Real Estate Round-up

MOB real estate turning into a hot niche in the Houston suburbs

MOB real estate turning into a hot niche in the Houston suburbs

The world’s largest and finest medical complex — the Texas Medical Center — is located just a couple of miles south of downtown Houston.

Over 4,000 doctors work there, performing heart surgeries, treating cancer and delivering about 20,000 babies annually. Many of the hospitals in the Texas Medical Center are ranked as best in the business.

So every ill or injured Houstonian wants to go there, right? Wrong.

The Loop-centric Houstonians may not have noticed, but there’s a huge trend to take medicine to the far flung suburbs. People in Katy get sick, too.

A tremendous amount of new medical buildings and hospitals have been built in the Houston suburbs. Medical institutions are clamoring to get a toe-hold in outer suburbia.

Therefore, suburban medical buildings are considered red hot real estate.

Real estate experts who specialize in the niche say real estate players are dying to get into MOB investments. (MOB is industry lingo for Medical Office Buildings. Apologies to Rice University’s Marching Owl Band, also known as MOB.)

“It’s one sector that’s been performing well,” says real estate broker Henry Hagendorf, vice president in the Grubb & Ellis Healthcare Practice Group.

 

A Vacant Doctor’s Office?

The overall vacancy rate in Houston area medical office buildings has declined to 11.5 percent at mid-year 2010, down from around 16 percent two years ago, according to statistics compiled by Grubb & Ellis.

Strong leasing by physician groups and other medical related companies will continue to fill medical office buildings in the Houston area. Grubb & Ellis projects that the vacancy rate will dip below 10 percent by the end of the year.

A few years ago, medical facilities were popping up in Houston suburbs faster than mushrooms in a cow pasture. Major institutions, such as Methodist Hospital System, St. Luke’s and Memorial Hermann built regional facilities and medical professional space was added nearby. But the construction boom seems to be tapering off, Hagendorf says.

In the second quarter of 2010, only three medium-sized medical office buildings were completed: In Kingwood, in Fort Bend County and on FM 1960 in northwest Houston, Grubb & Ellis reported.

In shopping centers, demand remains strong for emergency care centers. And many of them have extended hours, open 24 hours a day and on the weekends.

The extended hours meet the needs of families with both spouses working outside the home, says Lisa Bovermann of the CB Richard Ellis commercial real estate company. The emergency care centers don’t usually lease huge chunks of shopping center space, but the presence is becoming commonplace in the modern mix of retail center tenants. The emergency centers are also located in suburban medical professional buildings.

The medical office building market has not gone unnoticed by investors. Rents are high, vacancies are low and tenants in medical buildings don’t move as often as other tenants. In fact, medical office buildings have weathered the recession better than regular office buildings.

Investors are searching the Houston market looking for medical buildings. In one recent deal, Healthcare Trust of America Inc. paid $38.1 million for a 176,000-square-foot medical building at 7900 Fannin Street, according to Grubb & Ellis.

Medical real estate can be a very lucrative deal. And the need for space could become more intense with the national medical reform bill is enacted in the marketplace.

 

Losing a Treasure in the Medical Center

One of the gems of the Texas Medical Center remains on the endangered species list.

It’s the 18-story Prudential Building, a fine example of Modern architecture designed by Kenneth Franzheim.

The Prudential Building, constructed in 1952, has been shut down and fenced off. The tower is scheduled to be torn down to make way for an expansion of M.D. Anderson.

Preservationists had tried to save it. But M.D. Anderson says retrofitting the old building is prohibitively expensive and more land is needed so more cancer patients can be treated in efficient new buildings.

The Prudential Building, 1100 Holcombe Blvd., will still be standing for a little while longer. Drive by and take a look at the statuary in the exterior fountain and get ready for the office tower to tumble.

Then we can all wait for the new efficient building to be erected in its place.

Ralph Bivins, former president of the National Association of Real Estate Editors, is editor-in-chief of RealtyNewsReport.com.

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MOB — industry jargon for medical office buildings — are hot real estate in Houston's suburbs. Photo by Ralph Bivins
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When people get sick outside the Loop, they often want to get their treatment outside the Loop. Photo by Ralph Bivins
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Emergency care centers are seen as good tenants — which tend to weather any recession. Photo by Ralph Bivins
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Check out the Prudential Building while you still can. Photo by Ben Hill