Our View of the Medical Office Market: Q1 2024

A Note from Chip Conk:

As we move into a new year, we have seen increasing signs that validate the cautious optimism that has guided our strategy over the past 18 months.

Despite ominous forecasts, the U.S. economy avoided recession in 2023, and we believe the odds for this year now favor the “soft landing” we hoped to see. We also believe we are reaching a peak interest rate environment for the current cycle, and we anticipate entering an environment of lowering rates in the near future.

As evidence of these improving conditions, we see more activity from institutional investors eager to put sidelined capital to work again with increased confidence in the market. Recent conversations with state pension plans and other large investors show that these key players are ready to expand their balance sheets.

The fundamentals undergirding the medical office marketplace remain exceptionally solid, with occupancy rates above 90%. Our asset management team reports this is the best environment we have ever seen for lease and re-leasing terms.

Because Montecito has remained an active participant in the medical office market while others stepped back—we believe we claimed a higher share of total MOB transactions in 2023 than any other time in our history—we have cemented our position as a go-to buyer, which in turn means we see more opportunities each month for medical office acquisitions. In response to a healthy market for 1031 exchanges, we began offering individual real estate assets for sale. During Q4, we sold our first properties through this white-label marketplace, created in partnership with the Revere system; we anticipate selling additional assets, including some properties in our MMRE Fund portfolios, in 2024.

“One of the biggest advantages that an increasing number of investors are now seeing in the healthcare real estate sector is tenants’ willingness to sign long-term leases. This has prompted some traditional office owners to turn to this particular type of asset class, despite not pursuing such investments before the pandemic.” – Commercial Property Executive, Dec. 4, 2023

Leveraging relationships built on trust and aligned incentives with physician groups, Montecito has also launched a new initiative—MontecitoPLUS—that is already placing our company in an even more advantageous position.

The solutions available through MontecitoPLUS, ranging from group purchasing to clinician recruitment to medical coding and documentation, increase Montecito’s value to provider groups of all sizes by democratizing and leveling the field. This added value, in turn, is already creating new opportunities for us to acquire prime medical real estate assets for our investors.

We believe we are well-positioned to make the most of the opportunities in front of us. And we are excited about the year ahead.

Sincerely,

Chip Conk

Introducing MontecitoPLUS: A Unique Platform of Solutions Developed for and by Healthcare Providers

For 20 years, Montecito has been listening to physicians and learning about their challenges. We have a long track record of building wealth for physicians and consistently aligning our interests with theirs—first through real estate and, more recently, through technology solutions that empower them to increase revenues, reduce costs, and better serve patients.

We have scaled this well-established, wealth-building platform to create an unprecedented ecosystem of products, services, solutions, and partners—called MontecitoPLUS—centered around helping physicians thrive.

How producers and members connect through MontecitoPLUS:

MontecitoPLUS encompasses a growing array of solutions, including:

Calm Waters AI: Autonomous, defensible, E/M chart leveling on physicians’ desktops that optimizes accuracy to 97%, saves time, and enables providers to capture revenue for all documented services.

Montecito TruPointe: Next-generation group purchasing organization that gives providers the purchasing power of the largest healthcare organizations and has generated savings for clients of 20%-30% or better.

Remi: Save 20%+ on medical equipment maintenance while consolidating large equipment maintenance and repairs under a single contract

Winnow: An AI-powered physician sourcing solution that analyzes 1,500+ data points to instantly identify best-fit candidates

Scout Insight: Synthesizes an unprecedented amount of demographic and provider data to help groups pinpoint best locations for growth and expansion and gain a deeper understanding of their competitive landscape

Medical Brain: Expand providers’ ability to manage patients post-discharge, identify risks, monitor care, and avoid disease exacerbations

Montecito Medical Real Estate: Opportunities for providers to make the most of their medical real estate and invest in medical office property portfolios

Interested in learning more — or taking a provider growth assessment to identify solutions tailored for your practice? Click Here.