CBRE VALUATION & ADVISORY SERVICES

HEALTHCARE MARKET UPDATE

NEW YORK | H1 2019

The New York Metropolitan Statistical Area (MSA) is the largest healthcare real estate (HRE) market in the United States, an asset class comprised of both hospitals and medical office buildings (MOBs). The MSA holds the top ranking in terms of number of as well as overall square footage, accounting for nearly 9% of the HRE within the top 50 U.S. markets. With the top-ranked HRE development pipeline in the U.S., this MSA shows continued growth of this market segment. Facilities that healthcare services have undergone significant changes during the recent history, inclusive of consideration for regulatory influences and changes in consumer consumption. Trends of practice consolidation, the retailing of healthcare services and James A. Graber, MAI Vice President decentralizing of care are leading the growth of ‘medtail’ space within the New York metro. Specialty Healthcare While these trends are not exclusive to this market, the density-uniqueness of New York lends National Practice Leader itself to function as a leading trial market for validating alternative healthcare delivery concepts. C +1 347 722 0225 O +1 212 715 5725 The following datapoints summarize the size of the healthcare real estate market within the New [email protected] York MSA, comprised count as well as further bifurcating the MOB properties by cbre.us/healthcarevaluation location and overall size.[1]

HEALTHCARE PROPERTIES 164 1,376 1,540 HOSPITALS MOBs TOTAL

MEDICAL OFFICE BUILDINGS 151 1,225 65,487,631 ON CAMPUS OFF CAMPUS MOB SQ. FT.

PAGE 1 CBRE VALUATION & ADVISORY SERVICES

New York Metro Development Healthcare developers have been active in the New MOB Supply York MSA, delivering 1,120,898 sq. ft. of medical office space in Q1 2019. Currently, the healthcare Market Q1 2018 Q1 2019 pipeline consists of 43 projects totaling 7,515,050 sq. TTM MOB Inventory 64,987,080 65,487,631 ft., inclusive of both medical office buildings and hospitals. Of the outstanding developments, TTM MOB Completions 643,347 1,120,898 2,224,468 sq. ft., or 29.6%, is planned for completion between Q2 and Q4 2019. During the trailing twelve months (TTM) Q1 2019, 767,198 sq. ft. was absorbed, TTM Completions to Inventory 0.99% 1.71% resulting in a net reduction in available space. TTM Available Space 3,930,979 3,664,332 Demand for healthcare properties is a function of demographic trends; as well as the reimbursement and Vacancy 6.05% 5.00% regulatory environment. When looking to projected demand for existing and planned supply, we looked to Source: Revista, H1 2019. the concentration of MOB space within the New York MSA. On average, the market has the following intensity of MOB space based on amount of sq. ft. per insured population: 15.7 sq. ft. in a one-mile radius of a MOB, 5.6 sq. ft. in a three-mile radius of a MOB, and 4.3 sq. ft. in a five-mile radius of a MOB. These ratios fall well-below the national levels of 36.4 sq. ft. in a one-mile radius of a MOB, 10.2 sq. ft. in a three- mile radius of a MOB, and 7.2 sq. ft. in a five-mile radius of a MOB. The indication is an expectation of continued growth in the New York MSA.

New York Metro Trends

The New York MOB market recorded solid fundamentals MOB Vacancy Rate vs Lease Rate Growth in the final half of 2018 and through Q1 2019, with Vacancy Rate (%) SS YoY Rent Growth (%) positive net absorption of available product. Vacancy 6.50 2.50 decreased 40 basis points (bps) between Q1 2018 and 2.25 Q1 2019, representing a positive net absorption of 6.25 2.00 266,647 sq. ft. However, this growth in supply, as shown 6.00 by the below historical lease rate trends, has resulted in a 1.75 5.75 flattening of rates over the past several years. 1.50

In tracking same store (SS) leasing on a year-over-year 5.50 1.25 (YoY) basis, rates have accelerated over the trailing 5.25 1.00 quarterly periods, somewhat plateauing in the most Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 recent period at an annual pace of 2.25% with an Vacancy Rate SS YoY Growth average net (NNN) rate of $28.11 per sq. ft. for MOB Source: Revista, H1 2019. space.

Medical Lease Rate Trends (NY MSA) Price Per Sq. Ft. ($/SF) 38.00 36.00 34.00 32.00 30.00 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Source: Quoted lease rates for healthcare and MOB properties; CoStar Analytics, H1 2019.

PAGE 2 CBRE VALUATION & ADVISORY SERVICES New York Metro Transaction Trends Market pricing has tightened with compression in overall capitalization rates during the trailing several years. On a per sq. ft. basis, pricing fluctuates significantly as high-value, predominantly Manhattan-based transactions can skew pricing and volume on a deal-to-deal basis. In consideration of both volume and transaction count, deal flow reached a peak in 2018. Overall capitalization rates have been compressing, trending downward 30 bps in 2017 and 34 bps in 2018 on a YoY basis. Pricing shows wider fluctuations on a per sq. ft. basis do to variation in the product.

MOB Pricing Trends MOB Transactions and Volume (%) Price Per Sq. Ft. ($/SF) Sales Volume ($ Millions) Transactions (Count) 6.50 375 2.5 250 350 2.0 6.25 325 225 300 1.5 6.00 275 200 1.0 5.75 250 175 225 0.5 5.50 200 0.0 150 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 CAP Rate Avg Price Per Sq. Ft. Median Price Per Sq. Ft. Sales Volume Count Source: Compiled by CBRE Valuation & Advisory, H1 2019. Source: Compiled by CBRE Valuation & Advisory, H1 2019.

Few sales have been logged in Q1 2019, with eight transactions ranging in price at between $215 and $1,006 per sq. ft., with an average of $498 per sq. ft. Of these sales, notable transactions include the sale of the NYU School of Medicine building in Garden City, New York, as well as the sale of the Medical Center of New Windsor, in New York, which sold as part of a portfolio between Healthcare Trust and MB Real Estate. New York MSA Breakdown MOB Market Trends

2.23% $28.11 YOY Rent Avg NNN Rate Growth

94.4% $344 Avg Sale Price Per Sq. Ft.

5.62% 3,116,146 Avg Cap Rate Development Pipeline Sq. Ft.

PAGE 3 CBRE VALUATION & ADVISORY SERVICES New York City Trends

When looking at sales of medical office buildings in New York City, we have bifurcated the data by borough. This data is comprised of transactions between 2015 and 2018. Pricing in Manhattan leads the market, with an average price of $693 per sq. ft. and an average overall capitalization rate of 4.64%. This average capitalization rate falls over 100 bps below Brooklyn, which had an average Volume Avg Price Avg Cap Borough Quantity Total Sq. Ft. overall capitalization rate of ($ Millions) Per Sq. Ft. Rates 5.67%. In the outer boroughs, average Manhattan $2,646.9 72 3,821,443 $693 4.64% pricing levels and capitalization rates are generally similar, with a Brooklyn $771.8 122 2,059,305 $375 5.67% range of $309 to $375 per sq. ft. and 5.67% and 6.04%. Notably, Bronx $309.1 29 910,866 $339 5.78% Brooklyn exhibits the strongest pricing of these four boroughs. Queens $332.5 88 969,474 $343 6.04% Additionally, prices in Brooklyn show significant variation, based Staten Island $31.8 29 103,032 $309 5.96% on proximity to Manhattan, with more aggressive pricing in the All Boroughs $4,092.1 340 7,864,120 $502 4.94% northwest submarkets of Brooklyn. Source: Compiled by CBRE Valuation & Advisory, H1 2019.

Medical Lease Rate Trends (NYC) Price Per Sq. Ft. ($/SF) 58.00 53.00 48.00 43.00 38.00 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Source: Quoted lease rates for healthcare and MOB properties; CoStar Analytics, H1 2019

Borough Boundaries At $56.25 per sq. ft., the average quoted lease rate in New York City (all Boroughs) currently averages $19.07 per sq. ft. above the overall New York MSA indication of $37.18 per sq. ft. Similar to the greater New York MSA, trends in new development have impacted lease rates, as new space undergoes absorption. The historical trends show pricing peaked in Q2 2016 (at $57.29 per sq. ft.), with a Q1 2019 rate ($56.25 per sq. ft.) 1.8% off this recent high. Notably, the Q1 2019 level is 37.7% above the market trough of $40.86 per sq. ft. in Q2 2010.

PAGE 4 CBRE VALUATION & ADVISORY SERVICES Specialized Expertise, Unmatched Platform

CBRE’s Specialty Healthcare Valuation & Advisory Services team helps clients make confident, informed business decisions by leveraging specialized expertise to deliver industry-leading reports and analyses. Healthcare real estate assets represent a subsector of the market that requires valuation professionals with a unique understanding of the:

Everchanging regulatory and reimbursement environment

Impact of operational models and affiliations on real estate value

Specific underwriting methodology for accurate valuation analyses

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• Fair Market Value and Rent Studies • Acute Care Hospitals • Single Asset Valuations • Emergency Departments • Portfolio Valuations • Post-Acute Care Facilities • Capital Market Support Services • Ambulatory Surgical Centers • Litigation Support • Cancer Treatment • Financial Reporting & Tax Reporting • Psychiatric Hospitals • Market & Feasibility Analysis • Behavior Health Facilities • Purchase Price Allocations • Hospice Center • Transaction Support • Multispecialty Facilities • Property Condition Reports • Life Sciences • Environmental Assessments • Other Medical Office Building Uses

HEALTHCARE VALUATION & ADVISORY SERVICES

CBRE is the industry-leading provider of Healthcare Valuation & Advisory Services for real estate lenders, owners, investors, and operators throughout the U.S. Our dedicated team of experts provides specialized services for healthcare properties and is at the forefront of providing market insights throughout the sector.

Learn more at cbre.us/healthcarevaluation

SOURCES: Data compiled by CBRE Valuation & Advisory incorporates sourcing from CBRE VIEW database, CBRE EA/Dodge Pipeline, Revista, CoStar, and Real Capital Analytics. [1] Healthcare Properties and Medical Office Buildings datapoints (Page 1) provided by Revista, H1 2019. © Copyright 2019 All rights reserved. Information contained herein, including projections, has been obtained from sources believed to be reliable, but has not been verified for accuracy or completeness. CBRE, Inc. makes no guarantee, warranty or representation about it. Any reliance on such information is solely at your own risk. This information is exclusively for use by CBRE clients and professionals and may not be reproduced without the prior written permission.

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