Medical Office Market Overview Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI “More than 120 medical office building (MOB) properties valued at $1.8 billion were sold in the first half of 2013.” “A total of 171 MOB properties sold during the calendar year 2012 at an average value of $13.2 million, or $161/SF. In comparison, of the 124 MOBs sold so far this year, the average value was $14.8 million, at an average price of $197/SF.” “Investors appetite for this asset class of choice remains as strong as it has been since the start of 2012.” “During the recession, investors came to realize that the income-producing qualities of this class of real estate are very stable. This is driven principally by the fact that you have physicians and hospitals in long-term leases, and they tend not to move.” - Healthcare Finance News September 23, 2013

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI “While certain investors believe surplus demand in the national MOB market is causing an unjustified increase in asset pricing, others believe higher interest rates are keeping metrics in check.” “In addition to high demand, falling overall cap rates are contributing to higher prices in this market.” “In the third quarter of 2013, the average overall cap rate slipped to 7.77%, the lowest seen since the MOB market debuted in our Survey in midyear 2008.” “Survey results indicate that rising values in this market primarily result from falling cap rates rather than growing rental rates.” - PwC Real Estate Investors Survey Third Quarter of 2013

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI Larger sized exam rooms is becoming a common trend. As the collaborative care model is becoming more prevalent, designers have been locating nurses’ stations and physicians’ offices close to each other (or eliminating private offices all together) to provide shared work areas and more opportunities for communication. National healthcare discussions is placing a great emphasis on containing costs, preventative care, wellness, and managing chronic disease. By 2014, approximately 40 million more Americans will have access to health insurance placing more demand of facilities and building infrastructure. Flexibility, efficiency, and patient experience are the new operative words in healthcare design today. - Healthcare Design Magazine

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI “Wisconsin welcomed a new investor into the market in the second quarter of Broadstone Net Lease Inc., a private New York Real Estate Investment Trust (REIT), acquired four medical office properties in Wisconsin from Irgens Partners, LLC. The portfolio sale of six medical office properties, located throughout Wisconsin, Illinois, and Arizona, represented a combined sale price of $46.5 million. The leased properties within the portfolio were to market-dominant hospital systems with attractive credit ratings. Each lease is NNN with modest annual rent increases and remaining lease terms in excess of ten years.” - Cushman & Wakefield Milwaukee Office MarketBeat Second Quarter of 2013

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI Intertech Drive Brookfield, WI Sale Date:June 2013 Sale Price:$8,435,000 Net Rentable Square Footage:20,689 Sale Price/SF:$ Site Size:2.85 Acres Year Built:2008 Capitalization Rate:6.74%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI 2315 East Moreland Drive Waukesha, WI Sale Date:June 2013 Sale Price:$12,350,000 Net Rentable Square Footage:30,096 Sale Price/SF:$ Site Size:3.28 Acres Year Built:1980 (renovated in 2009) Capitalization Rate:6.97%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI 4475 South 108 th Street Greenfield, WI Sale Date:June 2013 Sale Price:$7,894,000 Net Rentable Square Footage:20,870 Sale Price/SF:$ Site Size:1.98 Acres Year Built:2011 Capitalization Rate:6.48%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI West North Avenue Brookfield, WI Sale Date:September 2013 Sale Price:$7,613,069 Net Rentable Square Footage:22,046 Sale Price/SF:$ Site Size:1.88 Acres Year Built:1989 (renovated in 2007) Capitalization Rate:6.82%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI 3610 Michelle Whitmer Drive New Berlin, WI List Price:$5,700,000 Net Rentable Square Footage:25,465 List Price/SF:$ Site Size:1.97 Acres Year Built:2005 Capitalization Rate:8.00% Occupancy:86%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI 350 South Waukegan Road Deerfield, IL List Price:$7,350,000 Net Rentable Square Footage:16,737 List Price/SF:$ Site Size:1.87 Acres Year Built:2013 Capitalization Rate:5.48% Occupancy:100%

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI As the baby boomers retire, the over 65 age bracket will grow by 36% and that age cohort traditionally consumes three times the medical services of younger people. Under the Patient Protection and Affordable Care Act, signed into law in 2010, 32 million additional Americans will have health insurance. This represents an 11% increase by Job creation among healthcare practitioners will likewise mirror this expanded patient base. A new model of healthcare health systems are embracing is also creating demand. Health providers are migrating to a hub and spoke model which hinges around outpatient care. By acquiring and constructing medical facilities like advanced imaging centers, physician offices, and satellite emergency departments, health systems can strategically coordinate a network of support to cater to the needs of their community.

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI These and other factors will increase the demand for medical office buildings by 19% by There is need for an estimated 64 million square feet of additional MOB space in the coming decade. Heightened demand for modern and more efficient outpatient medical office space is generating an uptick in both ground-up development and renovation of existing buildings. Many health care providers are repurposing vacant retail space in malls and shopping centers. Medical office brokers have reported a recent increase in RFPs for health-care real estate projects as vacancies in higher four and five star medical office space has fallen from about 11.5% in late 2009 to 10.5% as of third quarter 2013, and more than 8.23 million square feet of new medical office space is under construction.

Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI Steve Stiloski, MAI, CCIM, MRICS Commercial Property Consultants