Entries by Rob Schick

Self Storage Boom

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Self-storage had a banner year in 2014 and 2015 will see much of the same. Occupancy averaged above 90 percent in 2014, a record high. Three of the top five REIT’s listed in the Bloomberg REIT Index for the past three years are self-storage REIT’s. The sector’s strength led to fierce competition by investors to acquire self-storage facilities in 2014. Self-storage is now on the radar of many investors from individuals to private equity firms. The self-storage industry is no longer misunderstood or ignored and is now considered a core asset. As a result, cap rates are at all-time lows. Stabilized class-A facilities are trading near 5.5 percent cap rates and quality portfolios as low as 5 percent. With over 4.5 million sq. ft. of new storage being built in 2014 and interest rates expected to begin rising late 2nd quarter or early 3rd quarter of 2015 the sale of existing facilities may slow but the sector will continue to be very strong as most markets are still undersupplied.     

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Medical Office Upswing

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With the Affordable Care Act (ACA) in place and functioning an increased demand for medical services is starting to be realized. As a result medical office vacancy has slipped below 10 percent for the first time in five years and it’s expected to continue to fall further through 2014. Asking rents are up as well especially in the large metro areas and in newer generation buildings.

On the sales front there is far more capital chasing deals than there are assets to buy. With demand so high and interest remaining compressed cap rates are at or near all-time lows 5.75% - 8.75%. Again newer generation buildings in large metro areas are selling on the low end of that range and older off campus buildings in secondary and tertiary markets are selling on the high end of that range. The sheer volume of transactions has increased each of the past three years and is expected to continue that trend in 2014 provided there is enough product coming on the market. As long as interest rates remain at or near current levels cap rates are expected to remain at current levels given the increased demand by both private and institutional buyers.   

 

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Healthcare Reform's Impact on Healthcare Real Estate

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There are still many unknowns in terms of the impact that the Affordable Care Act of 2010 will have on healthcare reform. But medical real estate has bounced back and is now approaching pre-recession levels.

The consensus is that hospitals will continue to employ or joint venture with private practitioners as they have over the past several years. This trend has helped hospitals increase admissions and allowed physicians to focus more on their patients rather than operating their private practice while reimbursements continue to decline. 

This trend has and will continue to impact healthcare real estate. An increasing number of real estate transactions are executed on the hospital’s balance sheet since more and more physicians are employees of a hospital. This has been a positive for this sector since the creditworthiness of the physician has been replaced with the financial strength of the hospital. In addition, as physicians become more comfortable with this shift from private practice to employee they are signing longer term leases. This tends to lower long-term vacancy and increase valuations of medical assets.

The long-term impact of healthcare reform remains an unknown. Reimbursement and compensation remain key concerns. This will continue to put pressure on physicians and hospitals to be more efficient and look for ways to cut expenses. This will surely impact medical real estate in the long-term and how providers view their real estate needs.


By Rob Schick, rschick@revelunderwood.com

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