Author: AXSYS Capital
Medical Office Buildings Offer Conservative, ‘Recession-Proof’ Approach to Real Estate Investment
Diversifying with Medical Office Buildings: A Smart Shield Against Stock Market Corrections
By David Meggs, CEO, AXSYS Capital
In the world of investing, diversification is often hailed as a key strategy for managing risk and optimizing returns. While traditional investment avenues such as stocks, bonds, and mutual funds have long been the go-to choices for diversifying a portfolio, there’s a growing trend towards exploring alternative investments. One such avenue gaining traction among investors is medical office buildings (MOBs). Investing in MOBs presents a compelling case for diversification, offering stability and resilience, particularly during stock market corrections.
Understanding Medical Office Buildings (MOBs)
Medical office buildings are commercial properties specifically designed to house medical practices, clinics, outpatient care centers and related healthcare facilities. These buildings serve as essential infrastructure within the healthcare industry, providing spaces for doctors, specialists and other healthcare professionals to deliver on demand patient care services.
MOBs typically feature several advantages that make them attractive investment options:
- Stability and Consistency: Healthcare services are considered essential, which means demand for medical office spaces tends to remain stable regardless of economic conditions. Similarly, we saw that medical offices remained opened during the pandemic. People continue to require medical care even during economic downturns, ensuring a consistent stream of tenants and rental income for MOB investors.
- Long-Term Leases: Medical tenants often sign long-term leases, providing investors with predictable cash flows over extended periods of time. Additionally, healthcare providers tend to invest significantly in outfitting their spaces to meet specific regulatory and technological requirements, which significantly reduces tenant turnover rates.
- Resilience to Technological Disruption: Unlike some sectors susceptible to technological disruption, such as retail, the healthcare industry is relatively insulated from rapid technological changes. While advancements in healthcare technology occur, the need for physical spaces for patient consultations, examinations and treatments remains essential and unchanged.
Hedging Against Stock Market Corrections
During stock market corrections or economic downturns, investors seek refuge in assets that demonstrate resilience and stability. Here’s how investing in MOBs can serve as a smart shield against stock market volatility:
- Defensive Asset Class: MOB investments are considered defensive assets due to their stable income streams and lower correlation with broader market movements. While stock prices may experience sharp declines during market corrections, the demand for healthcare services and, consequently, medical office spaces tends to remain robust.
- Income Generation: MOBs provide a consistent source of rental income, which can act as a buffer against declines in stock market returns. Even if stock prices falter, the rental income from MOBs can help cushion the impact on an investor’s overall portfolio.
- Portfolio Diversification: By allocating a portion of your investment portfolio to MOBs, you diversify your risk exposure across different asset classes. This diversification can help mitigate the overall volatility of your portfolio, reducing the impact of market downturns on your investment returns.
Considerations for Investing in MOBs
While investing in MOBs offers several benefits, it’s essential to conduct thorough due diligence and consider the following factors:
- Location and Market Dynamics: Evaluate the location of the MOB, local demographics, and healthcare market dynamics. Investing in areas with growing populations and strong demand for healthcare services can enhance the long-term viability of the investment.
- Tenant Quality and Lease Terms: Assess the creditworthiness of tenants and the terms of their leases. Long-term leases with reputable healthcare providers can provide greater stability and predictability in rental income.
- Regulatory and Compliance Risks: Understand the regulatory environment governing healthcare facilities and ensure compliance with relevant regulations. Changes in healthcare policies or regulations could impact the operating environment for MOBs.
- Property Management and Maintenance: Consider the expertise of property management teams responsible for maintaining the MOB. Well-maintained properties can attract high-quality tenants and ensure tenant satisfaction.
Diversifying a portion of your investment portfolio to include medical office buildings can serve as a prudent strategy for protecting yourself against stock market corrections. With their stability, long-term leases, and resilience to economic downturns, MOBs offer investors a defensive asset class that can complement traditional investments in stocks and bonds. By carefully evaluating opportunities in the healthcare real estate sector and incorporating MOBs into your investment strategy, you can enhance portfolio resilience and potentially achieve more stable, predictable returns over the long term.
St. Louis Business Journal: Big credit union acquires Des Peres site for local HQ
A big credit union based in suburban Kansas City has acquired a mixed use-office and retail property in Des Peres along the high-traffic corridor near the I-270 interchange for its St. Louis area “flagship location.”
AXSYS Capital recently closed on the sale of the land and 17,190-square-foot building at 11780 Manchester Road to CommunityAmerica Credit Union for $3.4 million. AXSYS bought the property in late 2016 for $2.1 million in a transaction financed by Carrolton Bank.
The deal is the latest foray in CommunityAmerica’s expansion into the St. Louis area market. The credit union, based in Lenexa, Kansas, opened a 2,340-square-foot branch earlier this month at 6510 Clayton Road in Richmond Heights, leasing the space from Creve Coeur-based SSM Health. It is a former Busey Bank branch.
CommunityAmerica plans to demolish the existing building at 11780 Manchester Road – known as Des Peres Plaza — and construct a two-story, 17,000 square-foot building with a basement that will house about 35 employees. The estimated cost will become more clear when the credit union receives proposals from contractors, said Whitney Bartelli, CommunityAmerica’s chief marketing and strategy officer.
There will be a first-floor branch and also commercial and business banking, wealth advisers, mortgage loan originators, and human resources, information technology, facilities and marketing to support the St. Louis area expansion, Bartelli said. Construction is set to start this fall on what Bartelli said will be Community America’s St. Louis area headquarters, likely to open in mid-2025.
CommunityAmerica last November purchased a former Lion’s Choice restaurant for $752,695 in Hazelwood at 5952 Howdershell Road. Demolition and construction of a 3,400-square foot branch will be awarded in May, along with work on the Des Peres headquarters. The goal is to open the Hazelwood branch by the end of the year, Bartelli said.
“We’re looking for additional property. We don’t plan to stop at three locations,” she said, saying the search is in St. Louis County but it’s unclear how many locations will be opened.
TWA origins, Cardinals partnership
The credit union is not a newcomer to the St. Louis area. CommunityAmerica has had a branch in Bridgeton for about three decades because it originally was the TWA Credit Union. That branch at 10895 Lambert International Blvd. is on the southern boundary of the airport and may have to close because of the $3 billion single-terminal being pursued by the city of St. Louis and the business group, Greater St. Louis Inc.
In March 2023, CommunityAmerica announced plans to open at least three new branches in St. Louis County. That coincided with the credit union unveiling a deal with the St. Louis Cardinals that made it the exclusive naming rights partner for the Cardinal’s Club, the area commonly known as the “green seats” at Busch Stadium.
Also, CommunityAmerica worked with the Big League Impact Foundation, founded by former Cardinals pitcher Adam Wainwright, to launch a promotion in April 2023 to benefit the foundation. The credit union also struck a deal with Wainwright in which he became an endorsement partner for CommunityAmerica. With Wainright’s retirement, shortstop Masyn Winn is the credit union’s new endorsement partner.
“That was a decision we made to reinforce the commitment we have to be a big player in St. Louis and to really aligning to what’s important to St. Louis,” she said.
Tapping into a region’s passion for sports to promote its brand is not new at CommunityAmerica.
The credit union is a major sponsor for the Kansas City Chiefs at GEHA Field at Arrowhead Stadium, the exclusive banking partner of the NFL franchise and its endorsement partner is quarterback Patrick Mahomes. In addition, the credit union is the exclusive naming rights partner of the Kansas City Royals’ Crown Club, which is the premium seating behind home plate at Kauffman Stadium. Shortstop Bobby Witt Jr. is the credit union’s official spokesman.
CommunityAmerica has $4.7 billion in assets, about 321,000 members, 34 branches and about 850 employees.
David Meggs, CEO of AXSYS Capital — based in the Chicago suburb of Libertyville, Illinois — said Des Peres Plaza yielded an annual internal rate of return of about 32%. He said it is representative of the small-to-mid-sized properties that AXSYS typically buys and holds long-term with the “focus of providing consistent cash returns” to its investors.
Meggs learned about the region’s commercial real estate market as he earned his master of business administration degree in international business from Saint Louis University in 2010. He also worked in St. Louis for Solae LLC from 1997 to early 2004.
John Shuff of Pace Properties and Ted Green of Avison Young represented the buyer, CommunityAmerica, in the transaction. Mark Dorsey of Avison Young along with Luke Grant and Jason Riegelsberger of Skyline Missouri Realty represented the seller, Des Peres Plaza Partners, LLC on behalf of AXSYS Capital.
Traded: AXSYS Capital Appoints Marc Fiedler as Director of Acquisitions and Asset Management
Prescribing Prosperity: Medical Office Buildings Offer Conservative, ‘Recession-Proof’ Approach to Real Estate Investment
By: David Meggs, Co-Founder & CEO, AXSYS Capital
In the ever-changing landscape of real estate investing, savvy investors are constantly on the lookout for recession-resistant opportunities. One such resilient sector that has proven to withstand economic downturns is medical office buildings (MOBs).
As the demand for healthcare and outpatient services continues to rise, investing in these stable properties offers a recession-proof approach to fortifying your real estate portfolio—and is a great way to diversify your holdings outside of the stock market. In this blog post, we’ll delve into the reasons behind the stability of MOB investments during economic downturns, and how investing in this niche offers several advantages to those who purchase MOB properties.
Growing Healthcare Demand:
Medical services are a fundamental necessity, irrespective of economic conditions. During recessions, people may cut back on discretionary spending, but healthcare remains a non-negotiable expense. The US’ aging population will only continue to drive the demand for medical services, ensuring a steady stream of tenants for medical office and ‘medtail’ buildings.
According to the Federal Agency CMS (Centers for Medicare & Medicaid Services), physician and clinical services spending is projected to grow at an average rate of 5.4% per year and reach $1.2 trillion by 2027. Statista Market Insights projects the healthcare market expected to grow at stellar growth rate of 10.4% (CAGR 2023- 2027).
Furthermore, the 2020 census revealed that between 2022 and 2030, more than 20% (or the equivalent of 10,000 Baby Boomers per day) of the total U.S. population will reach the age of 65.
Stable Cash Flow:
Medical practitioners often sign long-term leases (typically 10 years or more), providing stability and predictable cash flow for MOB investors. These leases typically have built-in rent escalations, which help protect against inflation and ensures that the income generated from the investment continues to grow over time.
Additionally, properties that are triple net leased (NNN), where the tenant agrees to pay the property taxes, building insurance and maintenance in addition to rent and utilities, have become popular investment vehicles for retail private investors over the past decade because they offer low-risk, steady income with the headaches of dealing with the day-to-day management of a property.
Defensive Nature of Healthcare Services:
The demand for medical services is defensive, meaning it is relatively insensitive to economic fluctuations. People prioritize their health, and even in challenging economic times, they are unlikely to forego essential medical visits. This ensures a consistent demand for medical office spaces, shielding investors from the volatility that other real estate sectors, especially traditional office buildings, may experience during a recession.
Government Stability and Regulation:
The healthcare industry is heavily regulated, with stringent requirements for medical facilities. This regulation provides a level of stability to the sector, making it less susceptible to market fluctuations. Government-backed healthcare programs and insurance further contribute to the reliability of medical office building investments.
Technological Advancements and Specialized Facilities:
Advances in medical technology have led to an increased need for specialized facilities, creating additional opportunities for MOB investors. Medical office buildings equipped with state-of-the-art technology and specialized services are in high demand, making them recession-resistant due to their unique and essential offerings.
Location Stability:
Medical office buildings and ‘medtail’ properties (typically a small retail center occupied solely by medical and healthcare tenants) are often strategically located near hospitals and healthcare hubs. These locations remain stable during economic downturns as they are integral to the provision of medical services. Examples include companies that provide blood tests, cancer treatment or outpatient care. Proximity to major healthcare facilities ensures a consistent flow of patients and tenants, reinforcing the recession-proof nature of these investments.
Adaptability and Resilience:
The healthcare industry has shown remarkable adaptability, as evidenced by the surge in telemedicine during the COVID-19 pandemic. Medical office buildings can adapt to evolving healthcare trends, ensuring their relevance and resilience even in the face of unforeseen challenges.
In the realm of real estate investing, the pursuit of recession-proof opportunities is an ongoing quest for stability and long-term growth. Medical office buildings stand out as a resilient choice, driven by the constant demand for healthcare services, stable cash flow, and the defensive nature of the healthcare sector. Investing in these facilities provides not only financial security but also contributes to the well-being of communities by supporting the essential services that medical professionals provide. As economic uncertainties loom, the prescription for a recession-proof real estate investment may very well be found in the steady heartbeat of medical office buildings.
AXSYS Capital has dedicated itself to seeking out what it considers to be the sweet spot of recession-proof investments, focusing on quality assets that are well-located, newly built and/or recently renovated MOB’s and Medtail centers in Midwestern states. With roughly $60 million of AUM, AXSYS is deploying additional capital to invest in similar properties across the Midwestern states over the next 12 to 18 months, including Illinois, Missouri, Ohio and Wisconsin. For more information, visit https://axsyscapital.com/
Commercial Property Executive: AXSYS Capital Closes Fund for Midwest MOBs
Traded: AXSYS Capital Announces Initial Closing of AXSYS Capital Fund I, LP
LIBERTYVILLE, IL – (March 7, 2024) – AXSYS Capital, an emerging leader in medical property investments, is pleased to announce a successful initial closing of its premier AXSYS Capital Fund I, LP. The fund will focus on acquiring medical office buildings (MOBs) across the Midwest over the next 6-12 months, including Illinois, Missouri, Ohio and Wisconsin.
“The initial closing of AXSYS Capital Fund I enhances our firm’s capabilities and emphasizes our focus on identifying and capitalizing on properties we consider to be high quality, ‘recession-proof’ assets with stable, creditworthy medical and professional services tenants that we can hold long term,” said David Meggs, Co-Founder & CEO of AXSYS Capital.
AXSYS Capital has identified a niche in high-quality properties, primarily medical, in the $2M to $6M price point, that are off the radar of institutional investors and have above-market returns. To date, AXSYS Capital has successfully executed the acquisition, renovation, repositioning and sale of more than 25 transformative commercial and mixed-use properties across the Midwest totaling more than $74M.
The AXSYS Capital Fund I acquired three properties in the second half of 2023, including 853 Medical Drive in Wentzville, MO; W175 N11056 Stonewood Drive in Germantown, WI; and 9120-30 Loomis Road, Franklin, WI, respectively. These properties all contain a mix of medical and professional tenants with long-term leases in place.
“We believe that these types of properties can provide a hedge against inflation and add diversity to portfolios where so often there is an overreliance on the stock market via stocks and bonds,” added Meggs. Over the next few months, AXSYS Capital expects to close on up to five additional properties across the Midwest utilizing funds from AXSYS Capital Fund I.
About AXSYS Capital:
AXSYS Capital is a dynamic property investment company committed to unlocking strong risk-adjusted returns within an often-overlooked niche of the real estate market—smaller, suburban medical office and or “medtail” buildings. Rooted in the belief of cultivating robust investment portfolios, we employ a strategy centered on tangible assets that provide a compelling alternative for investors seeking diversification beyond the stock market. AXSYS Capital offers stability and growth through a meticulously curated selection of buildings home to primarily medical, financial, and insurance businesses—entities we consider “Amazon proof.”
What sets AXSYS Capital apart is our unwavering dedication to people and community. We understand the significance of fostering strong, enduring relationships with tenants and neighbors, recognizing that this commitment contributes directly to the vitality of our properties and, ultimately, the success of our investments. With affordable purchase prices and a proven model, AXSYS Capital stands as a beacon of stability and prosperity in the realm of property investment. For more information, please visit: https://axsyscapital.com/
Note: This document is intended for informational purposes only. It is not an offer to sell, or a solicitation of any offer to buy, any security, nor does it purport to be a complete description of the terms of or the risks or potential conflicts of interest inherent in any actual or proposed security or transaction described herein.
AXSYS Capital Announces Initial Closing of AXSYS Capital Fund I, LP
New Fund Will Be Used to Acquire High Quality Medical/Medtail properties Across the Midwest
LIBERTYVILLE, IL – (March 7, 2024) – AXSYS Capital, an emerging leader in medical property investments, is pleased to announce a successful initial closing of its premier AXSYS Capital Fund I, LP. The fund will focus on acquiring medical office buildings (MOBs) across the Midwest over the next 6-12 months, including Illinois, Missouri, Ohio and Wisconsin.
“The initial closing of AXSYS Capital Fund I enhances our firm’s capabilities and emphasizes our focus on identifying and capitalizing on properties we consider to be high quality, ‘recession-proof’ assets with stable, creditworthy medical and professional services tenants that we can hold long term,” said David Meggs, Co-Founder & CEO of AXSYS Capital.
AXSYS Capital has identified a niche in high-quality properties, primarily medical, in the $2M to $6M price point, that are off the radar of institutional investors and have above-market returns. To date, AXSYS Capital has successfully executed the acquisition, renovation, repositioning and sale of more than 25 transformative commercial and mixed-use properties across the Midwest totaling more than $74M.
The AXSYS Capital Fund I acquired three properties in the second half of 2023, including 853 Medical Drive in Wentzville, MO; W175 N11056 Stonewood Drive in Germantown, WI; and 9120-30 Loomis Road, Franklin, WI, respectively. These properties all contain a mix of medical and professional tenants with long-term leases in place.
“We believe that these types of properties can provide a hedge against inflation and add diversity to portfolios where so often there is an overreliance on the stock market via stocks and bonds,” added Meggs. Over the next few months, AXSYS Capital expects to close on up to five additional properties across the Midwest utilizing funds from AXSYS Capital Fund I.
About AXSYS Capital:
AXSYS Capital is a dynamic property investment company committed to unlocking strong risk-adjusted returns within an often-overlooked niche of the real estate market—smaller, suburban medical office and or “medtail” buildings. Rooted in the belief of cultivating robust investment portfolios, we employ a strategy centered on tangible assets that provide a compelling alternative for investors seeking diversification beyond the stock market. AXSYS Capital offers stability and growth through a meticulously curated selection of buildings home to primarily medical, financial, and insurance businesses—entities we consider “Amazon proof.”
What sets AXSYS Capital apart is our unwavering dedication to people and community. We understand the significance of fostering strong, enduring relationships with tenants and neighbors, recognizing that this commitment contributes directly to the vitality of our properties and, ultimately, the success of our investments. With affordable purchase prices and a proven model, AXSYS Capital stands as a beacon of stability and prosperity in the realm of property investment. For more information, please visit: https://axsyscapital.com/
Note: This document is intended for informational purposes only. It is not an offer to sell, or a solicitation of any offer to buy, any security, nor does it purport to be a complete description of the terms of or the risks or potential conflicts of interest inherent in any actual or proposed security or transaction described herein.