Commentary by: Eric Murphy, Managing Director, Global Healthcare Services

Medical office building (MOB) transactions slowed down in the second quarter of 2022 with a 12% decrease in volume compared to second quarter of 2021. Overall, the second quarter of this year saw 264 medical office buildings transact, totaling $2.7 billion. The average cap rate increased slightly to 6.2% compared to previous quarters of 6.1%. The average deal size for the properties closing in the second quarter was $10.5 million with an average price per square foot of $345. Data for the quarter was analyzed through the transaction data in MSCI Real Capital Analytics.

Current Conditions

Avg Cap Rate – 6.2%

Avg Deal ...

Commentary by: Todd Perman, CCIM, Vice Chairman, Global Healthcare Services

In a historic move earlier this month, the Center for Medicaid Services (CMS) announced the highest market basket update in the last 25 years. Due to higher expected growth in worker compensation, the agency announced that acute care hospitals will get a 4.3% increase in inpatient payment rates. This is a welcomed increase from 3.2% that CMS proposed in April of this year.

Because of this rule, CMS projects payments for 2023 to increase by 2.4%, or $71 million, aligning with CMS’ overall two-fold goal of providing access to healthcare for all Medicare patients and maintaining incentives for effective hospital ope...

Commentary by: Eric Murphy, Managing Director, Global Healthcare Services

Kauffman Hall reported in its “Healthcare M&A Activity Report: Q2 2022” that the second quarter of 2022 had 13 announced M&A transactions including, most notably, the merger of Advocate Aurora Health and Atrium Health. The smaller party, Atrium Health, had a total transaction revenue of $12.9 billion, qualifying the deal as a “mega” transaction, which is characterized by Kauffman Hall as a transaction where the smaller party or seller has annual revenues of more than $1 billion. The other mega transaction announced in Q2 2022 was Trinity Health’s acquisition of MercyOne from CommonSpirit He...

Commentary by: Eric Murphy, Managing Director Global Healthcare Services

In the first quarter, Kaufman Hall reported 12 M&A transactions in its Healthcare M&A Activity Report: Q1 2022, similar to the 13 announced transactions in Q1 2021. The major healthcare M&A theme for 2021 indicated that although there were fewer transactions, the size of the transactions by revenue was at an all-time high. The first quarter of 2022, however, had no “mega” transactions and revenue sizes were lower. We anticipate fewer transactions will occur and are evaluating if the smaller sized transactions will be a trend for 2022.

Source: Kaufman, Hall & Associates, LLC, Newmark Global Healthcare Servic...

Commentary by: Eric Murphy, Managing Director Global Healthcare Services

MOB transactions started off the year with 300 properties closed in the first quarter, totaling $3.5 billion in transaction volume, an 84% increase compared to the first quarter of 2021. Cap rates continue to compress, with the overall average slightly up to 6.1% compared to 5.9% in the fourth quarter of 2021. Pricing, however, remains competitive for MOBs. The average deal size for the properties closing in the first quarter was $11.7 million with an average price per square foot of $345.

Source: Real Capital Analytics, Newmark Global Healthcare Services

Commentary by: Todd Perman, CCIM, Vice Chairman Global Healthcare Services

A recent article from Advisory Board found that as hospitals and health systems refocus on optimizing their real estate footprint in a post-pandemic environment, several companies have been repurposing old facilities and investing in new opportunities to create hospital innovation hubs. Health systems are transforming clinical, administrative, or even outdated, underperforming higher-acuity spaces into Silicon Valley-inspired incubators. Purposes for the innovation hubs vary; a collaboration space for health startups, a lab space dedicated to creating new products or a space to evaluate digital tools and solve health s...

Commentary by: Todd Perman, CCIM, Vice Chairman Global Healthcare Services

The nursing labor shortage remains an issue for the healthcare industry. Turnover within hospitals and health systems is at an all-time high, with many nurses leaving the profession altogether. Staffing issues and ongoing financial constraints, in the wake of the pandemic, are causing major operational challenges. According to a recent article from Healthcare Finance, health system leaders should seek flexible opportunities to re-engage and retain staff, such as:

• For real estate and space planning purposes, a newly favored option is to include a rejuvenation room for staff to relax and recharge.


• Operationally, potential ...

Commentary by Todd Perman, CCIM, Vice Chairman, Global Healthcare Services

Healthcare staffing issues have become common in the wake of the pandemic. Hospitals continue to see staffing shortages: both short-term shortages due to COVID-19 exposure, the ensuing isolation, and long-term shortages created by resignations due to burn-out and workers opting for alternative workplaces with more attractive salaries and schedules.

In January, one hospital made an extraordinary move to attempt to stop a group of its employees from leaving their jobs for another nearby hospital. The unprecedented tactic: a restraining order.

Wisconsin health system ThedaCare argued the restraining order was necessary to g...

Commentary by Todd Perman, CCIM, Vice Chairman, Global Healthcare Services

Primary care, one of the least-lucrative practice areas in medicine, dominated investments in 2021, with U.S. companies investing $16 billion into the space. Private equity, strategic acquisitions and new primary care companies made up the dominant investors.

While primary care revenue plunged 7% in 2020, investors were increasingly attracted to primary care’s potential to care for patients at a low cost. Hospitals, which often seek to add primary care services for future profitable referrals to specialists, will now compete with private and alternative investors who share this same goal.

The effects can be seen by...

Commentary by Eric Murphy, Managing Director, Global Healthcare Services

Healthcare merger and acquisition activity had a consistent theme throughout 2021: fewer transactions, yet total transaction revenue and average size of the seller by revenue reached all-time highs.

In its Healthcare Merger & Acquisition Activity Report: 2021 M&A in Review, Kaufman Hall reported that 2021 finished with 49 announced transactions, compared with 79 in 2020. The average annual revenue of the smaller partner in 2021 was $619 million, up from $388 million in 2020. 69% of the 2021 transactions consisted of not-for-profit providers acquiring another not-for-profit provider.

The decrease in the number of transactio...