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Why MOBs Are So Darn Popular

Dallas-Ft. Worth

Take a steady cash flow reaped by investment-grade healthcare real estate, and call us in the morning. It's a common theme that gets REITs, in particular, excited, we learned at the fourth annual Bisnow DFW Healthcare Real Estate Summit at the InterContinental Dallas yesterday.

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More than 400 heard VMG Health real estate services director John Trabold explain that healthcare real estate tends to cost more because of the steady cash flow coming in, and it’s also a more expensive prospect when you consider that a retrofit for a new healthcare tenant in a space could cost $50 to $70/SF versus a traditional officer user, which may be in the $20 to $30/SF range.

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John, here with his “business in the front, party in the back” hairstyle of his youth projected for all to see, says REITs tend to aggressively buy MOB spaces before they get to market. REIT capital costs, he says, are so much less than most investors because they’re playing with money tied to LIBOR (noting that they can take a 5.5% cap rate and pay more because of the stronger credit behind the lease).

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Neal Richards Group CEO Derrick Evers likes healthcare real estate because “it’s one of the safest places to go.” Customers can choose not to shop, or office users can relocate, but if you have a solid healthcare tenant, they’ll stay put. Some trends he sees: the addition of softer healthcare uses surrounding larger hospitals and consolidation among hospitals. 

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Universal Protection Service healthcare services director Rick Ward (right, next to Parkland Health & Hospital Services SVP Walter Jones and Turner Texas region director of healthcare Steve Whitcraft) says hospitals benefit when they involve firms like UPS early in the development process to reduce costs on the front end. The International Association for Healthcare Security and Safety even has a checklist of things that should be in the spaces before building out. (Sort of like that form you fill out every time you go to the doctor?)

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Steve says Turner can be found pretty much everywhere that Southwest flies out of Love Field (a description he’ll have to change, admittedly, when the Wright Amendment phases out). Turner has been working on renovations for a Dallas County clinic, started construction on two Oklahoma hospitals, and is working on a freestanding emergency department facility in Dallas. They’re also building the Nebraska Furniture Mart and the Hall Arts office tower.

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When little Timmy breaks his finger at Little League, who’s most likely to take him to the doctor? Yep, mom. That’s one reason for the success of healthcare outpatient facilities popping up in retail centers, says Read King Medical Development prez Tim Delgado (right, with pics of him playing football as a kid and playing pro baseball). He says outpatient centers focus on convenience. His prediction for the healthcare real estate future: more small hospital failures or acquisitions of these by bigger players and the continued expansion of hospital systems' outpatient facilities and community care centers. 

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Here’s event sponsor The Real Estate Council’s Tessa Samarripas with WRG’s Diana Leach. Tessa tells us TREC’s speaker series starts the New Year with its community breakfast on Jan. 30 at the Belo Mansion featuring Neil Bush (Points of Light Foundation chairman). Next month, TREC’s Young Guns will host its eighth annual Casino Night on Feb. 27 at the Plaza of the Americas. 

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Event sponsor Bury’s Derren Wilcox took a turn on the stage to talk about Bury’s recent acquisition of CHP & Associates, a 64-year-old MEP practice with offices in Houston and Orlando. Bury also recently expanded west into Phoenix.

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Lincoln Harris CSG EVP Webber Beall (second from left) tells us the firm specializes in serving healthcare real estate by providing a number of services to hospitals and healthcare companies. The healthcare business is more dynamic today and Lincoln Harris CSG’s business continues to grow nationwide, he tells us. But, he believes Texas may have the most vibrant healthcare market in the country. Come back on Monday for more event coverage.