Nation’s Top MOB Markets Include Texas and the Midwest, and They Just Keep Growing

Medical office buildings (MOBs) have proven to be a resilient asset class through the pandemic. That’s because most tenants require these spaces to treat patients in person, providing a more stable tenant base for the asset class. And yet, these buildings are in short supply across the U.S.

Why? The buildings are more complicated to operate than a traditional office space—and more complicated to build—but investment in these facilities is growing, especially in Texas and the Midwest.

Using data provided by CRE research and listing platform CommercialEdge, 42Floors looked at the 25 biggest CRE markets across the U.S. and analyzed MOB construction activity between 2012 and 2021 to see how the asset class has gained interest for investment firms.

Overall, the top 25 medical office space markets in the U.S. grew 13% since 2012, adding more than 52.7 million square feet. Breaking it down, Los Angeles led the country for MOB square footage with more than 1,000 MOBs totaling more than 41 million square feet, which is far more than any other single market in the country, according to 42Floors.

That said, Houston ranked the second-largest MOB market in the U.S., which added 4.3 million square feet of medical office space over the decade, growing 15% to its current total of just over 33 million square feet. Dallas-Fort Worth, too, saw similar growth, based on the report, landing next on the list, adding 4.6 million square feet to its current 33-million-square-foot medical office footprint—16% growth since 2012.

Lower-tier markets with aging populations also saw some of the most growth during the decade, based on the report, like the Twin Cities. Minneapolis-St. Paul ranked No. 15 in the U.S. with 231 buildings totaling nearly 16 million square feet but has grown 24% in the last 10 years, adding three million square feet. That’s almost as much as was added in Los Angeles during the same period, which can be attributed to the city’s always-expanding 65-and-older demographic.

Finally, 42Floors found that Chicago’s market consisted of 28.8 million square feet across 427 buildings—the fourth largest MOB market. Chicago added more than 4.3 million square feet of medical office space and experienced 18% growth since 2012.

As for current developments in the Midwest, Chicago, Madison, Wis.; and Milwaukee will see three large projects delivered within the next two years:

  • Chicago’s Joan & Paul Rubschlager Building at Rush (480,000 square feet) will be completed in Q3 of 2022;
  • The Eastpark Medical Center in Madison (469,000 square feet) will be completed in Q1 of 2024;
  • ThriveOn King in Milwaukee (455,000 square feet) will be completed in Q4 of 2023.

These three buildings will add more than 1.4 million square feet of medical office space to the region, based on the report.

This European-Inspired Chateau In Miami Also Comes With A Digital Twin In The Alpha City Metaverse

Metaverse real estate is becoming more sophisticated, with many crypto experts and entrepreneurs seeking to create visual experiences and lifestyle opportunities both IRL and virtually.

Miami, in particular, has made headlines for its many new-build homes with virtual NFT counterparts—and the Reflection Manor is no different. The Reflection Manor is a real-life European-style chateau being constructed in Miami Shores, located at 1275 NE 93rd Street, and will also come with a virtual replica NFT, located in the Alpha City metaverse. The architectural design is by Sakora Design.

The seller is Jorge Guinovart, a real estate developer, entrepreneur, and cryptocurrency expert, who created Alpha City. Alpha City is known as the Social Business Lifestyle Metaverse and was created to create a metaverse with an economy. It includes visual virtual experiences with social and lifestyle opportunities that help increase the value of virtual properties.

“Most NFT homes are either the home itself and not sited on a parcel of land, or they are both an NFT home and virtual land, but there is not much to explore outside of the property boundaries,” Jorge Guinovart tells Forbes. “While many virtual worlds are created by developers with a gaming background, the Alpha City metaverse was conceived with a social approach as opposed to a traditional gaming focus, which will create a broader appeal.” Click to read more at www.forbes.com.

Hines Announces Launch of Tax-advantaged Platform

Hines announced the launch of Hines Real Estate Exchange (HREX), a platform designed to serve qualified investors interested in tax-advantaged investment opportunities. The platform intends to make 1031 exchange opportunities available to investors in the form of interests in Delaware Statutory Trusts (DSTs) holding assets sourced from Hines Global Income Trust (HGIT). HGIT will have an option to acquire the properties held by the DSTs.

The HREX platform is intended to provide participants with a solution to aid in the deferment of capital gains and other taxes while providing them with the opportunity to diversify real estate holdings through the ownership of institutional-grade assets.

Many exchangers are eager to capitalize on existing pricing environments. “A growing number of financial professionals are requesting DSTs to offer their clients tax-advantaged solutions on their platforms,” said Mark Earley, CEO of Hines Securities, Inc.

HGIT features a $3.8 billion portfolio of commercial real estate investments that is nearly two-thirds weighted toward the industrial and living sectors. HGIT is diversified by geography and real estate sectors, with a focus on stable assets with strong long-term income potential.

Commercial and Multifamily Mortgage Delinquency Rates Remain Low in Second-Quarter 2022

Commercial and multifamily mortgage delinquencies declined in the second quarter of 2022, according to the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Delinquency Report.

“Delinquency rates for commercial and multifamily mortgages fell again during the second quarter of 2022,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Many capital sources are seeing delinquency rates at or approaching pre-pandemic levels, which were some of the lowest delinquency rates on record. MBA survey data have shown significant differences by property type as the COVID-19 pandemic’s effects have morphed. These property-type differences, particularly across changing economic conditions, will continue to be a key factor in commercial and multifamily loan performance.”

MBA’s quarterly analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and Fannie Mae and Freddie Mac. Together, these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding. MBA’s analysis incorporates the measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another. As just one example, Fannie Mae reports loans receiving payment forbearance as delinquent, while Freddie Mac excludes those loans if the borrower is in compliance with the forbearance agreement. Click to read more at mba.org.

Creative Revitalization

An office-to-multifamily project shows how adaptive reuse can offer new life to properties once thought past their prime.

Adaptive reuse projects are all the buzz in the commercial real estate sector these days. Repurposing underutilized property is an excellent strategy for many CRE owners to maximize value. States like California and cities like Los Angeles are working to implement adaptive reuse ordinances that allow for by-right adaptive reuse conversions with more flexible building codes for existing properties. Municipalities increasingly see adaptive reuse as a method to convert underutilized commercial buildings into housing so that they can more efficiently meet housing needs outside of ground-up development. According to Yardi Matrix, developers nationwide converted 151 commercial buildings into residential apartments that totaled 20,100 rooms.

“So far, through adaptive reuse alone, this new decade has already created nearly 32,000 apartments, 41 percent of which are in former office buildings,” according to a recent Yardi Matrix report.

However, the process and costs of adaptively reusing commercial buildings into housing can be ripe with challenges. It is critical for CRE owners who are considering adaptive reuse to perform the appropriate up-front due diligence — including land use, design, engineering, construction, rent studies, and financial analysis — to determine the feasibility and risks of these projects. Developers must also understand the jurisdictional landscape to determine the best path for any entitlements needed to support a use change. Click to read more at www.ccim.com.

A Nationwide Surge in Workplace Searches is a Good Sign, but What are the Driving Forces Behind Them?

COVID-19 transformed CRE. Though it will never be the same as it was prior to, many sectors have bounced back with a vengeance, finding new and improved ways to serve clients. Even those that have been a bit slower to recover are doing so with regard to post-pandemic demands.

A surge in workspace searches nationwide has demonstrated that businesses and employees alike are more seriously considering a return, but at a cost to landlords. While companies’ interest in renting space has increased, so has the range of preferences landlords have to meet as occupiers demand more bang for their buck.

CommercialCafe’s 2022 Office Survey identifies the driving motivators behind employees’ current office space searches — and the results are surprising.

Respondents Aim for Single-Tenant Leases in Smaller Office Buildings
Respondents’ answers regarding the reason for their search were evenly spread, but a need to downsize their workplace footprint pulled ahead just slightly at 24%.

Twenty-three percent of respondents were motivated by cost, wanting a better price per square foot, twenty-three percent were looking to be the sole occupier of a building, sixteen percent were considering a larger office space, and surprisingly, just fourteen percent were browsing for an upgrade in quality.

Core Demands Remain Unchanged, But Tenants Yearn for Luminous Offices, Outdoor Spaces & Safety Measures
Pandemic isolation has made many employees eager still to avoid the confines of an artificially lit workplace, 12% of participants highlighting the need for more natural light and outdoor areas as one of the main preferences they had developed following COVID-19.

Interestingly, an overwhelming majority of people (53%) admitted that their workplace preferences haven’t changed much or at all compared to January of 2020.

COVID-19 safety measures ranked high with 19% of participants and 7% would like a subletting option to be included in the lease to allow for maximum flexibility in the event of changes to their workforce or the company’s preferred work schedule in the future.

Forty-Three Percent of Respondents Aiming for a Full Return to Office
Most searchers were aiming for either a full return to office (43%) or a hybrid system that requires employees to spend most of their time in the office (31%). But no less than 27% claim to be looking for a space that can accommodate staff that will be working mostly from home.

Co-working spaces have reemerged as an alternative for both businesses not yet ready to commit to a long-term lease and “work-from-home” employees wanting a change of scenery.