No, this post has nothing to do with Tony Soprano, but the headline probably did intrigue you! I'm talking about MOBs as they apply to CRE. Confused? Okay, enough of the acronyms -- here is the MOB 411 .....
So on the one hand prognosticators are saying there isn't a better time to invest in Medical Office Buildings (MOBs), as the market changes.
Specifically, CCIM Institute reported recently, quoting from a report entitled The Outlook For Healthcare, that demand for medical services in the U.S. will mushroom. That, combined with an aging population, healthcare reform, population growth and advances in medical technology, all will drive demand for modern medical-office buildings in coming years. Specifically, the net result will be an increased demand for new and refurbished MOBs.
Okay, with that said...
Then, the same week comes details from a roundtable discussion at the 2011 Medical Office Buildings & Healthcare Facilities Conference, attended by nearly 700 healthcare real estate executives. The headline from the conference (sponsored by the Building Owners and Managers Association)? Though there is a perception that physicians are rolling in dough and have no trouble paying hefty rents for luxurious medical office space, that is not the reality. Most physicials, in truth, are dealing with declining reimbursements from both Medicare and Medicaid -- making cost containment a priority for both the healthcare community and developers.
So which theory is right? Both actually.
For developers, the focus is now on constructing new properties at different price points, especially out-patient facilities. And be focused on size, speed and spend -- the three S's. For investors, medical office still can be a very smart investment. If purchased right (and I mean by carefully looking at the numbers and making a reasonable offer, NOT stealing it), and most importantly, if managed properly!
Conditions will vary across geographic markets and will be somewhat dependent on local socio-demographics and the eventual evolution of the healthcare market. Generally, MOB have proven to provide reliable cash flow and investment returns, performing well during both good and bad economic times. The only wild card is federal intervention into healthcare, which in actuality is not intervention into healthcare, but an attack on the insurance industry. But that is a post outside the realm of real estate. Except for how the insurance industry's real estate needs are being impacted by these proposed changes. But that is a subject for another day.
Sufficed to say, the properties an evolving healthcare industry will require must evolve themselves to account for continued advances in technology, mergers and acquisitions among hospitals and health systems, and a shift toward employed rather than independent physicians.
If some predictions are correct -- and economist E. Gary Shilling projects that MOB demand will increase some 19 percent by 2019 -- savvy investors, assisted of course by seasoned commercial/investment real estate counselors, will stay ahead of this curve.