CBRE Investment Management expands into the MOB sector with an eye to further increase its national footprint

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Seeking new investments in recession-proof real estate, CBRE Investment Management has further expanded its presence in the medical practice sector.

One of its managed funds announced this week that it has acquired a four-building medical office portfolio totaling 282,683 square feet in Orange County, Calif., through a joint venture with Healthcare Realty Trust.

Larissa Belova, portfolio manager, CBRE Investment Management, said in prepared remarks that, like the life sciences sector, “the medical practice sector is attractive as the aging population coupled with the global pandemic increased health spending.

“Our strategy focuses on assets located within or near thriving hospital systems that create ecosystems that benefit physicians and their patients.”

Sondra Wenger, head of the Americas business operator division, CBRE Investment Management, said in prepared remarks that the medical firm has high barriers to entry due to increasing asset complexity, resulting in a shortage of peak assets.

“Tenant retention rates tend to be higher due to the cost of tenant improvements and the need for a recognized location,” Wenger said. “This acquisition has given us the opportunity to acquire an immediate scale of historically successful medical office building assets in a leading healthcare cluster, and we are looking to increase our investment at scale. in this sector which has performed well through market cycles.”

Medical assets are expected to outperform the office market

Doctor’s office properties have proven relatively resilient with vacancy rates about 2% lower than traditional offices, as doctors’ work often requires an office presence, according to a CBRE statement. “For these reasons, medical practice assets are expected to outperform the overall office market,” the company said.

Brett Buchwald, vice president of SK Commercial Realty in Atlanta, told GlobeSt.com that acquiring medical facilities on or adjacent to campus is a great strategy to build stability and maintain portfolio value. .

“There’s always a demand for medical office tenants to be close to hospitals,” Buchwald said. “During the pandemic, very few medical practice tenants have applied for rent reductions or missed rent payments. Thus, these types of acquisitions are considered extremely recession-proof.

Toby Scrivner, a partner at Stan Johnson Company, tells GlobeSt.com that campus-adjacent medical properties offer investors two fundamentally valuable features.

“First, they are irreplaceable real estate assets,” Scrivner said. “Secondly, they are a source of potential future tenants. The available supply of existing surplus medical real estate is, however, very limited. Prudent investors are currently looking for properties that can be acquired on an attractive basis compared to new construction.

Acquired from the largest healthcare trust

The assets acquired by CBRE Investment Management were part of the Healthcare Trust of America portfolio, which merged with Healthcare Realty Trust to form the largest owner of medical office properties in the United States.

The portfolio includes Mission Medical Center Buildings 1-3 and the Mission Medical Center Tower on the campus of a leading acute care hospital in the affluent town of Mission Viejo.

Mitch Creem, director of GreenRock, tells GlobeSt.com that many hospitals in the United States have medical office buildings on or near their campuses.

“Hospital-owned MOBs are aging and often need major renovations to retain and attract doctors and patients,” Creem said. “Partnering with real estate investment trusts and funds to inject new capital into needed upgrades makes perfect sense, especially in these times of declining hospital profits and cash flow.

“Furthermore, these MOBs are good investments due to the continuing trends of our growing aging population and a shift from medical care to lower cost outpatient services. Additionally, the doctor’s office does the trick to bring doctors and patients closer to higher levels of care when needed.

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