Healthcare
Capital Markets
April 2022
Accelerated institutional ownership and liquidity of medical office help moderate impact of rising rates
Institutional acquisition of medical office vs 10y UST
Percentages represent institutional share of total volume
Source: JLL Research
  • The influx of institutional capital into medical office in the last ten years has supported historical cap rate compression in this alternatives asset class.  An explosive high water mark of $10.1 billion, representing 52% of total MOB investments, was made by institutional capital in 2021, compared to 16% in the post-GFR period when medical office grew in popularity and under 10% during the period from 2001 to 2014.  This growth in institutional liquidity accelerated during a period that corresponded to an overall downdraft in interest rates across the board.  With a bounty of institutional buyers, from the early adopters and specialist healthcare REITS, to the more recent entrance of large investment managers, the investor pool has diversified and provided for consistent and strong pricing, regardless of occasional chop in the debt waters.  In fact, leveraged buyers have benefited from progressively more accretive lending terms than in 2018, the peak of the Fed’s last rate hike cycle with similar 10-year Treasury yield as today.  Favorable lending practices supported cap rate compression with consistent leveraged returns through today.
  • Medical office is one of the most favorable property sectors for access to debt capital during the current market volatility.  Unlike most other property sectors, medical office lending is dominated by commercial banks which represent 92% of MOB loan volume.  These balance sheet lenders take advantage of their steady and low-cost deposit base, making them one of the most reliable sources of debt capital.  The performance of real estate loans secured by medical office barely missed a beat during COVID, given nearly 100% rent collections and steady occupancy and rental rates derived from long lease terms.  Lender interest and competition for medical office loans has grown as a result, fueling increasingly accretive lending terms such as higher loan advances, generous interest only periods and lower spreads.  Medical office loans are generally less than $20 million, allowing for a broader field of banks, both local and national in scale.  Portfolio lending is attractive as well, allowing lenders to pass through the value of cross collateralization of properties and economies of scale to their borrowers.
  • Undeniably, the higher level of interest rates and hedging costs during the current period impacts investor cash flow and returns.  But the desirability of healthcare real estate, evidenced by the swell of investment capital and dearth of core and core-plus properties available on the market, has allowed for a continuance of the competitive pricing levels for MOB investment sales.
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Recent Activity
New Listing - Investment Sale
Project Daybreak   
626,837 s.f.
29 Properties / 15 States
New Listing - Investment Sale
1 Seymour Plaza
126,358 s.f.
Montclair, NJ
New Listing - Investment Sale
The Ella at Carillon
125,254 s.f.
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New Listing - Investment Sale
Shady Grove Professional Center
103,249 s.f.
Rockville, MD
New Listing - Investment Sale
Golden State Medical Plaza 
101,027 s.f.
Burbank, CA
New Listing - Investment Sale
Commonwealth of Virginia Medical Office Building
40,303 s.f.
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New Listing - Investment Sale
Surgical Center of Connecticut
28,680 s.f.
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Harrison Street Healthcare Portfolio
1,243,360 s.f.
27 buildings | 10 States
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Memorial City Hospital Campus
516,634 s.f.
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SWG Medical Office Building
59,978 s.f.
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Park Place Medical
56,991 s.f.
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South Jordan VA Clinic
30,015 s.f.
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Memorial Hospital STNL – Physicians Clinic
11,400 s.f.
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Fresenius Kidney Care Wadsworth
7,040 s.f.
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