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The Outlook for Investment in Health Care Properties: Medical Office Buildings and Outpatient Facilities 3 (Jonathan Winer) - ULI fall meeting - 102811
 

The Outlook for Investment in Health Care Properties: Medical Office Buildings and Outpatient Facilities 3 (Jonathan Winer) - ULI fall meeting - 102811

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    The Outlook for Investment in Health Care Properties: Medical Office Buildings and Outpatient Facilities 3 (Jonathan Winer) - ULI fall meeting - 102811 The Outlook for Investment in Health Care Properties: Medical Office Buildings and Outpatient Facilities 3 (Jonathan Winer) - ULI fall meeting - 102811 Presentation Transcript

    • THE OUTLOOK FOR I NVESTMENT IN MEDICAL OFFICE B UILDINGS AND OUTPATIENT FACILITIES Capital Markets Conditions Presented By: Jeffrey H. Cooper Executive Managing Director Savills, LLC
    • Institutional-quality Medical Office Buildings exhibit thefollowing characteristics:  Typical size – 50,000 – 120,000 square feet  Strategic Locations  On the campus of a strong investment grade hospital/health system (typically Ground Lease ownership structure)  Off-campus but usually within close proximity to an affiliated hospital campus
    •  Hospitals are major tenants under a long-term lease 7-10 year on average NNN leases with annual increases promote stable cash flow High occupancy and high tenant retention (80% or more)
    • Long-term trends and drivers for Medical Office Buildings(“MOBs”) and Outpatient Facilities:  Defensive Asset Class  Healthcare spending is approximately 17% of U.S. GDP and projected to increase to 25% by 2025 (CBO)  Favorable demographic trends (aging baby boomers)  Patient Protection and Affordable Care Act (2010)  Increasing third-party ownership  Hospital monetization  Third-party development
    • Capital Markets/Pricing Characteristics:  MOBs are an “in demand” asset class  Investors attraction to “core MOB assets”  Defensive asset class  Lack of quality supply  Strong equity investor interest (i.e. REITs)  REITs low cost of capital has increased transactional activity annual volume $5.0 country volume ($bil) $0.0 02 03 04 05 06 07 08 09 10 11 Source: Real Capital Analytics (2011)
    • Capital Markets/Pricing Characteristics:  The MOB asset class is favored among lenders  Cap rates have remained near historical lows 10.0% 8.0% CAP RATE 6.0% 4.0% 2.0% 0.0% 02 03 04 05 06 07 08 09 10 11 Q2 11 Q4 YEAR
    • Active Investors in Healthcare Real Estate Include:  Publicly traded Healthcare REITs  Non-publicly traded REITs  Private equity funds  Pension funds  Sovereign Wealth Funds  Family offices  Developer / Investors
    • Baylor Cancer Center, Dallas, Texas – Case Study:  Duke Realty retained to develop and own Baylor Cancer Center  10-story, 465,000 SF, Class A outpatient cancer facility and Medical Office Building  On the campus of Baylor University Medical Center (“BUMC”) which is part of Baylor Health Care System (S&P/Moody’s: AA-; Aa2)  Total development cost of approximately $155 million  Transaction was executed with Northwestern Mutual  84/16 joint venture structure between Duke Realty and Northwestern Mutual  Property was 93% pre-leased
    • In-Conclusion:  Market conditions favor aggressive pricing for medical real estate  Limited supply of property =Scarcity Premium  Historically low interest rates = Pricing Power  Well-capitalized buyers = Strong Demand  Opportunistic time to analyze and potentially approach the market with medical real estate