BlackSwan Zine » medical office buildings

Healthcare: Austin medical office strongest niche

analyst — Tue, 07 Sep 2010 14:28:22 +0000

by Francisco Vara-Orta for Austin Business Journal

Medical office space continues to outperform traditional office space in Austin. And the niche could see construction within six to 12 months, according to developers and brokers.

The medical office market’s midyear vacancy rate was 13.3 percent, according to the midyear Medical MarketScope, a report produced by Austin-based real estate company Site Solutions Inc. While that’s up by 2 percent from midyear 2009 and by 1 percent from year-end 2009, it’s well below the current midyear vacancy rate for nonmedical office properties of 24.1 percent, according to CB Richard Ellis’ midyear report.

In recent years the region benefited from the construction of new medical office buildings tied to major hospital systems, as well as new higher-education buildings. Texas A&M Health Science Center College of Medicine moved into its first building in its new Round Rock campus, and Texas State University’s new School of Nursing is welcoming its first students this fall.

There were significant events during the first half of the year, including St. Jude Medical Inc.’s expansion and Hanger Orthopedics Co. announcing its corporate relocation to Austin, said Gail O’Connor, senior vice president of Site Solutions.

[austin.bizjournals.com]

Healthcare: Health care reform muddles medical office options

analyst — Tue, 06 Jul 2010 14:03:09 +0000

by Mark Alexander for news-press.com

1:10 A.M. — We saw a slow, steady climb in values for medical office buildings (hereafter MOBs) from 1980 through 2003. During this same time, income for doctors continued to rise as their brief concern over health care reform never made it past the desk of Hillary Rodham Clinton.

We witnessed a steep climb in values for MOBs from 2004 through 2008 as the rising tide of values for all property types got swept higher and higher in our crazed real estate bubble period in America.

But the bubble burst in 2007 for residential real estate followed by another bubble burst in 2009 for commercial real estate. Our high-flying Saturday night dance with escalating property values is finally over. It feels like the market has a “day after” hangover on a cold, rainy Sunday morning … and it is time to pay the band and clean up the mess.

The only glimmer of light peeking through the clouds to shine on commercial real estate values these past two years has been the fully leased medical office property market segment. Investors that buy well-leased medical buildings noticed that people didn’t stop getting sick just because the economy was lousy. Yes, business for doctors has fallen off, but not as much as just about every other sector in the economy. So the lesser of all the property market evils has been the well-leased medical office market where values have fallen a little, but not a lot.

But now enter the Sandman, health care reform. 2009 was a very unsettling year for doctors as they anxiously watched the debate on Capitol Hill while waiting for Medicare reimbursement cuts to get extended just one more time.

This uncertainty among doctors in 2009 caused a big “pause” button to be pushed somewhere as doctors put off making decisions on their medical office building expansions, relocations, sale/leasebacks, new equipment acquisitions, staffing and retirement plans. It is hard to make long-term financial commitments when you don’t really know how much money you will be making next year, or the year after.

Since health care reform legislation has been enacted, it is still clear as mud, except for the cold expectation that doctors will be making less money going forward. This realization has caused a new trend among doctors and their plans and expectations for their medical office buildings.

Renting, owning

In today’s environment, it is no longer prudent for doctors to arbitrarily pick the highest rental rate possible for their sale/leaseback just because they prefer a real high sales price. Their practice may not be able to afford this high rent option comfortably any more. But a lower rent option, if possible, will certainly help their practice bottom line going forward.

The doctors who are really benefiting today are the ones who have been renting their offices with leases due to expire shortly. This soft “tenant’s market” has made it possible for doctors to renegotiate lower rents to stay where they are or relocate for much lower rents.

I have seen some doctors with low credit scores caused by bad investments in residential real estate simply walk away from existing MOB leases to secure lower rents nearby. This trend of doctors seeking more affordable space should continue.

I have also witnessed many doctors who have always rented in the past, now choose to buy their new office as vacant medical space has also seen a big drop in values. It is only the well-leased medical buildings that are still doing reasonably well on holding value. But since top prices are tied to leases, as more and more new medical leases get restructured thru 2010 and 2011 at lower rental rates, appraised values are falling proportionately for leased medical buildings.

Leaseback option

There are many doctors that own their MOBs that refinanced their mortgages at real high values within the past few years. In many cases, the best choice for doctors in this position is to do a sale/leaseback to pay off their high balance mortgages. Their new lease payments can often be set at lower levels than their current mortgage payments. Plus a personal guarantee on a new lease is much less onerous than a personal guarantee on their current mortgage.

Soon-to-be retired doctors really like this lower liability benefit that sale/leasebacks can provide them. Plus tax benefits abound if they can close their sale/leaseback in 2010 before the capital gains tax rate gets increased in 2011.

Many expect the capital gains tax rate to keep bumping higher each year over the following years to pay for the unprecedented spending done by our U.S. government.

I expect values for medical office buildings to reverse their course of the past three decades and slowly taper downward over the following decade now that doctors must find ways to reduce overhead to maintain profitability. Lower rent creates lower sale prices when valuing income properties.

[beta.news-press.com]

HAS ST. VINCENTS, NYC ALREADY DECIDED TO CLOSE?

noyack — Sat, 06 Feb 2010 17:01:27 +0000

BLACKSWAN Real Estate has learned from a reliable source that an offer in the “tens of million of dollars” to purchase a non-essential building owned by St. Vincents was recently submitted to the Grant Thornton restructuring team currently managing the crisis. Furthermore, BLACKSWAN learned that the property in question in lower Manhattan had been marketed for sale many months previously thus the decision to dispose of this holding had already been made by the St. Vincents management.

The curious part of this story as detailed by our source is that the Grant Thornton parties haven’t responded with a return call in the midst of the important institution’s financial death spiral.

Have they already determined the hospital is beyond salvation while not informing the community? Has a separate arrangement with Continuum been agreed privately waiting for the public relations furor to dissipate?

Healthcare: Toledo’s Health Care REIT made gross investments of $717M last year

analyst — Mon, 18 Jan 2010 14:19:16 +0000

TOLEDO, Ohio — Health care real estate firm Health Care REIT made gross investments of $717 million in 2009, down about 41 percent from the prior year.

The bulk of the 2009 investments were in construction projects for medical office buildings and specialty care facilities, according to a statement from the company. The gross investments were offset by about $281 million in asset sales and loan payoffs, resulting in net new investments of $436 million. That number was down significantly from last year when the company reported $1 billion in net investments.

Health Care REIT’s investment portfolio consisted of 596 properties in 39 states, as of Dec. 31. It invests in health care and senior housing, and offers property management services.

In September, the company raised $310.3 million after completing a sale of 9.2 million shares. The amount raised was less than expected. Initially, the company hoped to raise between $323 million and $371 million from the sale. Also, the company sold more stock than it had planned. Initially, the company planned to sell 5.75 million shares.

Health Care REIT’s stock rose slightly Wednesday, up about 1.5 percent to $44.41 in late-afternoon trading.

The company plans to release its fourth-quarter earnings on Feb. 24.

Last year, the company’s stock price appreciated 13 percent despite a less-than-rosy outlook in the commercial real estate financing market for 2010.

by Brandon Glenn for MedCity News

[medcitynews.com]

Healthcare: Leasing market for medical offices hits downturn

analyst — Wed, 16 Dec 2009 16:09:57 +0000

If you rent, experts advise negotiating lower rates or seeking various perks. If you own and lease space to others, customer service is increasingly important.

Would you like a golf club membership with your medical office lease? How about a few months of free rent? Fresh paint for the walls? How about just lower rent?

“Everybody is renegotiating their leases,” said Tom Dalcolma, a partner in Street Sotheby’s Medical Realty Advisors in Columbus, Ohio. “It’s clearly a tenants’ market.”

The real estate slump, combined with tighter credit, means that fewer medical office buildings are being built. But after a previous construction boom, there is still more supply than demand.

So rents are creeping downward, and vacancy rates are going up. These are the conclusions of the Medical Office Research Report published by the real estate investment company Marcus & Millichap. The report looked at the second half of 2009.

For physicians who rent space, this means it’s a good time to look for a better deal. But those who lease to others might need to take extra steps to keep tenants happy.

By Victoria Stagg Elliott for AMEDnews

[ama-assn.org]

Healthcare: REIT Leases Out Offices, Facilities For Health Care

analyst — Wed, 16 Dec 2009 15:56:07 +0000

Income investors have long loved real estate investment trusts for their high dividend yields. But that was especially true when the housing market was inflated.

Now, REITs are a bit trickier.

That doesn’t mean income investors should ignore them. There are pockets of strength for real estate. Health care REITs make up one of those.

Take Nationwide Health Properties (NHP), a health care REIT.

It owns real estate that’s a mix of private senior housing or independent living, skilled nursing facilities and medical office buildings.

These leases typically span 10 to 15 years, and Nationwide turns the property operations over to another party so it doesn’t have to deal with utilities.

Jerry Doctrow, an analyst at Stifel Nicolaus, is bullish on the health care REITs.

“Health care is one of the only parts of real estate where the underlying rents are going to grow,” he said. “The key issue is that health care is less affected by the overall nature of the economy.”

Going forward, Doctrow believes Nationwide’s earnings could stand to grow because of its recent deal with Pacific Medical Buildings, one which came with rights to a development pipeline that will allow Nationwide to buy buildings in the future.

The acquisition proceedings began before the market turned down in 2008. Doctrow says Nationwide was smart enough to work a clause into the deal that allowed it to get out of the acquisition when the market soured. After stocks tanked, Nationwide came back and made the deal at a better price.

Doctrow says the firm’s business is insulated from health care reform. Nationwide’s annualized dividend yield is 5.1%.

By PATRICK CAIN for INVESTOR’S BUSINESS DAILY

[investors.com]

Healthcare: Spa-like clinic opening

analyst — Mon, 07 Dec 2009 18:18:14 +0000

Construction crews have been transforming three floors of a Rutherford building into a medical office where patients will be able to get tooth implants, a face lift or routine medical exams.

Business executives could stay in one of two VIP waiting rooms, each with a full bathroom, sofa, recliner, desk and TV. On their way out, they could grab an espresso at the clinic’s cafe.

The Malo Clinic at 201 Route 17 north, which could open as early as March, would be less a typical doctor’s office, more a spa and wellness center.

“I don’t think this will be a facility for everybody, but for the patients who do want the best in health care, we’re looking to offer it to them,” said Steven Moss, a Bergen County oral surgeon who is among the doctors behind the new clinic.

For the commercial real estate market, the clinic is a sign of the relative health of medical office buildings, compared with office space overall.

Outpatient medical and surgical centers have been appearing inside office buildings over the last decade, said Mike Fasano, regional manager for Marcus & Millichap, a commercial real estate brokerage with offices in Elmwood Park.

“There’s a lot of this stuff that’s all same-day that really doesn’t need to be in hospital,” Fasano said.

Marcus & Millichap recently brokered the sale of a 27,162-square-foot medical office building at 305 W. Grand Ave. in Montvale, fetching $171 per square foot – a sales price Fasano called “pretty strong,” given distressed sales in the current market.

Medical office buildings have fared better in the downturn than office buildings overall. By the end of 2009, North Jersey’s medical office space is projected to have a 16 percent vacancy rate, according to Marcus & Millichap.

Office space overall in Bergen, Passaic, Hudson, Essex and Union counties, however, is expected to have a 16.9 percent vacancy rate at year’s end, according to Marcus & Millichap.

The Malo Clinic in Rutherford would be the first clinic for the Portugal-based Malo Group in the United States. The company, which manufactures parts for its dental implants in Mahwah, has up-and-running or under-construction locations in Europe, Asia, Africa and South America.

Malo chose Bergen County for its proximity to New York City and transportation.

“New York City is impossible to get patients in and out of on time.”

The clinic would occupy about 75,000 square feet on 2 1/2 floors of the building. Construction is expected to be completed in January.

E-mail: tangel@northjersey.com

BY ANDREW TANGEL for The Record

[northjersey.com]

Healthcare: Medical Office Buildings: An Option for Liquidity

analyst — Mon, 23 Nov 2009 18:29:46 +0000

An HFMA Healthcare Financial Pulse Resource

Although residential real estate markets remain mired in a widespread and persistent slump, commercial real estate investors continue to see opportunity in the healthcare market. As a result, many health systems are carefully eyeing ways to derive cash from their balance sheets by selling some of their real estate holdings—particularly medical office buildings.

For Carolinas HealthCare System of Charlotte, N.C., which recently divested 15 medical office buildings for $162 million, the conversion of these assets is a sensible alternative to more constrained and expensive sources of capital.

“For our health system, our free-standing medical office buildings represent a significant opportunity,” says Greg Gombar, CFO for Carolinas, which owns or operates 25 hospitals. “That $162 million is money that we now do not need to raise in the debt markets, and it significantly strengthens our balance sheet. In addition, there’s an opportunity cost that is avoided with that capital not being tied up in real estate.”

The transaction is part of a careful strategy at Carolinas to manage its building assets. “This doesn’t apply to buildings with beds, operating suites, large imaging devices, or other major clinical equipment or other facilities with regulated assets. Those buildings are a little more central to our mission and we want to retain ownership of those. But, as a strategic principle, we don’t want to own medical office buildings on our balance sheet,” says Gombar.

“However, we do think that it makes sense to build them. We can do that faster and less expensively than partnering with a developer,” he says. “Typically, a developer has to find and buy the land and get it 70 percent leased before breaking ground and obtaining financing. We can do that much faster and bypass a lot of those hurdles. We can specify the exact parameters of the interiors to suit our needs and, when they’re ready to go, we monetize them by flipping them to investors. This eliminates the need for us to staff, operate, and maintain these facilities,” says Gombar.

An Attractive Haven

“Investors are seeing this as an attractive haven,” says Mike Lincoln, executive vice president, Lillibridge, a national developer and owner of healthcare real estate. “The demographic-driven demand for health care is only going to grow. You don’t want to call any investment ‘recession-proof,’ but people will need medical care. Also, the tenants in these facilities tend to be ‘stickier’—so the cash flows tend to be more stable over the long term.”

Lincoln believes that sellers will still find cap rates at historically attractive levels for better-quality products. “Long-term interest rates and cap rates are closely correlated, and indications suggest that both of them are heading up,” he says. “That being said, we expect that sellers of stabilized, on-campus properties will find significant market demand.”

“But more importantly, this strategy makes sense for healthcare financial executives,” says Lincoln. “The fact is, many hospitals and health systems don’t want to be in the real estate business as it is often not a core competence for them. Other parties are better suited to owning and operating these facilities and have the resources to do so. For the health system, these transactions create an excellent opportunity to focus on healthcare delivery, while injecting some much-needed liquidity into their capital-intensive enterprises. It’s enabling them to free up money to reinvest in their core business and protect the balance sheet.”

Market Heating Up

According to E. Hunter Beebe, principal with Healthcare Real Estate Capital (HRE Capital), more healthcare-related real estate assets will likely be headed to the market after a couple of quieter quarters. “In the first quarter, there were fewer transactions brought out, but the market is picking up,” he says. “We’re finding a significant amount of equity is still interested in the sector, and the investors are still very interested in quality transactions with good hospital sponsorship.

“As long as there isn’t a dramatic spike in the supply—which could be brought on if there were a significant distressed operator that needs to recapitalize—we think the equity that’s out there now can absorb the typical annual inventory of product.”

As far as volume increasing due to hospitals needing capital, Beebe says: “We have a significant amount of monetization projects we’re working on currently and others we are looking at—both large and small. Most hospital systems implement these transactions for a variety of strategic reasons, in addition to a desire to access capital. The key for a hospital system is to put a lot of thought in upfront regarding their overall long- and short-term goals as a healthcare provider, goals for the particular asset, and their current and future space needs. When those issues have been appropriately analyzed, a determination can be made as to what type of transaction best achieves those goals. The idea of a hospital rushing to a transaction for capital is not something we have seen or would recommend to our clients.”

Tim Schier, senior vice president with Cain Brothers, expects pricing to remain attractive for sellers—a key reason for the steady volume in medical office buildings. “We haven’t seen the kind of downward movements in pricing that we’ve seen in other asset classes, such as retail or commercial office space,” he says. “Those sectors have seen cap-rate drops of 300 basis points or more. In medical office buildings, it’s been 100 to 150 basis points. And, from a historical perspective, current cap rates in the 8.0 to 8.5 percentage range are still attractive. While there may not be a significant number of closings in early 2009, I think a lot of transactions will close in 2010.”

Characteristics of Ideal Transactions

Since 2004, pricing has become competitive as investors are recognizing that medical office buildings have moved beyond a quirky asset class into a desirable investment vehicle. Additionally, pure medical office buildings are not the only type of medical properties being transacted. “A typical property that sells in the medical arena is a 50,000 square-foot, three-story medical office building,” says Schier. “But there’s a lot of variation. Imaging facilities, rehabilitation hospitals, and ambulatory surgical centers turn over with regularity as well.”

While medical office building sale prices vary significantly across regions and are subject to non-trivial volatility, sellers are typically receiving $125 to $300 per square foot, compared to sale prices of $100 to $125 for commercial office space. Prices tend to run a little stronger in the Sun Belt where there are higher concentrations of retirees who access high levels of medical care.

“Hospitals need to recognize that, in some cases, they are sitting on significant assets in the form of these medical office buildings,” says Lincoln. “These types of transactions are appropriate for virtually any size health system. While there are legitimate issues to analyze with respect to total long-term costs, the current financial environment and credit crunch means hospitals and health systems are smart to look at various strategies to leverage underutilized areas of the balance sheet to achieve alternative forms of liquidity.”

Schier adds: “Hospitals should view the potential sale of medical office buildings not necessarily as an opportunistic transaction, but as part of a long-term strategy to manage assets, improve the balance sheet, and pursue the healthcare mission. Careful planning and long-range thinking are essential to making this strategy a success for hospitals.”

Michael Dowding, of Wordscape Communications, is a freelance writer based in Millis, Mass.

by Michael Dowding for HFMA

[hfma.org]

Healthcare: NHP Arranges Possible $300M in Acquisitions

analyst — Tue, 10 Nov 2009 21:01:41 +0000

NEWPORT BEACH, CA-Nationwide Health Properties Inc., along with reporting positive earnings Monday, said that it has struck a deal to buy seven medical office buildings totaling 800,000 square feet from Pacific Medical Buildings LLC of San Diego for between $275 million and $300 million. The healthcare properties REIT described its agreement with PMB as a multi-faceted transaction involving, among other things, the acquisition of all or a majority interest in up to seven of the PMB buildings.

The agreement in principle with PMP calls for Nationwide to acquire three medical office buildings, the remaining 55% interest in two medical office buildings in which it now has a minority ownership interest, and majority ownership interests in two joint ventures that will each own one medical office building. A majority of the REIT’s investment is expected to consist of the assumption of existing mortgage debt of approximately $160 million to $170 million with a weighted average interest rate of less than 6%. NHP estimates that the properties would contribute annual net operating income of approximately $21 million to $23 million initially, but those figures and other estimates connected with the deal are subject to uncertainties that could cause the actual outcomes to differ substantially, the company said.

The deal with PMB was reported in Nationwide public filings and its quarterly conference call, in which the company said that it has continued on its path of “preparing itself for capital markets under duress while simultaneously positioning itself for growth” through investments. NHP reported net income of $29.7 million and 27 cents a share for the third quarter ended Sept. 30 compared with $27.1 million and the same per-share figure for the third quarter last year; the company recorded FFO of $63.3 million and 56 cents per share against $58.4 million and 56 cents per share in the third quarter last year.

Douglas M. Pasquale, NHP’s chairman and CEO, noted that the REIT “continued to enhance our already strong financial position by issuing $190 million of equity,” and that the company has about $300 million of cash as well as the full capacity of its $700 million credit line.

By Bob Howard for GlobeSt

[globest.com]

Healthcare: Aurora sells 10 area medical buildings

analyst — Mon, 05 Oct 2009 20:21:27 +0000

Aurora Health Care Inc. has sold 10 eastern Wisconsin buildings to a Massachusetts-based real estate investment trust for $169 million, a company spokesman said Friday.

Aurora sold the medical office buildings and outpatient surgery centers to SNH Medical Office Properties Trust Inc., a real estate investment trust based in the Boston area, said Aurora spokesman Ron Irwin. The buildings total 640,000 square feet, according to SNH Medical.

The buildings will be leased back to Aurora, which has done other sale-leasebacks. Those transactions provide cash for Aurora to invest into its medical operations and reduce its debt.

The facilities sold are in Wauwatosa, at 3289 N. Mayfair Road; Glendale, at 3003 W. Good Hope Road, and 7000 N. Range Line Road; Pewaukee, at W231-N1440 Corporate Court; Grafton, at 215 W. Washington Ave.; Mount Pleasant, at 8348 Washington Ave. and 8400 Washington Ave., and Sheboygan, at 1221 N. 26th St., 2414 Kohler Memorial Drive, and 1222 N. 23rd St.

SNH Medical is a subsidiary of Senior Housing Properties Trust, based in Newton, Mass. Senior Housing Properties primarily owns nursing homes, assisted living centers and other residential properties, but has been diversifying by buying medical office buildings and other medical facilities, said Timothy Bonang, vice president of investor relations.

Senior Housing Properties owns nursing homes in Wisconsin, including Meadowmere centers, in Oak Creek, West Allis and Mequon; River Hills West Healthcare Center, Pewaukee; Woodland Healthcare Center, Brookfield, and Virginia Health and Rehabilitation Center, Waukesha.

Aurora, in two separate sales earlier this year, sold six medical office buildings to Santa Ana, Calif.-based Grubb & Ellis Healthcare REIT Inc. for around $75 million.

By Tom Daykin of the Journal Sentinel

[jsonline.com]