PHC November 2020 Real Estate Practice Newsletter

Pinnacle Healthcare Consulting (PHC) has access to a wide amount of data and has provided commercial real estate appraisals confirming Fair Market Value on healthcare properties across the country. We are expanding Pinnacle’s real estate services to include consulting for lease restructuring, development projects, and consulting for real estate transactions within the healthcare industry.  Our November 2020 newsletter provides an update and information on the real estate market and recent transactions.

PHC November 2020 Real Estate Practice Newsletter

PHC June 2020 COVID-19 Real Estate Practice Newsletter

PHC June 2020 COVID-19 Real Estate Practice Newsletter

May 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Welltower Announces Completion of Two Generation Medical Office Buildings Leased to Atrium Health.

The two (2) recently developed medical buildings in Charlotte, NC total over 280,000 square feet. The properties were completed in March 2021 and leased to Atrium Health under a 15-year lease. Pappas Properties, LLC is a Charlotte-based developer and strategic partner with Welltower on the planned 9-acre healthcare anchored, mixed-use campus.

BMO Harris Healthcare Real Estate Finance provides a $28.6 Million Credit for Kanye Anderson Real Estate and Remedy Medical Properties. 

The portfolio consists of 4 facilities in New Mexico totaling 115,000 square feet and are currently 100% occupied to HealthCare Services, Inc. Kayne and Remedy have acquired 22.7 million square feet of medical office space, containing 571 buildings in 41 states. Together, they are the largest privately held, non-hospital affiliated owners of medical office buildings in the country.

Cincinnati Children’s Hospital Breaks Ground on New College Hill Facility.

The academic acute care children’s hospital has broken ground on a new behavioral health facility. The $99 million building will replace the current inpatient facility and total 160,000 square feet over five (5) stories, which is 68% larger than the current building and will feature private rooms for all patients. The new hospital is scheduled to open late 2023, though it is still $36 million short of its goal.

Healthcare Real Estate Trends – Transactions and Employment are Trending Upward

Montecito Acquires Surgical Facility in Suburban Cleveland. 

The facility was an outpatient-oriented surgical medical building in the Cleveland suburb of Beachwood, Ohio. The two-story, 69,800 square foot medical center was built in 2019 and is 100% leased to an operating entity owned predominantly by two market-dominant health systems, Lake Health and University Hospitals. The facility specializes in orthopedics, spine, urology, general surgery, and pain management. The layout includes 8 operating rooms, 2 procedure rooms, and 25 patient beds. The hospital has a staff of more than 200 with 56 operating physicians.

Pinnacle Real Estate Group Assessment

The Healthcare Real Estate Market Continues Adjusting.

Healthcare employment has rebounded noticeably better than the broader job market. Medical offices were much more insulated from the declines in demand compared to that of other property types. Healthcare employment fell as much as 6.4% in 2020, but stable growth is to be expected over the next 5 years. The continuing implementation of telehealth will lead to a greater role in the healthcare sector, but the overall impact on medical office buildings most likely remains negligible. Medical properties are expected to see a rebound in demand this year as the COVID-19 virus subsides. Medical office investors are expecting good growth opportunities due to the levels of transactions and pricing being more flexible than other property types.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

PHC April 2020 COVID-19 Real Estate Practice Newsletter

PHC April 2020 COVID-19 Real Estate Practice Newsletter

June 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Medical Properties Trust To Buy 18 Springstone Hospital Facilities for $760 Million

Medical Properties Trust has agreed to acquire 18 Springstone inpatient behavioral health hospitals in a $760 million sale-leaseback deal. The transaction also involves acquiring an interest in Springstone’s operations for $190 million. The seller of the properties is San Francisco-based private equity firm Welsh, Carson, Anderson & Stowe. Louisville, Kentucky-based Springstone provides behavioral health services in its purpose-built, inpatient facilities in nine states, with five in Texas, four in Ohio, two in Arizona and Indiana, and one each in Washington, Colorado, Kansas, Oklahoma and North Carolina.

Steward Health Care to Build New $227 Million Wadley Regional Medical Center

The company is to break ground on a new state-of-the-art hospital just northwest of its current location in Texarkana. The project includes a medical office building while offering full range of hospital services such as orthopedics, cardiovascular, 24/7 emergency room, neurosurgery, maternity care, and other outpatient services. The new hospital will have 123 beds with an option to expand to as many as 291. The project is supposed to be completed around May of 2024. Construction is slated to begin in September of 2021 and take 32 months following. Wadley’s current location will be fully operational as construction takes place.

Renovated Richmond Building Sees Nearly $30 Million Jump in Price

A medical office building in Richmond, Virginia, that sold for $3 million five years ago has traded hands in a $32.5 million deal following a full-scale renovation. Montecito Medical paid about $359 per square foot to acquire Brookfield Commons, a 90,598-square-foot, three-story building located at 6600 W. Broad St. in Midtown. The sale price is a significant jump for a 1977-vintage property that once housed the headquarters of the Virginia Department of Transportation before going into foreclosure in 2014.

Healthcare Real Estate Trends

Medical Office Buildings Make Up Over One-Third of Orange County Office Sales in 2021 

Sales volume for medical office properties in 2020 reached nearly $480 million locally, compared to the market’s five-year average of $360 million, annually. Investment in medical office this year is around $180 million, roughly halfway through the year. Nashville-based Healthcare Realty Trust purchased two properties accounting for nearly $60 million in volume in the second quarter. This brings the REIT to around $200 million in acquisitions in Orange County since early 2020. In April, it paid $31 million, or around $544 per square foot, for The Laguna Building in Laguna Hills, California. The property was around 80% leased at the time of sale by a wide range of medical tenants including SimonMed Imaging, Pacific Cardiovascular Associates and Nvision Eye Centers. The seller, Bay Area-based Meridian Property Company, acquired the asset for $19.9 million in 2017. A month later, Healthcare Realty Trust bought the adjacent Saddleback Professional Center for $24.6 million, or roughly $337 per square foot. The property was around 82% leased at the time of sale and is home to a California Bank & Trust office, as well as multiple medical tenants. The property was previously acquired for $15.9 million in 2017.

Pinnacle Real Estate Group Assessment

Premium Prices for Healthcare Real Estate Properties Are Being Realized

What we have noticed over the past few months is that commercial real estate properties within the healthcare industry are receiving premium prices in recent transaction in multiple markets across the country.  We believe that the current trend for these higher prices is directly connected to the perception and reality that healthcare entities and their real estate are inherently more stable than other industries and types of properties, especially during the pandemic and the reaction to it that occurred the past sixteen (16) plus months. A collaborative factor that has also contributed to the trend is that a good portion of wealthy entities have experienced unprecedented wealth expansion in the past year and seem anxious to deploy those recent increases into new investment opportunities. We believe this trend will continue through the end of the year or until the expected pending inflation begins to become a reality.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

COVID-19-Healthcare-Real-Estate

COVID-19-Healthcare-Real-Estate

July 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

$1 Billion Hospital Campus to Serve As Centerpiece of Remade Landmark Mall in Alexandria, Virginia

Foulger-Pratt to redevelop the 52 Acre tract into a walkable urban village to include medical office buildings, multifamily units, retail, commercial, and entertainment offerings.  At the heart of the redevelopment project is a new $1 Billion hospital and medical campus for Inova which would replace nearby Alexandria Hospital and employ roughly 2,000 health care workers. The $2 billion proposal also calls for affordable housing, outdoor parks, a new fire station, and a transit hub that would anchor the city’s proposed bus rapid transit network, DASH, and Metrobus. Construction at the site could begin as soon as 2023, with the first buildings potentially opening in 2025.

CaroMont Health Kicks Off Construction for New Hospital, Medical Campus in Belmont (N.C.)

The CaroMont Regional Medical Center – Belmont is set to open in mid-2023. On 28 acres, the campus will include a 66-bed hospital, 16-room emergency department, labor and delivery unit, operating rooms and surgical capabilities, and diagnostic testing and imaging services. A medical office building and parking deck are also part of the plan. Estimates show the hospital could take as many as 16,000 patients in the first year and, in addition, create 150 new jobs. The project will also offer educational opportunities for students in Belmont Abbey College’s health science programs.

Hospital Chain Will Lease Part of Former Toys “R” Us in Eatontown, New Jersey

Edison-based Hackensack Meridian Health has committed to 45,600 square feet for an outpatient facility and urgent care center serving Central New Jersey at the Monmouth Plaza shopping center located at 133-137 Highway 35 in Eatontown, New Jersey.  The new Hackensack Meridian location, slated to open in the second quarter of 2022, was cobbled together from the 80,592-square-foot shopping center’s closed Eastern Mountain Sports and DSW stores and a portion of a closed Toys “R” Us.

Real Estate Economy Trends

Prices Rise Faster Than Expected in June for Both Consumers and Businesses

Federal Reserve Chairman Jerome Powell continued to emphasize that inflation is transitory during his testimony to the House Financial Services Committee last week. However, he also admitted that inflationary effects have been larger and more persistent than expected. While there are signs that current inflation pressures are generally tied to the aftermath of the pandemic, longer-run forces might shift the economic landscape and merit some consideration. Powell’s testimony came a day after the Bureau of Labor Statistics released its consumer price index report for June, which showed the headline figure growing by 0.9 percent — the highest month-over-month number in 13 years. Combined with the previous three months, when the consumer price index grew by at least half a percentage point each month, inflation has grown by 2.9 percent over the past four months — an annualized rate of 8.7 percent. The less-volatile core inflation index, which excludes food and energy, also grew by 0.9 percent in June.

Pinnacle Real Estate Group Assessment

The Inflation Factor in Healthcare Real Estate

There continues to be more than the usual amount very large real estate transactions, hundreds of millions to more than billions of dollars, within the healthcare industry the past few months at unprecedented market terms which has generally accelerated, if not inflated, the values.  As indicated in last month’s newsletter Assessment, we believe this trend will continue through the end of the year or until the expected pending inflation begins to become a reality.  With the recent information shared by Federal Reserve Chairman Jerome Powell and Bureau of Labor Statistics released its consumer price index report for June, mentioned above, it seems that inflation is a foregone conclusion, and the last remaining question is, when will it, inflation, start effecting the markets, including healthcare?  The current aggressive healthcare real estate market seems like a frenzy before inflation hits, which there are indications that has factored into the current situation.  Because of that, our current assessment is that this aggressive trend, specifically in the healthcare real estate market and somewhat created by the perception of pending inflation, will continue for the foreseeable future and beyond any potential impact of inflation.  The reason being the momentum the healthcare real estate market has established the past year combined with the reaction to the country and world reopening after the Pandemic should maintain the path regardless of potential inflation effects.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

August 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Texas Children’s $201 Million Expansion in Houston

Texas Children’s is planning to reconfigure the real estate at its existing 15-story tower at 6620 Main St., which is getting renamed Main Tower, as well as changing its operations across the street at 6651 Main St. Texas Children’s bought 6620 Main St. from Baylor St. Luke’s Medical Center in 2016. Baylor College of Medicine vacated two of three of its floors in 2020 and still leases one floor in the building, a Texas Children’s spokeswoman said. The first phase of the expansion plan is expected to be completed in the spring of 2022. The full expansion is expected to be completed in 2024. The two buildings will be connected by a newly constructed skybridge. In total, the project gives Texas Children’s another 190,000 square feet of usable space within its existing buildings.

Biotech Firm Artiva Leases Large Space for New Headquarters in San Diego

San Diego-based Artiva, which develops cancer-related therapies and treatments, leased 52,000 square feet at a building currently under redevelopment by owner Alexandria Real Estate Equities at 5505 Morehouse Drive. The space will house new research, manufacturing and laboratory facilities after Alexandria completes construction in 2022, as Artiva expands from its current location in the city’s University Town Center neighborhood.

Anchor Purchases MOB in San Diego Area

Anchor has closed on a 54,703 square foot, two story medical office building located in the Oceanside/Vista submarket of San Diego. This select building is one of the top remaining third-party owned assets in the San Diego MSA. The building is located conveniently by the Tri-City Medical Center, a 320-bed hospital district campus serving the North San Diego County. The facility contains an on-site pharmacy, secured subterranean physician parking, open atrium, and ample on-site parking for patients and visitors. Anchor will provide go forward asset and property management at this location.

Healthcare Real Estate Trends

MOB Delays and CAP Rates

MOB project completions continue to slow in 2Q, down to 17 million square feet in annual deliveries. This is the lowest pace of deliveries in the last 6 years and represents a 32% decrease from the annual run rate of 25.1 million SF in deliveries in 1Q2020- just before the onset of COVID and all the related shutdowns, restrictions and labor shortages. Despite all of these headwinds, project starts have remained remarkably stable, suggesting the pandemic has largely been causing project delays after breaking ground.  In addition, CAP rates for MOB properties are continuing a trend of compressing during the past several years.  Updated 2^nd quarter, 2021 Revista data reveals the median MOB cap rate was 5.8%.  This was down from 6% in 1Q21 and 6.3% one year ago.  This compression is consistent with heightened investor demand.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Continues to Gain Momentum and Popularity

The world has significantly changed and continues to change in the past twenty plus months on varying levels and wide-ranging aspects.  One of those changes is with the previous perception and now reality of healthcare real estate.  Prior to the beginning of 2020 the general consensus within the commercial real estate industry was healthcare was a niche subsection of the industry due to its inherent differences to other sectors along with its more complicated and specialized aspects. Because of that it only involved only a relatively small group and was not considered on the same level as industrial, retail, office, and multi-family which resulted in healthcare properties historically receiving higher CAP Rates compared to their cohort sectors. With the combination of recent factors the past twenty months to include but not limited to: the COVID-19 pandemic and reaction to it, the “Amazon Effect” on retail, the “Zoom/Teams Effect” on office buildings, the resiliency of the healthcare industry, along with several other factors, the previous perception and reality of the healthcare real estate has now drastically changed which we believe will continue indefinitely.  Not only has the environment since early 2020 leveled the playing field it has turned some factors completely upside down.  The “retailization” of Medical space, also known as “Medtail”, where retail properties are being converted to medical has been gaining momentum is now continuing into office properties. With the combining factors of increasing construction costs, delays on new development projects, and increased funds flowing into the healthcare sector, the “officeization” or “Medfice” type projects, both new terms we believe will start to quickly catch, seems destined to become a continued growing aspect of the commercial real estate industry in the foreseeable future.  To conclude, we believe healthcare real estate is removing the niche perception and becoming a popular component of the commercial real estate industry.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

October 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

Easterly, Through JV, Agrees to Acquire 1.2 Million SF VA Portfolio for $635.6 Million.

Easterly Government Properties Inc. (NYSE: DEA) announced last Wednesday, October 13^th, that it has formed a joint venture (JV) to acquire a 1,214,165 square foot portfolio of 10 properties 100 percent leased to the U.S. Department of Veterans Affairs (VA), for a purchase price of about $635.6 million. The acquisitions, which Easterly says will close “on a rolling basis” by the end of 2023, include three properties in Texas, two in Georgia and one each in Tennessee, Kansas, Alabama, Arizona and Florida. The 100 percent build-to-suit, Class A properties are either recently delivered or under construction, and the average lease term is 19.6 years.

Southeast Gateway Medical Office Portfolio Sold.

The Portfolio consists of eleven medical office properties located in some of the most desirable markets in the Southeastern US. The Properties are concentrated within the Atlanta, Nashville and Charlotte MSAs and benefit from the exceptional, high-growth demographic trends that define the region. The Portfolio is 95% leased with a roster of tenants that is 69% composed of health systems and credit quality physician groups, representing a diverse mix of clinical specialties. Health system tenants within the Portfolio include Piedmont Healthcare, Northside Hospital, WellStar Health System, Emory Healthcare, Children’s Healthcare of Atlanta, Vanderbilt Health, TriStar Medical Group / HCA, U.S. Department of Veteran Affairs, Atrium Health, and Novant Health.

Hammes Healthcare Celebrates Groundbreaking.

Construction has been progressing since 2020, converting a Sears building in Marketplace Mall into an ambulatory surgery center, and the ceremony marked the start of the project’s 4-story outpatient clinical tower. UR Medicine’s new ambulatory orthopedic campus will span more than 400,000 square feet to provide clinical care, education, research, and community wellness. Upon opening in late 2022, the ambulatory surgery center will have eight operating rooms with additional pre- and post-operative rooms to support the most complex orthopedic surgical procedures. The new tow is set to open in late 2023 will house health and wellness and admin spaces.

Healthcare Real Estate Trends

Portfolio Sales Dominate Third Quarter

Since late September there have been multiple sizable portfolio transactions in the healthcare real estate industry.  According to Revista portfolio sales represented more than sixty percent (60%) of the $4.6 billion of total MOB sales volume in the third quarter. In addition to the two (2) porfolio transactions mentioned above there were also the following transactions: A portfolio, known as the I-95 Portfolio with properties in Rhode Island, includes twelve (12) assets totaling 573,554 square feet of space was acquired by a Joint Venture of Evergreen Medical Proerties and Bain Capital.  A three (3) MOB portfolio in Federick, Maryland was recently acquired by BentallGreenOak.  A portfolio of twenty-nine (29) facilities in ten (10) states owned by The Inland Real Estate Group received $220 million in financing for the portfolio that includes 720,000 SF of healthcare space.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Continues Its Positive Trajectory in 2021.

Now that the third quarter of 2021 has concluded we can look back and confirm that the Healthcare Real Estate Industry is trending upward with a positive trajectory.  In our previous newsletters we have mentioned our opinions on this trend and would like to confirm with statistics.  The third quarter was a strong for MOBs with a sales total of $4.6 billion, which is the second highest quarterly total since 2015, with first being $4.9 billion of sales in second quarter of 2017.  The year-to-date total for 2021 is $9.6 billion, which assumes that the Healthcare Real Estate Industry will once again reach more than $10 billion of sales for seven (7) consecutive years.  The trailing twelve-month (TTM) total after third quarter 2021 was $13.7 billion was the highest since first quarter of 2018 TTM sales were $14.6 billion.  Overall, we believe that unless the effects of the pending inflation begins to materialize or an unknown critical market issue arises this positive trend will continue through the end of 2021 with the potential for the TTM totals in 2022 quarters to reach 2017 levels over $15 billion.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com

September 2021 Real Estate Newsletter

Healthcare Real Estate Transactions and New Construction 

World’s First COVID-Conscious Skyscraper and Medical Center.

An all-in-one residential, hotel, and medical skyscraper in downtown Miami was recently annuonced. Miami Worldcenter is currently the nation’s largest urban core construction project and America’s second-largest real estate development. The 55-story, $500-million, 600-foot-tall Legacy Tower at the Mammoth Miami Worldcenter is the result of a revolutionary joint venture and partnership between Adventist Health, Accor Hotels, Blue Zones, Royal Palm Companies. Who are these companies? Adventist Health is one of the nation’s largest not-for-profit, faith-based hospital and healthcare systems; Blue Zones, the global leader in human longevity research; Accor Hotels, one of the world’s largest hospitality companies; and the Royal Palm Companies — Florida’s preeminent luxury high-rise real estate development firm. The Legacy Tower’s $100-million, 120,000-square-foot, state-of-the-art medical center will be the most technologically advanced health and wellbeing facility in the world, according to Royal Palm Companies CEO, Daniel Kodsi.

KKR Targets $1 Billion in Healthcare Properties.

The New York private equity giant and Cornerstone Companies, a full-service healthcare real estate investment firm, entered a joint venture to acquire and develop a portfolio of diversified medical properties across the country. The pair started off by seeding the portfolio with a recapitalization of 25 healthcare properties owned by Indianapolis-based Cornerstone. Together, they plan to buy more than $1 billion in real estate at a time when demand for healthcare services and medical testing have increased with the spread of COVID-19.

Purchase of 107,228 Square Foot MOB in Maine.

Davis Medical Investors LLC has acquired the 10-story, 107,228-square-foot 84 Marginal Way building on 1.37 acres in Portland’s popular Bayside district. The Class A, 100 percent leased building is anchored by InterMed, Maine’s largest private medical practice. 84 Marginal Way is InterMed’s flagship location and it delivers a wide variety of services including: internal medicine, pediatric medicine, family practice, physical therapy, obstetrics and gynecology, dermatology, emergency medicine, cardiology, audiology, and sports medicine.

Healthcare Real Estate Trends

Recapitalization of Three (3) Healthcare Real Estate Portfolios.

In the past couple of weeks, there have been announcements of three (3) fairly significant Recapitalization transactions in the healthcare real estate industry. A $245M, 31 building portfolio, totaling 545,813 square feet across 10 states was announced by JLL who represented Montecito Medical Real Estate in arranging the terms with AEW Capital Management.  CBRE announced the recapitalization of the RG Real Estate (RGRE) portfolio comprised of a 10 MOB properties totaling 222,337 square feet in the Atlanta, Georgia MSA. Newmark represented Global Nephrology Solutions (GNS) involving a portfolio of 15 dalysis and MOB facilities totaling 160,854 square feet in Arizona and Florida.

Pinnacle Real Estate Group Assessment

Healthcare Real Estate Taking Advantage of Recent Popularity through Recapitalization and Monetization.

In last month’s August newsletter, we assessed that healthcare real estate, primarily because of its stability through the pandemic, has become a respected and highly sought-after sector of commercial real estate industry the past twenty plus months from an investment perspective. Popularity has created a trend for retail and office type properties to be transitioned / redeveloped into healthcare facilities.  The newfound popularity combined with other factors including the sustaining lower cost of capital, is creating another trend of Recapitalization and Monetization for healthcare entities.  As mentioned above, recently there are three (3) separate healthcare entities that have finalized fairly significant transactions related to this trend.  The reason being, healthcare entities are taking advantage of the steadily increasing values of their commercial real estate assets and using it for a variety of scenarios, that for the most part, fortify the entities’ current financial situation and capability going forward. This Recapitalization and Monetization opportunity could help the healthcare entity stabilize its overall financial situation if it experienced a downturn during the pandemic or has any existing financial struggles.  This trend can allow a healthcare entity to upgrade and expand its facility or overall portfolio.  It can also provide opportunities to partner and joint venture with legitimate Capital entities for current and future needs. This trend may not be suitable for every healthcare entity, but we do believe unless something drastically changes the current market conditions, this trend of Recapitalization and Monetization within healthcare real estate will continue going forward and provide opportunities for varying sectors in both the healthcare and commercial real estate industries combined.

Christopher Louis, ASA, MAI
Director
720-598-1439
CLouis@AskPHC.com

Mike Vandaveer
Director
720-599-7883
MVandaveer@AskPHC.com

Tony Price
Analyst
720-386-3540
TPrice@AskPHC.com