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Even if there is short-term pain, MOBs are a strong investment

June 17, 2020

NATIONAL — Because medical office buildings (MOBs) have fared rather well during the COVID-19 pandemic, with rent collections remaining very strong for many landlords, capitalization rates, or first-year estimated returns, for the product type have not risen much at all.

And yet, with 10-year U.S. Treasury rates at historic lows, lenders have increased their borrowing rates a bit amid the pandemic, meaning that spreads investors can expect to receive on cap rates and borrowing rates are at about the same levels they were before the pandemic – which were pretty favorable – according to John Chang, senior VP of research services with Calabasas, Calif.-based Marcus & Millichap (NYSE: MMI).

For this and other reasons, including the strength of the MOB product type and how well it has held up during the pandemic, many investors continue to pursue outpatient healthcare facilities.

This was one of the major messages conveyed during a recent webinar on the MOB sector sponsored and conducted by Marcus & Millichap.

The webinar, held June 3, was moderated by Alan L. Pontius, senior VP of Marcus & Millichap’s office and industrial divisions. It was titled, “Special Update: Medical Office Investment Outlook.”

Also on the panel were: Daniel Klein, senior VP of investment and deputy chief investment officer with Milwaukee-based Physicians Realty Trust (NYSE: DOC); and, Brian Howard, president of Skokie, Ill.-based Stage Equity Partners LLC.

During Mr. Chang’s presentations during the webinar, he pointed out several scenarios for both the recovery of the overall economy and the MOB sector and how those two are likely to align.

For example, he noted that if the economy recovers quickly, often referred to as a “V-shaped” recovery, then the healthcare industry as well as the MOB sector will rebound nicely as well.

“That’s like hitting the pause button for a couple of months and then it’s back to business as usual,” Mr. Chang noted. However, other scenarios could entail longer recoveries, including periods of time when unemployment remains quite high and patients, because they lack health insurance, continue to postpone, even cancel, non-emergency procedures and care.

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