WINTER 2019 NATIONAL HEALTHCARE REAL ESTATE INVESTOR UPDATE 1

HRE INVESTMENT HEALTHY AMID POLITICAL, ECONOMIC TURMOIL

NATIONAL HEALTHCARE REAL ESTATE INVESTOR UPDATE

Note: Graphs and Data Courtesy of Real Capital Analytics.

Note: Graphs and Data Courtesy of Real Capital Analytics.PRICE PER SQUARE FOOT [ $ / SF ]

CAP RATES [NON-WEIGHTED]

W W W. C B R E . U S / C M - H E A LT H C A R E

All Office 12-mo. Avg Medical Office 12-mo. Avg

$125

$150

$175

$200

$225

$250

$275

$300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PRICE $/Square Foot4Q MOB 12-Month Rolling Avg. $292

All Office 12-mo. Avg Medical Office 12-mo. Avg

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CAP RATES (non-weighted)

4Q18 MOB 12-Month Rolling Avg. 6.68%

WINTER 2019

Healthcare real estate investment activity kicked off 2019

on a high note, courtesy of Welltower’s (NYSE: WELL) highly

anticipated $1.3 billion, 3.3 million-square-foot MOB portfolio

acquisition of the CNL Healthcare Portfolio. Medical office

sales remained very strong throughout 2018, slightly eclipsing

$11.3 billion in total sales volume for the year. 2018’s volume

ranks as the second highest yearly medical office sales total

on record following 2017’s record $12.5 billion in total sales

but still well above 2016’s $10.2 billion in total sales. Price-

per-square-foot values also remained competitive in 2018,

experiencing a slight uptick in quarter-over-quarter averages,

and a substantial jump in year-over-year values - $337-per-

square-foot in Q4 2018 vs. $297-per-square-foot at the end

of 2017, according to data published by Real Capital Analytics.

As we segue into the new year, many investors have increased

their allocations to the healthcare real estate market. While

other industries feel pressure from political and economic

turmoil, the healthcare industry remains a haven. With the

addition of over 50,000 medical professionals across the

United States, December 2018 marked the largest monthly

job increase within the healthcare sector in nearly 30 years.

Additionally, large-scale healthcare merger and acquisition

activity is carrying over into 2019 with deals between Baylor

Scott and Memorial Hermann, Dignity Health and CHI,

and CVS and Aetna. According to Kaufman Hall, providers

alone engaged in 90 healthcare M&A transactions in 2018

pointing to a continued focus on strategic over opportunistic

growth. The average size in revenue of sellers has grown at a

compound annual growth rate (CAGR) of 13.8 percent since

2008, reaching $409 million in 2018. This is the highest figure

seen since Kaufman Hall began tracking this metric in 2008,

further benefitting real estate investors with a stronger credit

backing their healthcare tenants.

Note: Data Courtesy of Real Capital Analytics.

REGION # VOLUME AVG. $/PSF

West 36 $437,340,279 $383

Southwest 18 $513,403,297 $356

Southeast 45 $567,895,433 $279

Midwest 17 $329,575,469 $283

Northeast 14 $276,353,399 $533

Mid-Atlantic 18 $576,309,846 $337

TOTAL 148 $2,700,877,722 $337

4Q18 MEDICAL OFFICE SALES VOLUME

CBRE CAPITAL MARKETS

WINTER 2019 NATIONAL HEALTHCARE REAL ESTATE INVESTOR UPDATE 2

M E D I C A L O FF I C E B U I L D I N G CO N S T R U C T I O N DATA 4Q 2018

SOUTHWEST

MIDWEST

SOUTHEAST

MID-ATLANTIC

NORTHEAST

WEST

5,416,936 SF

3,579,391 SF

1,078,947 SF

3,585,786 SF

3,455,763 SF4,661,871 SF

MOB Under Construction (L) Health Care Employment Growth (R)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

(MSF) (Yr/Yr, %)

MEDICAL OFFICE SPACE UNDER CONSTRUCTION VS. GROWTH IN HEALTHCARE EMPLOYMENT

MEDICAL OFFICE BUILDINGS UNDER CONSTRUCTION BY REGION

MEDICAL OFFICE BUILDINGS UNDER CONSTRUCTION BY OWNER

Source: CBRE EA/Dodge Pipeline, BLS, Moody’s Analytics

Developer 3,136,137 SF

Private 2,158,590 SF

Hospital 12,309,138 SF

Physician Practices 2,495,750 SF

Unknown 1,679,079 SF

10%

57%

14%

8%

11%

WINTER 2019 NATIONAL HEALTHCARE REAL ESTATE INVESTOR UPDATE 3

DATE PROPERTY NAME CITY, STATE YEAR BUILT PRICE SQ.FT. $/SQ.FT.

Oct-18 MMRE Portfolio (5 of 17) SOLD BY CBRE

Multiple, CA & UT Multiple $77,425,000 155,172 $499

Oct-18 Hammes Portfolio (3 of 23) Multiple, WA Multiple $61,200,000 152,229 $402

Dec-18 Sutter Burlingame MOB Burlingame, CA 1950 $39,200,000 104,327 $376

Dec-18 Elliot Bay MOB Portfolio 2018 (3 of 18) Multiple, WA Multiple $30,171,179 47,230 $639

Oct-18 VA Fort Worth Outpatient Clinic Fort Worth, TX 2009 $104,000,000 218,317 $476

Oct-18 Ironwood AZ Office Portfolio 2018 (8) Mesa, Scottsdale, AZ Multiple $75,000,000 146,245 $513

Oct-18 MMRE Portfolio (2 of 17) SOLD BY CBRE

Multiple, AZ & NM 2012 - 2017 $51,150,000 119,275 $429

Oct-18 Hammes Portfolio (3 of 23) Multiple, TX Multiple $47,299,000 196,556 $241

Oct-18 MMRE Portfolio (4 of 17) SOLD BY CBRE

Multiple, MS & TN Multiple $103,525,000 242,820 $426

Oct-18 Hammes Portfolio (10 of 23) Multiple, Multiple Multiple $103,440,000 227,725 $454

Oct-18 1305 Jennings Mill Rd Bogart, GA 2017 $41,500,000 98,400 $422

Dec-18 1025 Verdae Boulevard Greenville, SC 2009 $32,500,000 79,105 $411

Oct-18 MMRE Portfolio (6 of 17) SOLD BY CBRE

Multiple, IA, IN & OH Multiple $91,600,000 296,200 $309

Oct-18 Hammes Portfolio (2 of 23) Addison & Elmhurst, IL Multiple $56,768,000 126,510 $449

Dec-18 Elliot Bay MOB Portfolio 2018 (8 of 18) Multiple, IL & MI Multiple $33,785,529 104,735 $323

Oct-18 Mayfair Medical Wauwatosa, WI 2010 $28,800,000 60,800 $474

Nov-18 10 Brookline Place Brookline, MA 1971 $153,054,729 173,500 $882

Oct-18 Collins Stamford Office Portfolio 2018 (2) Stamford, CT Multiple $16,500,000 70,064 $235

Oct-18 8713 5th Avenue Brooklyn, NY 1958 $15,930,000 17,500 $910

Oct-18 1302 Kings Highway Brooklyn, NY 1925 $13,500,000 16,600 $813

Oct-18 Hammes Portfolio (5 of 23) Multiple, Multiple Multiple $122,076,000 278,871 $438

Nov-18 National Institutes of Health Portfolio (2) Rockville, MD Multiple $99,500,000 241,520 $412

Nov-18 Medical Pavilion at Howard County Columbia, MD 2009 $79,693,973 160,000 $498

Nov-18 Fishers Place I Rockville, MD 2004 $66,250,000 165,000 $402

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Note: Sales data provided by Real Capital Analytics, CoStar, RealQuest, SEC Filings, Press Articles, and CBRE Research.

S E L EC T 4Q 2018 H E A LT H C A R E R E A L ES TAT E T R A N S AC T I O N S BY R EG I O N

WINTER 2019 NATIONAL HEALTHCARE REAL ESTATE INVESTOR UPDATE 4

MONEY RATES (AS OF 1/31/2019)

CBRE U.S. Healthcare Capital Markets specializes in providing healthcare real estate investors with acquisition, disposition and debt & equity recapitalization strategies; assisting healthcare providers with strategic capital planning (including monetization of real estate); and advising health systems and physician groups in the developer selection process.

Sources: Bloomberg, Wall Street Journal, BankRate.com

© 2019 CBRE, Inc. The information above has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness.

1/31/2019 MONTH AGO YEAR AGO

Tax Exempt AAA Rate (10-year GBA Rate) $2.19 $2.32 $2.41

Prime 5.50% 5.50% 4.50%

5-Yr US Treasury 2.43% 2.51% 2.52%

10-Yr US Treasury 2.63% 2.69% 2.72%

1-M LIBOR 2.51% 2.50% 1.58%

Dow Jones Average 25,000 23,327 26,149

10-Yr. Swap Spread 2.67% 2.71% 2.87%

DEBT MARKET UPDATE FOR MEDICAL PROPERTIESThe Federal Reserve raised interest rates again in December of this 2018, which marks the ninth hike since 2015. Policymakers have tempered their statements and the sentiment has shifted a bit. In September, the consensus was three to four more hikes in 2019, but the Fed’s language has softened slightly, although in their statement they expect “gradual” rate hikes, as appropriate. The Federal Funds short-term rate is now 2.25% to 2.50%. Current U.S. Treasury bond rates are still significantly lower than they were in 2006 and 2007 when the average 10-year treasury rate was 4.40%. We continue to place excellent debt capital for our clients’ healthcare properties from multiple sources and at very low rates with compelling structures.

In late 2018, we saw a large international bank enter the healthcare space with some very competitive terms, looking to further augment this market. Banks continue to recognize they are the preferred lender and continue to competitively look to place allocations in the healthcare real estate space. The lender pool for medical office buildings is strong, and we are seeing all types of lenders trying to place money in this asset class.

• Historically low fixed interest rates remain, and the very flat yield curve makes long term fixed rate financing very attractive. On the short end of the curve, we’ve seen rate increases in March, June, September and December of 2018 with additional rate hikes in 2019 expected. This will likely further flatten the curve as long-term rates have little pressure to rise at this time.

• Banks tend to be the most active lender in the healthcare space, with some notable groups providing a significant portion of funding. Opportunities exist to look outside these more common healthcare lenders as we continue to see interest for funding from other banks, life companies and debt funds. Running a debt process with 20 to 25 lenders forces all lenders in the healthcare space to meet the market, and this significantly improves the outcome for our clients.

• Life companies continue to become more active in the healthcare space, offering fixed rate products, and some will provide variable rate options for certain deals. Life companies offer long term fixed rate deals that open to prepayment at par for the last three years of the loan term and depending on leverage may include some interest only component. Our access to the markets and CBRE’s large platform allows us exposure to a much larger swath of these lenders than other groups in the market.

INVESTMENT PROPERTIESChris BodnarVice Chairman+1 303 628 1711chris.bodnar@cbre.com

Lee AsherVice Chairman+1 404 504 5965lee.asher@cbre.com

Ryan LindsleySenior Director+1 303 628 1745ryan.lindsley@cbre.com

Sabrina SolomianySenior Director+1 404 536 5054sabrina.solomiany@cbre.com

DEBT & STRUCTURED FINANCEShane SeitzSenior Vice President+1 303 583 2033shane.seitz@cbre.com

CBRE U.S. HEALTHCARE CAPITAL MARKETS

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