Institutional real estate investors have developed a fever for medical office acquisitions, a condition brought on by an aging population and an attendant increase in demand for health services at medical-related offices.
Such was the case with downtown-based CBRE Global Investment Partners’ recent acquisition of a majority interest in a 25-building medical office portfolio across 10 states.
“We started to look more closely at senior housing and medical office space where there was pretty strong demographic support in terms of an aging population,” said Matt Tepper, managing director of CBRE Global Investment Partners. “We looked at things like per-capita health expenditures, and not only were people getting older, but they’re spending more on health care than they ever have. To us that was the backdrop of pretty strong demand going forward. I do think we see more institutional investors being interested in this space.”
The aging baby boomer population and the trend of some medical procedures being done at offices instead of hospitals to lower cost are the two primary factors driving demand, said Al Rabil, managing partner of Boca Raton, Fla.-based private equity firm Kayne Anderson Real Estate Advisors.
“In the U.S., we are going from about 40 million people over 65 in 2010 to the number of Americans 65 and older doubling to close to 80 million in 2030,” Rabil said.
He said the medical office supply isn’t keeping pace with the population because loans for that type of development are more difficult to secure than most traditional real estate classes.
“You have dramatic demand increases for the next 20 years, while you have supply limitations, and what that creates is very strong occupancy and low cash-flow volatility,” Rabil said.
CBRE Global’s 25-building portfolio includes near-fully occupied buildings totaling 1.4 million square feet of existing space and a 150,000-square-foot development project, including multiple buildings in Atlanta and Chicago. Financial terms weren’t disclosed.
Kayne Anderson and MB Real Estate Healthcare will continue to operate the portfolio and hold a combined 5 percent ownership.
CBRE Global Investment Partners is an arm of downtown’s CBRE Global Investors. The parent firm was ranked No. 10 on the Business Journal’s list this year of largest money management firms based on assets managed in Los Angeles County in 2016, with $86.6 billion.
Suburban Future
Downtown’s CBRE Group Inc. is looking at other markets impacted by aging populations.
Suburban office markets that offer an urbanlike live-work-play environment through mixed-use projects are well-positioned to capture strong demand from office users, according to a survey of CBRE researchers. Emerging submarkets in the county such as Santa Monica and Glendale stand to benefit.
Many millennials are expected to move to the suburbs as they age and begin families, and office locations that can provide the urban characteristics that millennials prefer are expected to be high in demand, according to the survey.
Higher rental rates and limited supply in downtown neighborhoods will continue to lead more tenants to look for space in suburban markets, said Scott Marshall, executive managing director for advisory and transaction services/investor leasing at CBRE.
Historic Transformation
A company whose work is determining the historic resources of Southern California development projects is moving to a historic property in Old Pasadena.
SWCA Environmental Consultants, an employee-owned environmental consulting firm, is set to begin operating out of a 7,773-square-foot former livery stable at 51 W. Dayton St. at the end of the month. The property, originally called the Palace livery stable and built in the 1890s, had been seismically retrofitted and updated for creative and professional services in recent years, according to SWCA.
“It’s a really beautiful building in its own way,” said Brad Smith, marketing manager for the firm. “It has a lot of charm and it’s a great space with an exposed ceiling with lots of natural light.”
SWCA is hiring 20 more employees this year, bringing its total to 70. The hiring drive is in response to increasing demand for environmental consulting work as development projects rise in Southern California, Smith said.
Pasadena-based brokerage NAI Capital Inc. represented the landlord, 51 West Dayton Associates, in the deal.
Staff reporter Neil Nisperos can be reached at [email protected] or (323) 549-5225, ext. 237.
