At a Glance:
- From a micro level, medical office investment in the greater Fort Lauderdale slowed in first quarter of the year as buying opportunities for investors and users remained hard to find. Down significantly from the previous quarter’s volume, transactions were comparable to the same quarters found in the previous three years.
- Just four properties changed hands in Fort Lauderdale in the latest quarter totaling $11.8MM. The largest transaction was a $3.6MM trade between HealthSouth and AP Properties 2019 LLC for the Sunrise Rehabilitation Center. A sale transaction by the New River Group included a $2.9MM deal for 300 SE 17th St. in Fort Lauderdale.
- Top buyers in the last 24 months in Greater Fort Lauderdale were CNL Financial Group from Orlando buying two properties at $21.1MM each; HTA, a REIT out of Scottsdale, Ariz. that made an $11.5MM purchase and Prime Group in Hollywood with a single $9.1M purchase. The most active sellers in this elongated period included just one Florida company. AW Property Co., an actively managed medical and professional office owner that traded an $11.5MM property. Two other out-of-state sellers also sold properties with similar price tags.
Medical office buildings remain the focus of many REITs and equity investors. The trend in Fort Lauderdale mirrors the national outlook as quality properties become increasing difficult to find for the ready equity investors and REITs seeking to add to their portfolios.
Real Capital Analytics reports that there is twice the amount of capital available for investment as there are medical properties available for purchase in the market nationally. The amount of investment capital is estimated at $16B with only $8B of medical buildings currently available for acquisition. The medical office market remains appealing to investors seeking stability and reasonable cap rates, now hovering around 7 percent. Pressure on medical office cap rates is mounting but expected to remain attractive for investors through the year.
The national vacancy rate for medical offices is now at the lowest point since the great recession, approaching 10.9 percent. That’s down from nearly 12 percent in the second half of 2009. Ten-year lease terms and high move-out costs, along with fewer construction projects due to the Affordable Care Act (ACA) uncertainty, is putting sellers in the driver’s seat for this year and the foreseeable future. With the latest ruling by the Supreme Court, that uncertainty has been mitigated for the time being.
Quality properties supported by credit tenants are trading aggressively, resulting in high demand for newer class-A medical offices, reducing demand for older facilities that lack the technology and open spaces now favored by many hospitals and health care system operators.
There is a fair amount of construction and transaction activity for rehabilitation and long- term acute care hospitals. Companies including HealthSouth, Select Medical, Post-Acute Medical and Landmark Hospitals are actively developing healthcare properties including hospitals and outpatient facilities, with investors such as CNL Healthcare and CV Mission Critical REIT being active acquirers of completed projects.
The high level of interest from investors in the medical office sector recorded thus far in 2015 shows no signs of letting up and is expected to continue. The heated market for healthcare properties continues as a result of a shift towards more outpatient care facilities being built, market expansion with new facilities constructed by health system operators, and a predictable need for healthcare by an aging demographic and expanding population.