Investors Pay Top Dollar for MOBs

LaSalle Investment Management’s acquisition of Memorial Hermann Medical Plaza in Houston for $405 million set a new record for a medical office building, and illustrated the strong demand for these types of assets. Investors view MOBs as the safest form of all healthcare real estate, according to a recent article in the Wall Street Journal.

“There’s a sense of stability about the asset class that is appealing to a wide range of investors,” said Richard Anderson, a managing director at Mizuho Americas Research which focuses on healthcare real estate.

Investors like MOBs because they are less vulnerable to reimbursement and regulation changes, and they have predictable revenue streams. For example, the 28-story Memorial Hermann Medical Plaza is 99% occupied.

Medical office tenants usually pay about $1 in rent for every $10 generated in revenue, so landlords have flexibility to increase rent, Anderson noted. Additionally, MOBs typically have outpatient surgery centers, which are expected to benefit from the industry transition to value-based care, and they are also more easily converted to other types of commercial property if patient demand changes or reimbursement changes make the office financially unsustainable.

The purchase of Memorial Hermann Medical Plaza beat out the previous record for a single medical office property, a deal worth $332.5 million.

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