Healthcare Reform Impasse, Choppy Market Dulls Appetite for MOB Deals

With Record Numbers of New Patients Expected To Need Outpatient Care, Experts Say Boom in Medical Office Deals Will Happen -- But Investors May Have to Wait a Bit Longer

February 17, 2010
By: Randyl Drummer, costar.com

In early November, health-care real estate operator HCP, Inc. chief executive Jay Flaherty told investors that the reopening of capital markets, combined with "the expected near-term passage" by Congress of healthcare reform legislation, could set forces into motion bringing a burst of fresh medical office and other health-care property deals in the first half of 2010. In fact, Flaherty boldly predicted that deal volumes for the first six months would likely exceed the sum total of all transactions in the space since the beginning of 2007. What a difference three months can make. With the passage of major healthcare legislation far less certain now than it was before the upset victory last month of Massachusetts Republican Scott Brown in the contest for the late Ted Kennedy's seat in the Senate, prospective buyers and sellers of MOBs and other health care properties have largely opted to stay put on the sidelines and re-evaluate the ever-changing political and economic landscape. Though lawmakers are hoping to eventually overhaul the bill and get it through Congress, "obviously the health care reform catalyst is certainly, if not removed, delayed," Flaherty acknowledged in HCP's fourth-quarter 2009 earnings call last week. "With the markets turning somewhat choppy for a variety of reasons, we're in a position, I think, that we're sensing a lot of people are reevaluating how they want to do and when they want to do the transactions that they have got lined up and in the queue," he said. Health-care developers are closing following the legislation's progress with good reason. Universal health care could bring an estimated 30 million new insured patients into the system, and if an common formula for measuring medical office space needs is correct -- 1.9 square feet for each patient -- the nation would need to add another 60 million square feet of new development to keep up with demand. At the same time, the debate over healthcare reform, and even the renewed fretting over capital markets, are just a blip on the screen of the larger health-care screen in some respects, a momentary pause for a sector driven by immutable demographic and supply/demand forces. Foremost among those metrics is the growing numbers of aging baby boomers who will need medical care as they head into retirement. "Hospitals are under economic stress and have lost money on their investments because a lot more people are coming into the health care system as the population grows older," said Jeffrey H. Cooper, executive managing director with Savills US. "The third-party reimbursers like Medicare, Medicaid and the private insurers are all getting stricter in what they reimburse, and cutting back on paying for in-patient procedures. All at the same time, there's been this push by those three entities to cut reimbursements, even as investors are still having trouble accessing capital markets." The push now to move patients out of hospital rooms and into ambulatory care and outpatient facilities such as surgical care centers and medical office buildings is accelerating rapidly, added Cooper, who moderates a panel discussion sponsored by the New York City chapter of the Urban Land Institute (ULI) Thursday on investment strategies for healthcare real estate in the fledgling economic recovery. Other participants include John T. Thomas, executive vice president, medical facilities, with Health Care REIT Inc. (NYSE: HCN); Vicki Match Suna A.I.A., senior vice president and vice dean for real estate development and facilities, New York University Langone Medical Center; Jonathan L. Winer, executive vice president, Seavest, Inc., and Eric Fischer, principal for healthcare facilities, Trammell Crow Company. With insurers declining to pay for hospital stays and so much existing hospital space becoming functionally obsolescent, "There's just a tremendous demand for MOBs," Cooper said. "That's where the real growth in the business is. With more people headed toward these outpatient facilities, a lot more of them will have to be built." Hospitals and their doctors groups hope to monetize their holdings by developing more MOBs, either on campus or as near the hospital as possible, then selling to investors and leasing back the buildings to for 15 or 20 years. Publicly traded REITs such as HCP, Nationwide Health Properties, Inc. (NYSE: NHP), Ventas, Inc. -- and Duke Realty Corp (NYSE: DRE), which has a sizable health-care development operation -- have joined non-publicly traded REITs like Health Care REIT Inc. in accumulating sizable arsenals of cash for an eventual boom on the investment and development market. NHP acquired a Pacific Medical Building property this month in Poway, CA and a majority interest in a joint venture that owns a property in Gilbert, AZ, for a total of $90 million. The REIT, which has one of the strongest balance sheets in the sector with more than $1 billion in available capital at the end of the fourth quarter, expects to close on another five California properties by the end of the quarter as part of its phased purchase of PMB's portfolio. "For 2010, our strong financial position combined with improvements in the capital markets and the economy has shifted our attention to growth," said Douglas M. Pasquale, NHP chairman and CEO. Private equity investors and capital providers are also interested in jumping in. But third-party investors want to see strong preleasing of between 50% - 70% by hospital physician practices, and investor prefer they be located right on the hospital campus. "That really reduces the volatility of tenancy, particularly on the campus of a healthy, creditworthy hospital," Cooper said. The bulk of the Duke Realty Corp.'s projected $100 million to $200 million in new development starts this year will be for MOB starts, said Denny Oklak, chairman and CEO of Duke (NYSE: DRE) In one of the largest construction starts of last year, Baylor Health Care Systems, Inc. chose Duke to build its 460,000-square-foot, $154 million outpatient cancer treatment center on the Baylor University Medical Center campus in Dallas, scheduled for delivery in 2011, with financing arranged by Savills. "Frankly, MOB is the only asset class where developers are finding any positive demand drivers," Cooper said. Leasing activity in Duke's MOB portfolio is "reasonably good" with smaller spec space taking a bit slower to fill, Oklak said. Although the healthcare reform debate was "kind of hanging over the industry like a little bit of a cloud," people are starting to loosen up as chances recede of the previous bill passing and activity is beguinning to pick up, he said Physician groups, the major occupiers of hospital campus MOB space, are facing economic pressures of their own in the uncertain environment. Although health care reform will bring more patients into the system and greater cash flow, shrinking reimbursements from insurers and the government will continue to squeeze margins for doctors. Primary care physicians are being hit the hardest, with reimbursements sometimes not meeting the cost of services rendered. All these factors will put doctors who own their buildings and aren't affiliated with a hospital or healthcare system at a severe disadvantage, Cooper said. Many of those practitioners will find themselves stuck with the equivalent of non-institutional Class B or lower property. At the same time, on the investment front, there haven't been a lot of large new institutional-grade deals where the hospital sells its existing non-acute care facilities to investors and leases them back. Hospitals are still too busy shoring up their capital positions in the weak market for tax-exempt bonds, Cooper said. But that will change soon enough. "The outlook is great for this sector because people are living longer and more people will likely have to be treated at ambulatory space as a lower cost as reimbursements tighten," he said.

Stability in the Medical Office Market

Medical Office Forecasts Emphasize Stability
By Bob Howard
January 11, 2010
www.Costar.com

INDIANAPOLIS-Soon after the recession began taking its toll on the office market in the form of diminishing demand, higher vacancies and negative absorption numbers, those who track the medical office market―and some who previously paid little attention to it―began remarking on how this one segment of the office market was marching to its own tune. Medical office marches on, according to some new reports about the healthcare-related segment. The reports foresee stability and growth for the medical office segment despite the dismal forecasts for general office space, although the medical office portion of the market has not been spared entirely.
"There will be a significant increase in both short- and long-term demand for medical offices and outpatient facilities," declares a new report from BremnerDuke Healthcare Real Estate, the healthcare facilities development arm of publicly held Duke Realty Corp. Deeni Taylor, executive vice president of BremnerDuke, notes that during the past two years, BremnerDuke medical office properties have performed favorably, with occupancy remaining near 90%. Taylor notes that, during the past year, Duke Realty has raised more than $1.5 billion in capital, "which will enable us to efficiently take advantage of these opportunities," Taylor says.

A report by Marcus & Millichap points out that, even with the turmoil in the economy, only 1% of MOBs are now distressed, equating to just $200 million in troubled loans, compared with almost $20 billion for the 3% of traditional office assets now at risk. Nonetheless, Marcus & Millichap points out, the MOB segment remains under pressure. "Recessionary stresses and rising medical costs have kept a portion of the US population on the sidelines for elective outpatient care, easing demand for physicians’ services and, in turn, medical space," the report states. As a result, deliveries of new medical space have recently outpaced absorption and vacancy has ticked up, forcing operators to lower rents in an effort to keep occupancy levels in check, according to the Marcus & Millichap report.

The national debate about healthcare reform "is especially relevant to the MOB market, as any measures passed by Congress could further bolster the sector," Marcus & Millichap points out. It cites estimates that if 50% of the 46 million people who are now uninsured gained coverage, the added demand would require nearly 45 million square feet of MOB space beyond what is needed to satisfy normal demand trends. BremnerDuke notes that some projections call for adding as much as to 61.9 million square feet of additional MOB space, based on the current ratio of 1.9 square feet per insured person.

BremnerDuke approach in today's market is concentrating on "cultivating relationships in markets where demographics point to strong projected growth," the company says. In the 20 markets where Duke Realty has a strong presence, the firm is leveraging its healthcare expertise and experience to develop relationships with local hospitals. BremnerDuke has also focused on developing strong relationships with regional and national healthcare systems across the country.

Another point in the Marcus & Millichap report is that, although lenders are favoring MOB assets, transaction velocity has been stymied by the capital markets crisis and subsequent lack of available credit. "Increased equity requirements have put a damper on purchases," as the loan-to-value ratios allowed by lenders have dropped from 90%, including mezzanine debt, to 60%. Although deal flow has slowed, MOB sales as a share of total office activity have risen from 14% to 25% over the past seven years, the report shows. "This clearly demonstrates the continued draw of MOB product, which provides higher risk-adjusted returns and more stability than traditional office assets," it says.

Investors Bullish on Health Care Real Estate as Reform Showdown Draws Closer

Hospitals Especially Could Thrive Under Proposed Universal Health Care Winding Through Congress. But The Medical Office Sector Should Remain Healthy Regardless of What Lawmakers Decide
By Randyl Drummer, www.costar.com
November 18, 2009

With the mammoth health care reform package hanging in the balance, medical real estate companies will enter 2010 in the throes of debate over the legislation's potential impact on their business, especially those owning and occupying hospitals and hospital campus office space. Some key questions remain unanswered about the legislation, which will cost anywhere between $849 billion and $3 trillion, depending on who's making the estimates. How will the final legislation affect hospitals and physicians? What companies, niches or sub-niches will be the winners and losers? How much new demand for space, if any, will the sweeping legislation generate -- and will it knock certain classes of medical property out of favor? The answers may start coming into focus if Congress and President Obama meet their goal of passing a reform package by the end of the year. The House of Representatives passed a bill on Nov. 7 with a price tag that could range from just under $900 billion to $1.2 trillion. Senate Majority Leader Harry Reid moved the needle considerably late Wednesday, introducing a bill that covers 94% of Americans and costs $849 billion over 10 years. Both bills contain some form of "public option," a government-sponsored insurance plan, and the legislation is sure to bring intense debate in the Senate before both houses can hammer out a compromise for the president's signature. The stock market seems to be mixed on the question so far. Citigroup reports that shares of publicly traded healthcare real estate investment trusts are priced closely in line with the broader REIT sector, which has enjoyed a rally since early March. Healthcare REITs are up 11% year to date, which is about even with the benchmark MSCI US REIT index. Clearly, though, hospital and medical office building (MOB) owners and developers are looking at the government's investment in health care as a key future driver for one of the few pockets of commercial real estate growth in 2010. Medical real estate specialists have long made the case that a steadily aging population will create more demand for physicians, therapists and hospitals along with the spaces they occupy, especially in major cities and regions where retired folks settle down. Analysts believe that health care reform will be a tremendous potential boost to for-profit hospital providers such as Tenet Healthcare Corp., with as many as 30-36 million formerly uninsured patients who will enter (or be dragged into) the health-care system. Medical service providers will need technologically advanced space and systems to deal with this onslaught of new patients from universal health care. Hospitals and medical buildings will be in demand regardless of the fate of reform, particularly in areas with large retirement populations like Arizona, California, Florida, the Carolinas and Texas.

MOB: More Growth, Less Distress

Even before reform became an issue, medical office assets were deemed much more stable than traditional office properties. Health care remains the strongest sector of the economy, adding 222,000 workers as of midyear for a growth rate of 1.4%. Lenders are more favorable to health care deals, and only 1% of MOBs were classified as distressed at midyear, equating to $200 million in troubled loans, according to a 2010 medical office outlook by Marcus & Millichap. Traditional office, by comparison, had almost $20 billion, or 3%, of assets at risk of default or foreclosure. Make no mistake, the MOB segment is under pressure like the rest of commercial real estate. The recession and rising medical costs are causing many Americans to defer elective outpatient care, diminishing demand for doctors, hospitals and the spaces they occupy. Deliveries have outpaced absorption and vacancy has ticked up, forcing operators to cut rents, according to Marcus & Millichap. But universal health care could change the game. If even half the 46 million people who are currently uninsured gain coverage under health care reform, the added demand would require nearly 45 million square feet of MOB space beyond what is needed to satisfy normal demand, the M&M report cited. What's more, advances in health care technology and higher data and bandwidth needs will also drive space requirements at or near MOBs. The American Recovery and Reinvestment Act of 2009 has allocated about $19 billion to for development of electronic medical record systems, "potentially creating a new tenant group for existing MOB space," the Marcus & Millichap report said. While deal flow has slowed like every other building type, MOB sales as a share of total office sales activity have actually risen from 14% to 25% over the past seven years, Marcus & Millichap observed. And despite recent expansion of capitalization rates, returns have been remarkably stable since the mid-1990s. "We're finally seeing some stabilization of caps rates," Kevin Roy, health-care property specialist with Jones Lang LaSalle, tells CoStar Group. Roy noted that MOBs which were selling at a 6.5% cap rate 18 months ago may now trade in the high 8%'s or 9% today. That's at or near the 9% historical average calculated by JLL researchers for medical offices over a 15-year period. Most buyers today are interested in hospital campus space. Hospital facilities in major city centers with a high percentage of Medicaid and Medicare patients stand to benefit the most from newly captured patient revenue under health care reform. If and when reform passes, however, leasing growth will initially be more constrained because the supply of new doctors who occupy of medical space will rise more slowly than the number of new patients, Roy said. Real estate companies affiliated with hospital groups are clearly enthused about reform-fueled opportunities. "The reopening of the capital markets coupled with the expected near-term passage of health care reform "has set in motion an unprecedented volume of strategic and capital market activity" that will likely result in health care deal volumes for the first six months of 2010 that will exceed the previous three years combined, said Jay Flaherty, chairman and CEO of HCP Corp., which specializes in hospital real estate. "The fabled impact of this activity on HCP cuts across our entire portfolio and is likely to redefine our company in the period ahead. These opportunities will manifest themselves in several ways as market valuations of HCP-owned investments increase in value," Flaherty said in an earning call earlier this month. Others remain on the fence about the prospect of universal health care, or downplay its potential impact. "No one knows exactly what that's going to look like now. There are too many versions of it," said Edward K. Aldag Jr., chairman, president and CEO of Medical Properties Trust, Inc., which specializes in providing financing for health-care development and acquisitions. "However, one thing throughout all of the versions that we believe is that the hospitals will do fairly well." In any case, analysts say health care property companies with strong capital positions like HCP, Nationwide Healthcare Properties (NYSE: NHP) and Ventas Inc. (NYSE: VTR) are poised to expand their portfolios through external growth -- a claim not many CRE companies can make in the current market. Nationwide Health reported last week that it has agreed in principal to resurrect a long dormant deal to buy seven medical office buildings from Pacific Medical Buildings LLC in a deal valued at between $275 million and $300 million - an $80 million discount to the pre-credit crunch purchase price. NHP, with one of the strongest balance sheets in the REIT universe, has holdings in senior housing, skilled nursing and medical office properties. The company has sold $190 million of equity, which it will likely deploy for the Pacific Medical deal.

Funds Raising Dry Powder

At least 15 funds targeting healthcare, life science, assisted living and senior living acquisitions have announced in recent months they intend to raise more than $6.3 billion and have actually raised at least $1.3 billion as of early November, according to information complied by CoStar. The bulk of the targeted fundraising is by two funds, Grubb & Ellis Healthcare REIT II Inc. (targeting $3.29 billion) and Healthcare Trust of America, Inc. (targeting $2 billion). The biggest player, non-publicly traded REIT Healthcare Trust, has so far raised at least $1.26 billion -- nearly two-thirds of its funding goal -- and accounts for 97% of the total raised by all the funds so far. Also this week, Scottsdale, AZ-based Healthcare Trust announced an agreement to acquire a 62,000-square-foot medical office building on the campus of Good Samaritan Hospital in Baltimore, MD, for $11.2 million. As of Oct. 31, its portfolio included 154 buildings totaling 6.4 million square feet, including 137 MOBs, four hospitals, nine skilled-nursing and assisted-living facilities and four other office buildings across 19 states. In another deal this week, Hunt Valley, MD-based Omega Healthcare Investors said it has reached a $565 million agreement with Chevy Chase, MD-based CapitalSource to acquire 80 net lease long-term-care facilities. The transaction is expected to close in two parts and includes an option through 2011 to acquire 63 more CapitalSource facilities in 19 states for $295 million in cash. Omega Healthcare expects to close the first part of the deal, 40 long-term-care facilities in 12 states along with an option on an additional 63 facilities. In the second part, Omega will acquire another 40 long-term-care facilities in two states for $65.1 million in cash and $205.3 million in debt by April 1, 2010. Other large investment transactions recorded by CoStar since the beginning of the fourth quarter include the following:

· Capital Solutions acquired three medical facilities from Crozer-Keystone Health System for $38 million or about $148 per square foot. The sale included a 40,000-square-foot medical building located at 100 W Sproul Road, a 176,000-square-foot hospital and 40,000-square medical building located at 190 W Sproul Rd, in Springfield PA. Crozer-Keystone Health System will lease back all three medical facilities for 20 years located in Delaware County. Both parties handled the transaction in-house. (CoStar COMP# 1810780)
· Healthcare Trust of America Inc. signed an agreement to acquire the 108,500-square-foot Mary Black Medical Office Building, at 1650 Skylyn Drive, on the campus of the Mary Black Memorial Hospital in Spartanburg, SC. The sale price is set at $16.25 million, or about $150 per square foot, and the closing is subject to a number of conditions. Mary Black Health System LLC is the seller. Mary Black Health System leases 65% of the three-year old medical office building, and its operation includes about 209 acute licensed beds and 386 active physicians. "This acquisition allows us to continue the growth we started in the South Carolina marketplace in September with a strategically located on-campus property that has significant tenant occupancy", said Mark D. Engstrom, the REIT’s executive vice president of acquisitions.
· Legacy Real Estate Ventures LLC purchased a medical office building at 111 Plain St. in Providence RI, from Corsetti Properties LLC for $3.32 million, or about $260 per square foot. The three-story, 12,792-square-foot structure was built in 1900. University Medical Foundation occupies the entire building. (CoStar COMPS #1796681)
One large deal late in the third quarter also bears mentioning. In September, Newton, MA-based Senior Housing Properties Trust (NYSE: SNH) acquired 10 MOBs with a total of 643,000 square feet for $169 million plus closing costs. The portfolio is fully leased to Wisconcin-based Aurora Health Care Inc.

Developments

· Seavest Inc. and its joint venture partner, Aardex LLC, announced that they are developing two medical office buildings on the new campus of St. Anthony Hospital in Lakewood, CO. Seavest will be the majority owner of the buildings, which will total 250,000 square feet, in its first project in the Denver area. The first building, a four-story, 100,000 square foot facility, will start construction in the first quarter of 2010. The second building will be five or six stories and between 125,000 and 150,000 square feet.
Ensemble Real Estate has completed construction of Auburn Medical Plaza II, a $12.9 million medical/office development in Auburn, WA. The three-story, 41,311-square-foot building at 121 N. Division St. is part of the Auburn Regional Medical Center campus and includes a four-story, 304-space parking garage. The property is already 75% leased. Capital Oncology plans to occupy more than half of the facility in April 2010. The medical provider signed a 12-year lease for the entire ground floor and part of the second, totaling 24,957 square feet. Additionally, Auburn Neurological Institute has signed a seven-year lease for 3,792 square feet, and Auburn Regional Medical Center has reserved 4,056 square feet for a sleep center. Tracy Altemus with Ensemble is currently leasing the remainder of space.

· KIRCO completed construction on the Mount Clemens Regional Medical Center at 8180 26 Mile Road in Shelby Township, MI. The three-story medical office building is on five acres and totals 58,719 square feet. The project, developed by KIRCO, was about 66% preleased. The new tenants, set to take occupancy early next month, are Mount Clemens Regional Medical Center, which will occupy the entire first floor, and Allure Medical Spa, which will occupy the entire third floor. KIRCO will stay on as property manger. Neumann/Smith & Associates was the architect for the building. Paul Choukourian of KIRCO represents the lessor, MCMRC Health Building Partners. (CoStar Property ID #7258549)
· The Matan Cos., in collaboration with Federal Capital Partners, secured a $52 million construction loan for its planned development of the National Cancer Institute's 330,000-square-foot facility on Gas House Pike in Frederick, MD. Paul Collins and David Webb of Cassidy & Pinkard Colliers arranged the financing on behalf of Matan. Both Wells Fargo Bank and US Bank provided the financing. Construction on the new NCI facility will begin immediately. The $200 million lab facility will be completed in mid-2011. The building is a part of the Riverside Research Park.
· Pacific Medical Buildings will break ground in November on an 88,000-square-foot medical office building for the St. Jude Heritage Medical Group in Yorba Linda, CA. Additional MOBs are scheduled to break ground in San Diego and Castro Valley in 2011. In addition to primary care and multi-specialty medical offices, the Yorba Linda facility, which will be jointly owned by physician investors and St. Jude, will house imaging and urgent care centers. The building is one of three new MOBs and a parking structure the San Diego-based company will build in California over the next couple years. The other two projects are a 60,000-square-foot building and 320-space parking structure developed with the Sharp Rees-Stealy Medical Group in San Diego, and an 80,000-square-foot medical office building in the San Francisco Bay Area community of Castro Valley on the campus of Sutter Health System's Eden Medical Center.
· Ridgeview Medical Center has broken ground on Two Twelve Medical Center, a $17 million, 163,000-square-foot outpatient center in Chaska, MN. The new facility at 111 Hundertmark Road is slated for completion in February 2011 in Chaska, the seat of Carver County, MN, about 26 miles from Minneapolis.
· The Economic Development Authority of the City of Arlington, TX is planning the construction of a 70,000-square-foot medical office complex in south Arlington. Texas Clinic at Arlington will cost an estimated $12 million and will be located at 400 W. Arbrook Blvd. The three-story medical office building will break ground in December with completion slated for summer 2011. Arlington MOB Partners, L.P. is the developer.

MOB/Healthcare Leasing

· Laser & Skin Surgery Center of New York (LSSCNY) signed a 25,940-square-foot lease with Adams & Co. Real Estate at The Medical Arts Center in Manhattan. The cosmetic skin surgery center has renewed its lease for the sixth and 11th floors, and has expanded onto the second and ninth floors. The 12-story, 120,000-square-foot medical office building 317 E. 34th St. was built in 1910 in the Murray Hill submarket. David Levy of Adams & Co. represented both parties in the deal.
· Six tenants leased a total of 19,500 square feet at 3886 Princeton Lakes Way in Atlanta, GA. Orthopaedics of Atlanta, Southern Pain Institute, Geetha Manchireddy MD, Providence Foot & Ankle, Sofia Farah MD and Tenet South Fulton signed leases ranging from 1,500 square feet to 5,000 square feet. The two-story, 30,000-square-foot medical office building starts construction late October and is due to deliver in March 2010. The proposed building is the 3rd building within the Camp Creek Medical Center, a 110,000-square-foot medical office park. Kevin Ehringer of Ackerman & Co represented the landlord in each deal. Bryant Cornett of Ackerman & Co represented Tenet South Fulton. The other tenants did not have representation.
· Santa Barbara-based Montecito Medical Investment Corp. awarded CB Richard Ellis a tri-state leasing assignment totaling 367,000 square feet. The leasing team of Kim Penny and Laura Westervelt will handle the 158,420-square-foot Knoll I and II projects in Columbia, MD. Brandon Wallace will lease the 59,238-square-foot Cartersville Physician Center in Atlanta, GA. Lars Eisenhauer will head the San Diego County leasing of three properties totaling 149,810 square feet. The San Diego portfolio includes the 30,450-square-foot Hillcrest Medical Center, the 70,058-square-foot Valley Parkway Medical Office and the 49,302-square-foot Escondido Medical Arts Building. Montecito Medical Investment Corp. specializes in the acquisition and development of a variety of medical facilities, including hospitals, medical office buildings, surgery centers, and skilled nursing facilities.
· Premier Inc., a leading healthcare alliance of hospitals and other medical providers, is moving its corporate headquarters from San Diego, CA, to Charlotte, NC, signing a 15-year lease at the Boyle Building in the Ballantyne Corporate Park. Occupancy is slated for February 2011. Premier is taking the entire 10-story, 262,000-square-foot office building at 13034 Ballantyne Corporate Place. Bissell Development delivered the Class A property at the end of last year. Blair Bryan, Jeff Harper and Eric Parris represented Premier in the transaction. Barry Fabyan, Charley Leavitt, Jenny Dykstra and Edward Curran with Bissell Cos. represented the landlord in-house. The organization already has a large presence in Charlotte, occupying the 175,000-square-foot Corporate Center One in the Lakepointe Corporate Center. Premier also has offices in Philadelphia and Washington, D.C.
· Omniflight Helicopters Inc. signed a deal totaling 26,882 square feet at 16415 Addison Road in Addison, TX. The air medical services company renewed 16,560 square feet on the fourth floor and leased an additional 10,322 square feet. Addison Tower is a nine-story, 145,886-square-foot office building. Ryan Collier and Ryan Evanich of Stream Realty Partners LP represented the landlord, Aque Investment Group. John Beach and Santee Hathaway of Jackson Cooksey represented Omniflight.

Skilled Nursing/Senior/Assisted Living

The largest MOB developers and owners such as Health Care REIT, Inc. are increasingly diversified with senior care, skilled nursing, continuing care retirement communities and other residential sub-niches. Like the single-family home and multifamily markets, these assets have been negatively affected to varying degree by the weak housing market. Diversification comes with other risks, as HCP Inc. found. Sunrise Senior Living Inc., which has battled liquity and balance-sheet problems, recently agreed to sell 21 wholly owned assisted-living communities in 11 states to an affiliate of Brookdale Senior Living Inc. for $204 million. The portfolio has a total of 1,389 units, comprised of 92 independent-living units, 876 assisted-living units and 421 Alzheimer's units in 11 states. Sunrise is expected to receive approximately $60 million in proceeds, to be used in part to pay off its credit facility. Sunrise's issues led to breach-of-contract allegations by HCP Inc., which terminated dozens of management agreements with the senior care operator. In other selected assisted-living, skilled-nursing and senior-living leases, sales and development activity tracked by CoStar news and research:
· Elmwood Centers purchased the St. Francis Health Care Centre investment property at 401 N. Broadway in Green Springs, OH, for $10 million or $500 per square foot from Franciscan Sisters of Our Lady of Our Lady of Perpetual Help, a nonprofit organization. The transaction was deemed a distress sale/high vacancy property.
· The Covenant Group acquired the Aberdeen Heights Assisted Living building at 7220 S. Yale Ave. in Tulsa, OK, from Turnaround Professionals LLC for $5.75 million, or about $68 per square foot. The CB Richard Ellis/San Diego team of David Rothschild and Mary Christian represented the buyer and seller. (CoStar COMPS #1798151)
· New York-based equity firm MCAP Sabine Pointe acquired the Coccomo Residential Center at 1556 Saybrook Road in Haddam, CT, from local investors for $7.15 million. Oren Klein and Joshua Olshin of Tranzon handled the auction sale for the seller. (CoStar COMPS #1798518)
· The Ensign Group signed a 10-year, 29,829-square-foot lease for the top floor of 27101 Puerta Real in Mission Viejo, CA. The skilled-nursing and assisted-living services provider is expanding, taking an additional 9,632 square feet. Leland Bruce and Mitch Lundquist of Jones Lang LaSalle represented The Ensign Group. Scott Johnstone and Greg Puccinelli of Grubb & Ellis represented the landlord, Mission Ridge Associates.
· Bridgewood Property Co. and Harrison Street Real Estate Capital have begun construction of a 207-unit in The Woodlands, TX, master-planned senior living community north of Houston. The project is scheduled for late-2011 delivery.
· Welsh Construction and Genesis Architecture completed Highview Hills by Walker, a 242,000-square-foot senior-living community center in Lakeville, MN. A grand opening ceremony was held Oct. 24. The 153 units include independent living, assisted living, memory care, and assisted-living care. Highview Hills by Walker is owned and operated by Minneapolis-based Walker Methodist, which operates nine other senior living facilities in Minnesota.

Lenders Bullish on Medical Office Market

With Lenders Bullish on Medical Office Market, Healthcare Realty Trust Snags $550M

Oct 05, 2009

By: Barbra Murray, Contributing Editor, Commercial Property Executive

The medical office market has fared better than most real estate sectors in the midst of the economic crisis, and it appears lenders are taking note. Nashville-based Healthcare Realty Trust Inc. has just entered into a $550 million unsecured revolving credit facility with a group of 16 lenders.The three-year revolving credit facility is scheduled to mature on Sept. 30, 2012 and replaces HRT's former $400 million credit facility, which was due in 2010; the financing allowed the REIT to repay in full the approximately $368 million outstanding balance under the former credit facility. Bank of America, N.A. is the administrative agent on the transaction, while Banc of America Securities L.L.C. and Calyon Securities L.L.C. are serving as joint lead arrangers and joint book runners. The remaining financial institutions involved include JPMorgan Chase Bank, N.A.; Regions Bank; Wachovia Bank; UBS Loan Finance L.L.C.; Barclays Bank PLC; Fifth Third Bank; SunTrust Bank; Bank of Montreal; Bank of Nova Scotia; State Bank of India; Compass Bank; Pinnacle National Bank; the Los Angeles branch of Chang Hwa Commercial Bank Ltd.; and Avenue Bank.As of the close of 2008, HRT owned a portfolio of 192 properties, 121 of which are medical office assets. The remaining group of 71 properties includes physician clinics, ambulatory care/surgery centers, specialty outpatient facilities, specialty inpatient facilities, and other healthcare property types. According to a mid-year report by Marcus & Millichap Real Estate Investment Services, "medical office properties continue to garner investor demand by exhibiting considerable resistance to the economic downturn." The market's stamina is due to the fact that the healthcare industry remains strong, with the country spending an annual $2 trillion on healthcare; a price tag that is expected to increase to more than $3 million by 2013. Ongoing demand for medical office properties will be driven by the aging baby boomer population and the growing number of people over 55, as well as the healthcare industry's shift in focus from inpatient care to outpatient care. The fundamentals are very strong for the medical office property market, and activity among many financial institutions supports the assessment. In September, GE Capital's Healthcare Financial Services business reported that in the first six months of 2009, it had provided a total of approximately $1 billion in loans for 45 transactions that allowed borrowers to refinance existing debt, finance growth pursuits and support working capital needs.

Financing for medical office properties

Medical Properties Riding High Even as Other Commercial Real Estate Founders

Posted by Alex Finkelstein 07/31/09 1:00 PM EST
http://www.realestatechannel.com/

(MINNEAPOLIS, MN) -- Financing for medical office properties is widely available, even as other commercial real estate categories scurry to find new loans or to refinance older debt.That's what Healthcare Real estate Insights, a six-year-old industry newsletter, is reporting.The Minneapolis, MN-based publication says recent deals have included $250 million in new debt and $30 million in new equity from Prudential Real Estate Investors (PREI), and a separate effort to create a new $40 million medical real estate investment fund. The Chicago-based healthcare real estate firm, Lillibridge, recently obtained $250 million in debt with a variety of sources, and secured $30 million in equity from PREI, which is part of Prudential Financial Inc. (NYSE: PRU). The debt was used to refinance existing medical properties, while the fresh equity - PREI's fourth venture with Lillibridge - is earmarked for additional medical real estate acquisitions and new developments, according to the newsletter."We continue to acquire and develop even in these tough times and we have an equity source that believes in the management team and the assets that we're buying and developing," Lillibridge CFO Joe Kurzydym told HREI.Meanwhile, Nashville, Tenn.-based developer Oman-Gibson Associates says it is looking to raise $40 million from investors, and then leverage new medical real estate developments and acquisitions in the 40 percent to 50 percent range. As a result, the fund could invest up to $80 million to $90 million in healthcare real estate."We believe this allows us to take advantage economic conditions that exist today," according to Tom Gibson, one of the firm's principals. "Healthcare is still viewed as a counter-cyclical play, and the markets that we're going after - in the $1 million to $10 million range - are still relatively easy to finance because of the size. "Many of the banks and institutions are shying away from mega-deals and the smaller deals obviously pose a lot less risk for both investors and banks. We think this is an opportunity for our company and the investors in the fund to take advantage of that."

Orlando - New Medical Office

Monday, July 6, 2009

Construction starts on new medical offices
Orlando Business Journal

Construction began July 6 on a new $39 million medical office building, located just north of the M.D. Anderson Cancer Center Orlando.
The 150,000-square-foot Downtown Outpatient Building, located at the corner of Orange Avenue and Columbia Street, will house physician offices, ancillary and outpatient services and retail space.

Orlando Health, which is initially the sole owner of Downtown Outpatient Building LLC, will be transferring ownership in the company to other physicians in the upcoming months.
The building is expected to take 15 months to complete, with a scheduled opening date of October 2010. The architect is Baker Barrios, the builder is Jack Jennings & Sons, and the developer is Balfour/Concord & Capital Development Group.

Construction began in fall 2008 on a new $32 million parking garage adjacent to the medical office building. It will be completed at the end of this year and will provide more than 700 parking spaces for patients.

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