Titanic Healthcare

The February, 2008 issue of Healthcare Real Estate Insights reported on the Titanic of MOB transactions – the acquisition of 28 medical office buildings (MOBs) by Nationwide Health Properties, a healthcare REIT based in Newport, CA. The deal, worth $915 million, included a portfolio of existing and future MOBs totaling 2 million SF. There is no question that, with its stable earnings and NOI, healthcare real estate has some of the strongest fundamentals in the real estate industry (there are now 13 healthcare REITs). The reasons for this have been amply reported – the retirement of 76 million Baby Boomers, the migration of services from inpatient to outpatient environments (especially MOBs); and healthcare’s preeminence as an economic engine. Between 2007 and 2015, 3 out of 10 jobs will be in healthcare; 20% of the GDP will be healthcare by the same date. Sales of MOBs in 2007 came in at just under $5 billion according to Real Capital Analytics, Inc, and CEL Associates. We see no sign of this trend abating with our current demographics (almost 40% of the population will be over 55 by 2010). The wildcard may be the capital markets, particularly the bond market which has been affected by the fluctuations owing the subprime crisis. Considering that hospitals still rely on bond issues to fund development, they may be confronted by a changing risk profile on transactions and a resultant rise in interest rates. In light of this, third-party healthcare real estate developers with strong balance sheets become even more important because of their ability to finance and even own facilities without contingencies.