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MOB Investors Willing to Accept Lower Returns, CBRE Survey Reveals

Real estate investors often remark on the higher returns that healthcare properties provide, compared to other sectors. However, investors who buy MOBs are willing to accept lower returns today than they used to, according to the 2018 Healthcare Real Estate Investor & Developer Survey.

Conducted by CBRE’s Healthcare Capital Markets Group, the survey questions 109 healthcare real estate executives from REITs, private capital, and developers across the United States.

“Our survey responses were collected at a volatile time in the equity markets, yet the responses show cap rates for Class A product continuing to compress,” says Chris Bodnar, vice chairman of CBRE’s U.S. Healthcare Capital Markets. “I think this speaks to the stability of the healthcare industry, even in the face of volatility.”

Specifically, the target all-cash IRR’s for Class A on-campus product decreased substantially from 2017 to 2018. Last year, 42% of survey respondents said their target range was 7% to 9.49%, compared to 32% this year. Even more telling, 18% of respondents said their target range this year is below 7%. That compares to just 7% of respondents last year.

While there continues to be a spread in cap rates between core Class A and Class B medical office product, the survey results show the spread between Class A on-campus and Class A off-campus buildings narrowed significantly from 2017 to 2018.

“We believe this reflects the growing supply of high-quality medical office buildings that are strategically positioned away from campus health systems,” the survey report states.

For questions, comments or concerns, please contact Jennifer Duell Popovec

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