THE NET LEASE MEDICAL REPORT Q3 2015 ASKING CAP RATE COMPARISON
MARKET OVERVIEW
Q3 2014 (Previous)
Q3 2015 (Current)
Basis Point Change
6.72%
6.50%
22
NET LEASE MEDICAL VS. NET LEASE MARKET CAP RATE
Q3 2014 (Previous)
Q3 2015 (Current)
Net Lease Medical
6.72%
6.50%
Net Lease Market
6.90%
6.65%
18
15
Premium (bps)
NET LEASE MEDICAL PROPERTIES MEDIAN ASKING PRICE Average Price
Average Price Per SF
Investment Grade
$2,565,700
$318
Non-Investment Grade
$2,519,565
$376
MEDIAN ASKING CAP RATES BY PROPERTY TYPE Cap Rate
Percentage of Market
Dialysis
6.60%
55%
Urgent Care
6.30%
26%
General Medical
6.68%
13%
Other
7.58%
6%
NET LEASE MEDICAL MARKET BY CREDIT RATING Q3 2014 (Previous)
Q3 2015 (Current)
Investment Grade
27%
40%
Non-Investment Grade
23%
60%
Cap rates in the single tenant net lease medical sector* compressed in the third quarter of 2015 with the median asking cap rate declining by 22 basis points from a year ago. This can be primarily attributed to the growing investor interest and demand as a result of the increasing aging population of the county. In addition to the positive outlook of the healthcare sector, most medical related leases feature rental escalations and credit tenant lease guarantees. These attributes are highly sought after characteristics amongst net lease investors. The median cap rate for the net lease medical sector was 15 basis points below the overall net lease market as of the third quarter of 2015. Investors are drawn to this sector as 40% of the properties are tenanted by investment grade rated companies. Additionally, the lower price points associated with this sector have garnered interest from 1031 buyers who traditionally purchase net lease retail assets. The median price for net lease medical properties in the third quarter of 2015 was approximately $2.5 million. An increase of new tenants to the net lease medical sector continues as the shift from traditional hospital and on-campus office locations moves toward convenient and easily-accessible free-standing locations. These new locations are largely in areas traditionally frequented by retail tenants including shopping centers and areas along primary thoroughfares. The growth of the sector should continue to expand as the demographic makeup of the population continues to shift. According to the US Census Bureau, seniors over the age of 65 made up 13.4% of the population in 2012, however this same age group will increase to 22.1% by 2050. The aging demographic creates a strong outlook for this sector as seniors aged 65 to 74 and 75+ average 6.2 and 7.2 doctor visits per year respectively according to the US Center for Disease Control. The overall average across all age spectrums is 3.3 visits annually. The single tenant net lease medical sector will remain active as investors remain attracted to the long term outlook for healthcare as the aging demographic grows. As the trend continues for new locations in easy-access and traditional retail areas, look for more 1031 investors and historically private retail buyers to evaluate this asset class. *For the purpose of this report, the single tenant net lease medical sector is defined as the net lease medical assets priced below $10 million.
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THE NET LEASE MEDICAL REPORT Q3 2015 MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
Years Remaining
Dialysis
Urgent Care
General Medical1
Other2
16-20
N/A
6.00%
N/A
N/A
11-15
6.00%
6.25%
6.30%
N/A
6-10
6.63%
6.50%
6.61%
7.25%
5 & Under
8.00%
7.13%
7.00%
8.02%
1) The General Medical category consists of physicians and specialty offices. 2) The Other category consists of dental and physical therapy offices and homecare facilities.
NET LEASE MEDICAL PROPERTIES MEDIAN ASKING CAP RATE BY REGION 5.55% 6.56% 6.50%
T S EA H T R NO
WEST MOUNTAIN
MIDWEST
SOUTH 6.00% 6.90%
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THE NET LEASE MEDICAL REPORT Q3 2015 SELECTED NET LEASE MEDICAL SALES COMPARABLES Sale Date Tenant
City
State
Jul-15
DaVita
Pomona
Jun-15
MSC Physicians Inc.
Aug-15
MetroHealth Buckeye Medical Center
Oct-15
Price
Price/SF
Cap Rate
Lease Term Remaining
CA
$6,500,000
$562
5.54%
14
Bradenton
FL
$5,460,000
$412
7.18%
18
Cleveland
OH
$5,068,493
$221
7.21%
5
DaVita
Lakewood
CO
$5,030,000
$363
6.17%
11
Sep-15
Pediatric Associates, Inc.
Pickerington
OH
$4,400,000
$350
6.51%
12
Jun-15
Family Medical East
Wichita
KS
$4,350,000
$294
9.44%
7
Apr-15
Fresenius
Johnson City
TN
$3,294,000
$274
7.02%
8
Jun-15
DaVita
Mishawaka
IN
$3,270,000
$204
6.30%
13
Jun-15
Liberty Dialysis
Castle Rock
CO
$3,050,000
$360
9.32%
4
Aug-15
Liberty Dialysis
Victoria
TX
$3,000,000
$333
7.35%
8
Jul-15
Fresenius
Fort Mill
SC
$2,648,175
$261
7.00%
9
Feb-15
Wake Radiology
Chapel Hill
NC
$2,511,000
$256
8.16%
4
Jun-15
Triangle Orthopedic Association
Durham
NC
$2,230,000
$278
6.58%
9
Mar-15
Hickory Family Practice
Hickory
NC
$1,904,000
$154
10.20%
5
Jul-15
Park Nicollet Clinic
Shorewood
MN
$1,725,000
$203
8.00%
6
Jan-15
DaVita
Kenner
LA
$1,628,000
$271
7.00%
10
Mar-15
Fresenius
Jourdanton
TX
$1,540,000
$161
10.00%
2
Jan-15
Rope St. Francis
Charleston
SC
$1,415,000
$315
8.50%
2
Jul-15
Western Washington Medical Group
Everett
WA
$1,342,575
$244
7.02%
4
Jan-15
DaVita
Clarksville
TN
$1,267,000
$257
7.00%
7
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Zach Wright | Research Analyst
Scott Harris | Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
zach@bouldergroup.com
scott@bouldergroup.com
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