2015 was a huge year for healthcare real estate sales, and Texas has the most transactions in the country. VMG Health director John Trabold (here with colleagues Jessica Nickerson and Doug Hillrichs) told the crowd at Bisnow’s DFW healthcare real estate event last week that MOB sales topped $11.2B in 2015, the highest ever in one year. The average cap rate for an on-campus MOB was 6.5%, and 7.2% off-campus. Other acute levels have higher caps because they’re more risky, especially because the buildings aren’t as easily repurposed. That flexibility/exit strategy is becoming more important; John is seeing a lot of repurposing of existing hospital space to independent operations that are more profitable, including LTACHs (long-term acute care hospitals), hospice and inpatient rehab.

For the first time in eight years, REITs were not the primary consumer of MOBs; private investors stole the top slot. Welltower SVP Mike Noto says healthcare real estate, and particularly MOBs, has emerged the last few years as a preferred asset class because these properties are stable, diversified, have steady cash flow and have demographic trends in their favor. New funds are popping up every day, Welltower (a REIT) is inviting pension funds to co-invest and foreign money is plentiful. As the sector is getting more investors, it’s getting fewer flags/systems. Mike says consolidations, acquisitions and affiliations/partnerships are picking up steam. It’s largely about building scale, an important trend all of our panelists mentioned.

Mike’s second from the left here with our panel: John, Callaway Architecture president Scott Stone and moderator Lincoln Harris CSG EVP Webber Beall.

The healthcare real estate discussion is a little different in Texas than elsewhere, Mike says, because we don’t require a certificate of need. You’re unrestricted to build wherever you want, which leads to more aggressive behavior from systems and more creative facilities, both of which benefit patients. Scott (right, with Huffman’s Jerry Huffman) says no certificate of need cuts 12 to 18 months from the pre-development process, but you need to make sure the operational aspect is in place.

Design is shifting to be more efficient (that often means smaller) and creative, and Scott says the push to improve the patient experience is spurring more residential and hospitality influences in design, because they calm patients. Millennials are demanding more preventive/wellness facilities and services, and now that things are shifting away from referrals, doctors are focusing more on visibility so they’re in front of the general public.