Medical Office Buildings: The Wild West of Healthcare Real Estate?

There’s been a growing spotlight on medical-related real estate in the past couple of years, especially considering the activity of real estate investment trusts (REITs) who took the healthcare industry by storm with mega million- and even billion-dollar deals.

While most of those deals were for skilled nursing facilities and assisted living communities, medical office buildings (MOBs) are emerging to take center stage as stand-alone investment opportunities, with REITs and other investors seeking to diversify their portfolios.

Ventas REIT (NYSE:VTR) recently diversified its portfolio with the $217 million purchase of fellow REIT Cogdell Spencer, which owns 72 MOBs.


With this acquisition, Ventas has the “leading MOB business in the U.S.,” according to Todd Lillibridge, the executive vice president of medical property operations at Ventas, as the properties bring the portfolio’s MOB mix to 15%, up from 11%.

Last November, Health Care REIT (NYSE:HCN) made a $41.7 million purchase of two MOBs located in Georgia, saying in its Securities and Exchange Commission filing that “The health care property market may be less susceptible to fluctuations and economic downturns” compared with other property sectors and “investor interest in the market remains strong, especially in specific sectors such as medical office buildings, regardless of the current stringent lending environment.”

The Ohio-based REIT now has 162 MOBs in its portfolio, accounting for 24% of its overall real estate investments.


REITs played a major role in healthcare real estate last year, according to Jones Lang LaSalle. Grubb & Ellis Healthcare REIT II (now Griffin-American Healthcare REIT II), Healthcare Trust of America, and American Realty Capital Healthcare Trust acquired more than $500 million of properties in 2011, representing nearly 30% of the total $1.8 billion in medical office acquisitions.

“The continued strong performance of healthcare real estate, specifically medical office buildings, which has propelled the market capitalization of public healthcare REITs to $50 billion as of June 30, 2011,” the real estate services firm says; by the fourth quarter of 2011, non-listed REITs were reported as the top year-to-date investors in medical properties.

American Healthcare Investors, a co-sponsor of Griffin-American Healthcare REIT II, invests primarily in MOBs along with other health-care related properties.

“In recent years, medical office buildings have emerged as a particularly popular investment option, along with healthcare-related real estate in general,” said Danny Prosky, principal with American Healthcare Investors and president of Griffin-American Healthcare REIT II.  “As the aging of America accelerates, demand for healthcare services is likewise accelerating.  Logically, it follows that demand for healthcare facilities will also grow.”

Written by Alyssa Gerace

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