The acquisition is the largest to date for the Dallas-based private equity firm. It includes a diverse 10-state, 17-property, 92% leased portfolio totaling 620,750 square feet, with an approximate cost of $230 million.
DALLAS, Sept. 13, 2017 – Acquiring any sizable healthcare real estate (HRE) portfolio can be a challenge. But the recent acquisition of a major portfolio by Dallas-based MedProperties Holdings required the buyer to overcome more than the usual complications.
The Harrison Street Portfolio included 17 properties in 10 states totaling 620,750 square feet, at an approximate cost of $230 million. So far, MedProperties has closed on 15 of the 17, and it plans to close on the remaining two in the coming weeks.
The portfolio a diverse mix of medical office buildings (MOBs) housing a wide range of services, as well as rehabilitation hospitals, a behavioral health hospital and a multi-use campus. And, despite the name, the Harrison Street Portfolio involved more than only that Chicago-based private equity firm; adding to the complexity, two other entities had various ownership interests in some of the assets. It is also the single largest portfolio acquisition MedProperties has made in terms of every measure – acquisition price, number of properties and total square footage.
And as if that wasn’t enough, four of the properties are in the Houston area and were threatened by Hurricane Harvey just as MedProperties was getting ready to close, and a fifth was threatened by Hurricane Irma a week later.
“Miraculously, all five assets were unaffected by the two hurricanes,” says Darryl Freling, MedProperties Managing Principal.
But in addition to good fortune, the successful Sept. 11 closing on the first 15 properties was a result of the perseverance and capabilities of the MedProperties’ team and its partners. As a result, the firm is now the proud owner of a stabilized portfolio that is leased to some of the nation’s most prominent health systems, physician practices and healthcare providers. Since this was an acquisition of stabilized properties, the transaction was made through a stand-alone investment entity, outside MedProperties’ discretionary fund (MedProperties Investment Partners), which focuses on “opportunity” level investment returns derived from investments in ground-up development and value-add acquisitions.
Mr. Freling noted that over the past several years MedProperties has been expanding its investment strategy to include the acquisition of stabilized properties, but until now, those efforts have been limited to single asset or small portfolio acquisitions.
“The Harrison Street Portfolio provided MedProperties with the opportunity to acquire a large, geographically diverse critical mass of high-quality, relatively new healthcare properties with long-term, stable cash flows,” he says. “The properties have an average occupancy rate of 92 percent and they’re leased primarily to a diverse mix of credit-rated tenants that are leading U.S. medical providers, representing virtually all major healthcare specialties.”
The portfolio’s diversified assets consist of 13 MOBs, two stand-alone inpatient rehabilitation facilities, a behavioral health hospital, and one multi-use campus with a surgery center and rehab hospital. Two of the MOBs in the portfolio offer a value-add component to the investment as a result of additional leasing potential, while the reminder of the properties are fully leased and occupied on a long-term basis, providing long-term stability. Many of the MOBs have attractive on-campus locations or are adjacent to a hospital campus, and the off-campus facilities are generally well-located in easily accessible areas and near major medical facilities and transportation.
The properties are located in Texas, Florida, South Carolina, North Carolina, New York, Ohio, Pennsylvania, Wisconsin, Missouri and Kentucky. The largest number of properties – seven – are in Texas.
Prominent tenants in the facilities include Greenwood, S.C.-based Self Regional Healthcare; Jacksonville, Fla.-based UF Health Jacksonville; San Francisco-based Dignity Health; Milwaukee-based Aurora Health Care; Englewood, Colo.-based Catholic Health Initiatives; Texas Health Resources, Methodist Health System and Tenet Healthcare, all based in the Dallas area; Birmingham, Ala.-based HealthSouth Corporation; and The Woodlands, Texas-based US Oncology/McKesson, among others.
MedProperties Managing Principal Roman J. Kupchynsky II said the acquisition is in a “recession resistant” asset category and it ties into popular healthcare trends.
“The large number of MOBs in the portfolio is really an asset because of the increasing consumer demand for less costly, more convenient outpatient facilities. Many of the facilities also have a number of physician practices that are integrated with a health system, which is a growing trend. In addition, the facilities are meeting the healthcare needs of the large Baby Boomer population, which is increasing in size across the country including the areas around the Harrison Street Portfolio properties.”
Mr. Kupchynsky added, “In addition to the magnitude of this acquisition, the transaction involved a high degree of complexity. Some of the properties were owned by Chicago-based Harrison Street Real Estate Capital LLC, others were owned through two joint ventures – one between Harrison Street with Birmingham-based Sanders Trust, and another between Harrison Street and The Woodlands, Texas-based Pisula Development Company, which also owned two of the properties outright.
“Also, as mentioned earlier, four of the assets are in the Houston area and were in the path of Hurricane Harvey. A fifth, located in Jacksonville, Fla., was threatened by Hurricane Irma. Amazingly, all five of these properties were unaffected.”
Mr. Freling said the capital stack was also quite complex, involving the use of senior and mezzanine debt, as well a creative capital investment by a publicly trade healthcare real estate investment trust (REIT).
The properties in the portfolio include:
■ Abilene Surgery Center and Hospital, Abilene, Texas
■ Texas Rehabilitation Hospital of Arlington, Arlington, Texas
■ Grand Parkway MOB, Richmond, Texas
■ Williams Way MOB, Richmond, Texas
■ Conroe Medical Plaza, Conroe, Texas
■ Kingwood Medical Plaza, Kingwood, Texas
■ Lake Granbury Medical Center, Granbury, Texas
■ Emerson Medical Office Building, Jacksonville, Fla.
■ Tower Pointe Medical Center, Greenwood, S.C.
■ Albany Medical Office Building, Clifton Park, N.Y.
■ Brandywine Medical Pavilion, Coatesville, Pa.
■ HealthSouth Rehabilitation Hospital of Cincinnati, Cincinnati
■ Georgetown Medical Office Building, Georgetown, Ky.
■ Henderson Medical Office Building, Henderson, Ky.
■ Aurora Medical Office Building, Elkhorn, Wis.
■ Eastland Medical Building, Independence, Mo.
■ Asheville Medical Office Building, Asheville, N.C.
With this acquisition, MedProperties has acquired and/or invested in the development of a total of approximately 3.4 million square feet of healthcare properties in 20 states.
Representing the sellers of the Harrison Street Portfolio were Chris Bodnar and Lee Asher, Co-Leaders of the CBRE Healthcare Capital Markets Group.
“This is a high-quality portfolio of properties occupied by some of the top healthcare providers in the country,” Mr. Bodnar notes. “The selection process was intensely competitive for these assets and MedProperties was selected after demonstrating that it had the capital stack in place and had the proficiency to execute on this exceedingly complex transaction in a very short time frame.”
Senior debt financing for the acquisition was secured through Erik Tellefson and Jon Buehner of Capital One. Mezzanine debt for the acquisition was secured through David Selznick and Andrew Smith at Kayne Anderson.
MedProperties is a Dallas-based healthcare real estate private equity firm that invests on a direct and an indirect basis (through joint venture relationships) in the development of new, value-add, and stabilized healthcare real estate, including multitenant medical office buildings and single-tenant, specialty healthcare facilities. MedProperties invests through its discretionary funds and through stand-alone investment vehicles. MedProperties is dedicated solely to investments in healthcare real estate. For further information on MedProperties, please visit www.medpropertieslp.com.
About Capital One
Capital One Financial Corporation is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $239.8 billion in deposits and $350.6 billion in total assets as of June 30, 2017. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol “COF” and is included in the S&P 100 index. For additional information, please visit www.capitalone.com.
About Kayne Anderson
Kayne Anderson’s Middle Market Credit Platform provides value-added, private credit solutions to clients across investment structures and yield parameters. Launched in 2008, the credit platform supports a diversified group of private equity sponsor and family-owned businesses in acquisition financings, refinancings, recapitalizations and for growth capital needs. The credit platform targets senior and junior secured loans, mezzanine securities, and equity co-investments in traditional middle market companies across a wide array of industries. With offices in in Los Angeles, Chicago and New York, our dedicated team has extensive experience underwriting and syndicating transactions with an exclusive focus on the middle market. Working with our unique and diversified base of investors, Kayne Anderson’s highly experienced middle market credit team is able to offer access to unique diligence insights and a broad array of industry resources that enable us to add value that goes well beyond simply being a capital provider. For more information, please visit http://kaynecapital.com.
About Harrison Street Real Estate Capital LLC
Harrison Street Real Estate Capital LLC (“Harrison Street”) is one of the leading real estate investment management firms exclusively focused on the Education, Healthcare and Storage sectors. The firm has created a series of differentiated investment strategies across multiple risk/return platforms. Headquartered in Chicago, the firm employs a 100+ person team with approximately $12.2 billion in assets under management. For more information, please visit www.harrisonst.com.
About The Sanders Trust
The Sanders Trust develops and acquires medical office buildings, inpatient rehabilitation hospitals and specialty hospitals nationwide. Headquartered in Birmingham, Alabama, The Sanders Trust has been a recognized leader in the investment community for healthcare clients since its inception in 1989 and has developed or acquired properties in 22 states valued over $1 Billion. For more information, please visit www.sanderstrust.com.
About Pisula Development Company
Pisula Development Company is the development arm of RRC Medical Real Estate LLC (RRC), a full-service, commercial real estate firm with offices in Texas, Colorado and Pennsylvania. RRC’s headquarters are located in The Woodlands, Texas, a suburb of Houston. RRC provides property, asset and facilities management services for over 1.9 million square feet of commercial real estate. Through its Pinecroft Realty LLC subsidiary, RRC provides leasing and brokerage services. RRC strives to provide these services in a cost-effective manner while creating an alignment of interest among all parties. RRC is also committed to developing energy efficient buildings when possible. As a recognized leader and innovator in the healthcare industry, RRC continues to attract and retain a distinguished and growing roster of tenants, lenders and investment partners. For more information, please visit www.PinecroftRealty.com.
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