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ATLANTA-Though not your traditional net lease fare, single-tenant medical office buildings and other healthcare-related properties are attracting investors with tenants considered largely recession-proof.

Baby boomers entering their peak years and creating an increased patient population is one reason that “There’s a lot of interest in healthcare right now,” says Lee Asher, Atlanta-based first vice president in CB Richard Ellis’ investment properties institutional group.

Another factor driving sale-leasebacks in particular is an increasing number of uninsured patients creating higher bad debt expenses and decreased capital available for investment for hospitals, Asher adds.

Hospitals, health systems and physicians groups alike “realize owning real estate on balance sheet is not the best use for their precious capital,” Asher notes. Much like for corporations, “Yhe sale-leaseback gives these entities the ability to monetize their facilities 100% off balance sheet” while “giving the entity control of the property long term.”

Hence transactions like the multi-building sale-leaseback in Wisconsin that Grubb & Ellis Healthcare REIT Inc. of Santa Ana, CA announced earlier this month. The deal involved four medical office buildings located in Menomonee Falls, Mequon, Milwaukee and Richfield totaling 185,000 square feet, which were net-leased back to a seller with an investment grade rating from Fitch Ratings, reportedly Aurora Healthcare.

The non-traded REIT’s sponsor, Grubb & Ellis Realty Investors LLC, is bullish enough on the property niche that it filed a second similar offering, Grubb & Ellis Healthcare REIT II Inc., this month. The REITs invest in multi-tenant and single-tenant MOB and healthcare-related properties.

Other single-tenant healthcare property deals announced in recent months include Dividend Capital Total Realty Trust Inc.’s acquisition of a 90% interest from ProLogis in a newly built 156,000-square-foot office building in Austin, TX, leased to Seton Healthcare. Another is Lillibridge’s acquisition of a 13-building, 225,000-square-foot medical office building portfolio from Decatur Memorial Hospital in Decatur, IL; five of the buildings are fully leased to the hospital and another is leased to Southern Illinois Family Practice’s residency program.

Unlike many other industries in the current economic climate, healthcare is one area still seeing job growth, Danny Prosky, executive vice president of healthcare real estate for Grubb & Ellis Realty Investors, tells GlobeSt.com. “It’s the biggest part of our economy,” he notes. Indeed, national healthcare expenditures increased from 15.8% to 16.6% of GDP between 2003 and 2008, according to the new REIT’s filing, and is expected to rise to 20.3% by 2018.

“Job growth is, and is expected to remain, strong in the healthcare sector. According to the Bureau of Labor Statistics, the healthcare and social assistance services industry is one of the largest industries in the country, with 19 million jobs projected for 2016,” the filing states. “The market for medical office buildings and healthcare-related facilities in the United States continues to expand.”

While medical office buildings represent a small percentage of the overall office market, its transaction volume appears to be holding up relatively well considering the significant decline in commercial property sales overall. While all office building sales during 2008 totaled approximately $54 billion, a 75% decrease over the prior year, according to Real Capital Analytics Inc., medical office sales during 2008 totaled roughly $3.57 billion, a 26% decrease compared to 2007.

In the context of the overall state of the commercial real estate market, healthcare property deals “are few and far between,” says Asher, adding, “the good news is deals are getting done.” He says he has a positive outlook for the sector, noting that the supply of equity capital remains healthy.

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