uninsured individuals. The firm predicts this one-time expansion of coverage will support a significant increase in demand for medical office space.

“Medical office is definitely one of the hottest product types on the market right now,” Glass says. “It’s been under-built for a number of years. I expect to see a lot of investors realize the trend with Obamacare and want to be part of the medical office sector.”