1. 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

2. Institutional-quality Medical Office Buildings exhibit the
following 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

3.  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)

4. 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

5. 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)

6. 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

7. 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

8. 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

9. 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