January 17, 2022

Thomas Park, Artemis Launch $500M JV for MOBs

Thomas Park Investments and Chevy Chase, Md.-based private equity firm Artemis Real Estate Partners have formed a joint venture to acquire a $500 million portfolio of healthcare real estate.

The programmatic venture will seek core plus medical office buildings throughout the mid-Atlantic and Northeast. The venture kicked off with the $40 million acquisition of medical office real estate across three buildings in Baltimore and Columbia, Md., and Princeton, NJ.

Medical Office Buildings a Resilient Asset Class

Christian Vaughan, Vice President with Stan Johnson Company, tells GlobeSt.com that the medical office sector is seeing robust levels of activity with more and more buyers being drawn in by the allure of the resiliency of the asset class, as highlighted by the COVID-19 pandemic.

“We continue to expect a high level of competition in the healthcare real estate market, with new healthcare buyers entering the market,” Vaughan said. “Groups that have historically been winning opportunities are now threatened by new funds willing to pay aggressive cap rates in today’s interest rate environment.”

There is investor interest anywhere from core, A+ quality product to value-add assets, and all those in between, Vaughan said.

Medtail’s Popularity Grows

Medtail⁠—the hybrid concept where medical tenants are occupying retail space⁠—also continues to grow in popularity, as do veterinary practices, dental and urgent care chains, free-standing physicians’ offices and traditional multi-tenant medical office buildings, he said.

“Aging populations and growing demographics are both driving the need for medical space, and we’re seeing new healthcare developments surging in tertiary and rural markets as these communities need better access to routine and emergency care,” Vaughan said.

“Preliminary data suggests we’ll see overall healthcare investment sales top $14 billion for 2021, which would be the sector’s second strongest year on record. And the expectation is to see continued growth in the coming years.”

A Reasonable Bridge From Office

Alexander Snyder, Portfolio Manager at CenterSquare Investment Management, tells GlobeSt.com that medical office buildings had been gaining in popularity even prior to the pandemic, but the stability they provide became even more desired as the country rode the “volatility wave of global dislocation” that COVID-19 caused.

“While regular office buildings emptied out and have largely stayed that way for going on two years, specialty office⁠—lab space and medical office⁠—has remained utilized by tenants and desired by investors,” Snyder said.

“MOBs in particular are a reasonable bridge from traditional office, allowing both expertise and capital to flow from one into the other. The increased attention on MOBs and the increased desire for stable cash flows has naturally led to an increase in the prices these assets can command.

“Beyond the steady nature of MOBs, they also benefit from the aging demographics of the United States. As Baby Boomers age they demand more medical care. Combine this with the general Sunbelt migration we’re seeing, and you can benefit from not one, but two demographic tailwinds by snagging MOBs in the Sunbelt.”

CenterSquare has invested in Flagship Healthcare Trust, a private REIT investing in Sunbelt MOBs, for exactly this reason, Snyder said.