Affordable Care Act gives medical office sector shot in arm

Posted on April 4, 2014

Farmington Hills, Michigan (April 4, 2014) – Friedman Integrated Real Estate Solutions, one of the nation’s leading providers of commercial real estate services, is monitoring the impact of the new healthcare legislation to determine how it may translate into opportunities for medical office property.

With the passage of the Affordable Care Act (ACA), the demand for health services is expected to increase dramatically. The impact on the commercial real estate market is already visible.  Sales of properties leased by doctors and other health-care providers reached $6.67 billion in 2013, the second highest total in 13 years of data keeping by Real Capital Analytics Inc., a global data and analytics firm focused exclusively on the investment real estate market.

In an effort to operate more efficiently and improve outcomes in compliance with the ACA, mergers and acquisitions amongst hospitals and health systems are on the rise. Relocations from traditional medical office buildings and consolidations to primary locations on or near hospital campuses have had an impact within second tier medical office properties.

The consequence of this trend is that the market for second generation space is becoming much more competitive. Lease rates have decreased and landlords are offering incentives such as rent reductions, tenant improvements, and in some cases, equity participation. “It is certainly an interesting dynamic. With the monumental changes facing the healthcare industry, the impact on second generation space in the medical office sector is dramatic,” said Robert Moon, Vice President, Brokerage Services.

In the past, physicians were reluctant to move their practices. They were invested in their space, financially as well as professionally. Relocations were too costly and doctors weren’t willing to risk losing a substantial portion of their patient base. Today, however, there is lots of movement in the medical field. Medical professionals are taking advantage of lower rates, landlord incentives and the opportunities for conversion of non-traditional properties in second generation markets.

Locally, Friedman has had great success in the medical office sector. One example of Friedman’s proficiency in this market is the recent sale of three medical office buildings totaling 85,822 square feet in Southfield. Faced with many challenges, ranging from limited visibility to a low occupancy rate, Friedman’s Management Division has made major improvements to the property, including dramatic new lobbies, increasing visibility with landscape enhancements, and additional signage. Friedman’s Brokerage Division negotiated the sale of the property to Lahser Medical Campus, LLC, in 2013 and successfully brought the occupancy rate up from 45% to 69% within the first 12 months. Occupancy is now close to 80% with Friedman continuing to manage and lease the property.

Opportunities are available not only in the metropolitan Detroit submarkets, but across the U.S. In Indianapolis, Friedman is selling a ±58,982 square foot multi-tenant medical office park situated in the middle of an established healthcare corridor, located directly next to a hospital campus. “The medical office market is extremely competitive. This is an excellent time for current medical property owners to take profits with the anticipated surge of purchases in medical office buildings, “ said David Friedman, President and CEO.


Recognized as one of the largest privately-held commercial real estate organizations in the nation, Friedman Integrated Real Estate Solutions provides clients with a single point of contact for the full range of services it offers.

Friedman manages over 140 facilities encompassing more than 16M SF of commercial and 7,000 multi-family units across the country. Friedman’s brokerage team has over 800 current listings with $10 billion in closed transactions. As owners and managers of commercial property for 25 years, Friedman understands what it takes to achieve results that maximize the client’s objectives.

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