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What Secondary Asset Classes Will Be Popular With Investors In 2022?

The four major “food groups” of commercial real estate — office, multifamily, industrial and retail — occupy most of the headlines around investment and development.

Another one, life sciences, is becoming a mainstream real estate class of its own, given its dominance in markets like Boston, San Diego and the Bay Area. But the Covid-19 pandemic has also diverted investors’ attention and investment into more niche, but downturn-proof, real estate sectors.

“There’s a continued chase for yield, where investors are trying to uncover stability and trying to create and capture predictability of income streams,” said Aaron Jodka, director of U.S. capital markets research at Colliers International Group Inc. (NASDAQ: CIGI). “That has led to growth in areas such as self storage, single-family rental and medical office.”

Here are some of the non-mainstream asset classes seeing renewed interest from capital sources, in 2021 and heading into next year.

Cold storage
Although still a specialized subsector of the broader industrial market, cold storage real estate is heating up in direct response to pandemic-induced trends.

Additionally, much of the nation’s refrigerated and freezer inventory is outdated or even obsolete, propelling — for the first time in awhile — speculative cold-storage development.

Self storage
The pandemic started with the self-storage sector actually oversupplied. Developers had, in the years leading up to 2020, been developing self-storage facilities at a rapid clip, which led to double-digit vacancy in some markets.

But shortly after the onset of Covid-19 in March 2020, lease-ups of storage units started to occur.

Medical office
Another generationally-driven commercial real estate subsector: medical office. The space saw some loss of momentum in 2020 as elective medical procedures were put on hold but has started to come back this year.

In 2020, medical-office building sales fell by 12.7%, according to CBRE Group Inc. (NYSE: CBRE) research from April. But, CBRE noted, the medical office sector came back quicker than other property types during the global financial crisis.

Data centers
A recent investor survey conducted by Colliers International found investors are bullish on two alternative, or specialty, property types more than any other: life sciences and data centers.

Global capital sources are flocking to data centers as connectivity and infrastructure have become more paramount through the Covid-19 pandemic, Jodka said. In the first half of 2021, data-center absorption in the United States was 273.6 megawatts across 13 markets, according to Jones Lang Lasalle Inc. (NYSE: JLL) research.

Construction is ramping up, too, from 611.8 megawatts at the end of 2020 to 680.8 megawatts in the first half of 2021.

 

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In a Pandemic, Medical Office Properties Are Still Seen as a Safe Play

The medical office market appears to be a clear winner in a U.S. commercial real estate environment made murky by the coronavirus-generated economic nosedive.

“Generally, if you own a medical office building, you know that you’re going to probably survive the storm. I think [the medical office sector] is going to survive a storm stronger than most other asset classes,” says Fahri Ozturk, first vice president with commercial real estate services company Marcus & Millichap.

Among 18 commercial real estate sectors, medical office presents the lowest level of risk in a COVID-19 recession, according to a report released March 26 by Green Street Advisors LLC, a real estate research and advisory firm based in Newport Beach, Calif.

Simply put, the medical office market is recession-resilient, according to Chris Bodnar, vice chairman and co-head of health care capital markets at commercial real estate services company CBRE.

“It is a niche market, with significant demand by investors and with limited supply,” Bodnar says. “This supply-demand imbalance, combined with a very disciplined development market, will continue to provide stability … .”

A December 2019 report from CBRE indicated that demographic trends—namely an aging population—and shifts in the health care industry would support long-term demand for medical office space.

Through mid-2019, the U.S. medical office vacancy rate remained at 10.3 percent—its lowest level during the most recent economic expansion—and average asking rents stayed near record levels, the CBRE report noted. U.S. institutional investors, foreign investors and REITs have fueled demand for medical office properties.

One of the investors that continues to be sold on the prospects for the medical office sector is Harrison Street Real Estate Capital LLC, a Chicago-based investment management firm.

In late March 2020, well into the coronavirus crisis, Harrison Street bought The Woodlands Cancer Center, a class-A, 208,000-sq.-ft. medical office building in suburban Houston that’s fully occupied by the University of Texas MD Anderson Cancer Center.

The coronavirus-propelled economic downturn hasn’t dampened Harris Street’s enthusiasm for medical office properties. Christopher Merrill, co-founder, chairman and CEO of Harrison Street, says his firm will continue to be an active investor in medical office assets. Since its founding in 2005, Harrison Street has invested nearly $6 billion in the sector, representing 16 million sq. ft. across more than 250 properties.

“As essential service providers, many medical office facilities continue operating without disruption, regardless of the environment,” Merrill says.

Those essential services include imaging, laboratory testing, diagnostic services, cancer and disease treatment, emergency care and outpatient surgery.

Harrison Street isn’t the only investor forging ahead with medical office purchases in this uncertain economic climate.

In late March 2020, JLL Capital Markets announced it had wrapped up the $20 million sale of Bella Terra Medical Plaza, a 59,354-sq.-ft. medical office building in Huntington Beach, Calif. The buyer was Manhattan Beach, Calif.-based Manhattan Real Estate Holdings Inc.; the seller was Los Angeles-based Vibe Inc. The class-A asset is about 90 percent leased to a number of medical tenants.

One key aspect that makes medical office properties appealing to investors like Harris Street and Manhattan Real Estate Holdings is this: Many tenants stay put for 20 to 30 years, according to Marcus & Millichap’s Ozturk. Medical office tenants often don’t want to move because patients have become familiar with the office locations, he says.

In the short term, though, the medical office market might face trouble, as some offices have temporarily shut down during the coronavirus pandemic and might struggle to pay rent, Ozturk says.

But patient traffic at medical offices will bounce back, driven by overall growth in health care spending and the ongoing trend of medical procedures being performed at outpatient facilities rather than hospitals, according to Britton Costa, senior director of credit ratings agency Fitch Ratings Inc.

“We’re interested to see whether this time is the catalyst for greater adoption of telemedicine for certain specialties as regulatory barriers are removed and patients are more willing to try it, given the lack of alternatives,” Costa says.

Amid the coronavirus crisis, some real estate investors are ratcheting down their activity in hard-hit sectors like retail and lodging. But CBRE’s Bodnar says most of his deals for medical office properties are going ahead despite challenges with coordinating tours and arranging third-party inspections.

“Given the current market environment, investors are looking to invest more in defensive industries like medical office,” Bodnar says. “The current market environment has put a spotlight on the need for health care facilities and the demand for services by patients.”

As such, Bodnar foresees a positive future for the medical office sector.

“There will always be a need for medical office buildings, and technology will have a bigger impact on where these facilities are to be built and how they will be designed in the future,” he says.

 

Source:  NREI

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Why Has Medical Office Captured the CRE Spotlight?

Medical office has captured the real estate spotlight as the sector continues to see strong investment sales with large hospitals buying up doctor practices, and the development of off-campus patient facilities takes off, Mitchell Yankowitz, managing partner at Medical Asset Management, a medical real estate advisory firm, tells GlobeSt.com.

Nationally, there has been a lot of consolidation and acquisitions of smaller doctor practices in the market as larger healthcare institutions seek to bulk up on assets that could serve as outpatient facilities to offer quicker and better quality care in a cheaper and more streamlined way, Yankowitz said.

“Healthcare has gotten so expensive, health care providers are exploring ways to become more efficient without compromising patient care,” he said.

Hospitals such as Mount Sinai Health System in New York and UCLA and Cedars-Sinai Medical Center in California are examples of larger hospital systems gobbling up smaller institutions to absorb their cash and private insurance patients.

Mount Sinai recently announced it was turning its attention to managed care and outpatient facilities as the firm aims to capitalize on the estimated $193 billion New York spends on healthcare annually. By the end of 2020, the health system will complete a full merger with St. Luke’s Roosevelt, Beth Israel Medical Center, and New York Eye and Ear Infirmary of Mount Sinai into Mount Sinai Hospital, according to a Politico New York report.

And as the delivery of healthcare moves away from the traditional on-campus hospital setting, the demand for new construction for medical outpatient facilities has skyrocketed, according to a recent GlobeSt.com article.

Of the new medical office construction to come online this year, 70% has been for off-campus facilities, specifically for infill locations with retail-like characteristics, very different than previously sought assets for medical office use, according to R.J. Sommerdyke, vice president of acquisitions with Meridian, a developer and owner of medical office real estate with offices in Newport Beach and San Ramon, California, plus Phoenix, Dallas and Seattle.

Outpatient facilities have proved efficient and convenient for hospital systems to provide care in a smaller and personable setting, which has become key because the competition between care providers has grown intense in recent years with more options for patients to seek care.

“Up until recently hospitals didn’t look at patients as customers and now its different because of technology and more competition, people have choices,” Yankowitz said.

 

Source:  GlobeSt.

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Chen Senior Medical Center To Provide Healthcare Services To Seniors From New Location At Recently Completed Aventura Medical Tower

Medical Building South Florida

ChenMed, a physician-led, privately-owned company committed to bringing superior healthcare to seniors, has signed a lease deal for 6,241 square feet at Aventura Medical Tower, located at 2801 NE 213 Street in Aventura.

FIP Commercial President/Broker Roy Faith and VP of Leasing Julian Huzenman represented the landlord, KVVS Investors, LLC in the lease deal. Lesley Sheinberg of NAI Merin Hunter Codman, Inc. represented ChenMed.

“We are pleased to announce Chen Senior Medical Center as the latest addition to our Aventura Medical Tower development,” commented Faith. “Chen brings a Primary care practice delivering superior healthcare for the senior community within the district and will create even more synergies within the medical building. We are looking to create an environment where the very best of the Medical community, providing a variety of different health care sectors, align with each other.”

The Aventura location is one of twelve Chen Senior Medical Centers in South Florida.

Aventura Medical Tower was recently completed as a true Class A medical condo building and some purchase and lease opportunities remain.

 

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