The medical office building (MOB) investment market is red hot, with sales activity surging to record highs in recent quarters. But a closer look at who's buying reveals that private investors are the primary drivers of this growth, far outpacing acquisition activity by other investor types.
According to Real Capital Analytics data compiled by Revista, private investors acquired $2.1 billion of MOBs in the fourth quarter of 2022, capping off a year in which they purchased a record $7.9 billion. Private buyer volume has been on a steep upward trajectory since 2019, with annual acquisitions nearly doubling over that time.
In contrast, purchasing activity by institutional investors, REITs, and owner-occupiers has been more sporadic in recent years. While these groups remain active, they are net sellers on most quarters, with acquisitions frequently offset by dispositions.
The steady drumbeat of private capital flowing into the MOB sector reflects several key trends:
Attractive yields. Cap rates for MOBs often offer a significant premium to those of other property types, making them an attractive option for yield-seeking private investors. This is particularly true in secondary and tertiary markets.
Durable cash flows. MOBs tend to have high tenant retention and occupancy rates thanks to the stickiness of healthcare providers. Many private investors view MOBs as a source of steady, bond-like income with built-in rent escalators.
Recession resilience. Demand for healthcare services is largely insulated from economic downturns, providing MOBs with stability during times of volatility. Private investors may view the sector as a defensive play and safe haven.
Compelling growth story. Aging demographics and the continued shift towards outpatient care should drive demand for MOBs for years to come. Private investors are attracted to the sector's long-term growth potential.
1031 exchange buyers. A significant portion of private investors are utilizing 1031 exchanges to roll gains from other property types into MOBs. This has brought a flood of new capital into the sector.
For private investors considering MOBs, there are several important factors to weigh. While the sector's fundamental outlook is strong, investors must be highly selective in which markets, health systems, and properties they target.
Partnering with an experienced healthcare real estate advisor is critical to navigating the nuances of MOB investment. An advisor can help identify assets and operators that align with an investor's specific return objectives and risk tolerance.
Sale-leasebacks and specialized fund vehicles have emerged as popular ways for private investors to access the MOB space. But investors should carefully evaluate fees and promote structures to ensure proper alignment of interests.
As cap rates compress amid strong private investor demand, delivering outperformance will require a hands-on, operational approach. Look for opportunities to drive tenant satisfaction, gain operating efficiencies, and boost a property's long-term value. A proactive asset management strategy is key.
While risks remain, the wave of private investor interest in MOBs appears unlikely to crest anytime soon. By taking a disciplined approach, private investors are well-positioned to capitalize on the sector's compelling growth story in the years to come.
Source: Revista 2024
Krone Weidler, Founder & Principal
Cadre Healthcare Realty Advisors
1095 SE 177th Place, Suite 404-M14
Summerfield, FL 34491
C: (813) 842-2365
O: (866) 355-3594
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