MOBS ARE GETTING LARGER, TALLER

April 4, 2023

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A recent study highlights that there are more large MOBs under development than ever before. This study was conducted by 42floors (here).

The study is interesting because it highlights a few longer trends:

  • Increasing healthcare demand… More baby boomers are retiring, and America’s demographic period is evolving. More healthcare demand requires more healthcare providers, and more rooms to serve patients. Medical best practices include ratios for things like doctors-to-patients and nurses-to-doctors… so more patients means more numbers needed… which requires more real estate.
  • Continued population shift towards the South… The breakdown for the Top 20 largest MOBs to open this year are… Texas (6), Florida (2),  Kentucky (2), New Jersey (2), Ohio, St. Louis, Seattle, Minneapolis, Chicago, DC, Maryland, Virginia
  • Real estate is more expensive in pockets of the South … As real estate gets more expensive, it’s logical to build taller buildings because you can put more square footage on a given size plot. That’s why cities with the highest property prices, like NYC, have so many tall buildings. As places like Texas have seen huge population growth, the value of real estate has gone up in specific areas… and the financial rationale to build taller buildings is becoming stronger in more locations.

  • More facilities with multiple service lines… In the last decade, we’ve seen increasing healthcare consolidation… as hospital systems get larger and more doctors are a part of large medical groups (vs. being independents). This consolidation has increased the incentive structure to house many different service lines (e.g. cardiologist, primacy care, gastro, etc.) under the same roof… where they refer patients to one another, and all are affiliated with a single medical group. This consolidation has made the financial incentives for doctors to co-locate higher… which means bigger buildings.
  • MOBs are a more attractive asset class… The superb performance of MOBs during the pandemic opened more investor’s eyes to the resilience and ROI of the MOB space. This uptick in investor funds has greased the wheels for more big big projects, and more risk taking for big facilities.

Alliance has been following these trends very closely.  The fundamentals for MOBs are strong, and Alliance is well positioned to find and execute great deals… even, or especially, as markets evolve.

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