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

Medical office building (MOB) transactions slowed again in the third quarter of this year. Overall, Q3 saw 210 medical office buildings transact totaling $1.9 billion, a slight decrease from the second quarter’s volume of $2.7 billion with 261 MOB transactions. The average cap rate decreased marginally to 5.9% compared to 6.2% in the second quarter of this year. The average deal size for MOB properties in the third quarter was $14.4 million with an average price per square foot of $367.

Source: MSCI Real Capital Analytics

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

In the third quarter, Kauffman Hall reported 10 healthcare M&A transactions in its “Healthcare M&A Activity Report: Q3 2022.” One of the major transactions announced was Pure Health’s $500 million minority equity investment in Ardent Health Services. The smaller/acquired party size averaged $834 million, up from $619 million for yearend 2021. We are continuing to see the same trend of fewer transactions overall, while the transactions that are occurring remain at all-time high revenues.

Transaction Spotlight:

The largest transaction in the third quarter was UChicago Medicine’s affiliation with Adve...

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

Healthcare services private equity (PE) deal activity has surged so far in 2022, with the estimated deal count for Q1 through Q3 already exceeding 2020’s total, according to Pitchbook’s Q3 2022 Healthcare Services Report. Despite growing headwinds such as increasing costs and staffing shortages, the resiliency is promising for the sector. Across the variety of specialties, investments in dermatology and infusion practices are popular due to large platform trades and de novo openings. As PE firms become more sophisticated healthcare services investors, we anticipate they’ll explore investments into ne...

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

Amid circumstances related to the pandemic, healthcare leaders are being tasked with setting strategic plans for 2023 and beyond. Rising costs, an unstable workforce and tightening margins represent a few of the challenges facing the industry. According to the Advisory Board, 69% of health system strategic planners report operating margins below pre-pandemic performance in 2022. Compared to 2019, providers are also reporting a 37% increase in labor costs per adjusted discharged for 2022. Financial and operational pressures such as these will require providers to evaluate cost-savings opportunities, redefine staffing s...

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...