News & Analysis: Trammell Crow (November 2006)

‘Status quo’ for Crow

TRAMMELL’S SALE COULD AID HEALTHCARE UNIT

 

By John Mugford

 

“Mega” is certainly a good way to described CB Richard Ellis Group’s pending mega-acquisition of Dallas-based Trammell Crow Co. The estimated $2.2 billion transaction is expected to close in late 2006 or the first quarter of 2007.

But when it comes down to it, Trammell Crow (NYSE:TCC) will become a wholly owned, independent subsidiary of CB Richard Ellis (NYSE:CBG), maintaining its headquarters in Dallas and continuing to do, according to officials, what it does best: develop, own and manage properties. Officials say both firms will benefit from each other’s strengths: the added services and additional client relationships each entity brings to the table.

“Both companies do a lot of things well,” says Matt Khourie, Trammell Crow’s president of development and investment for its central operations. “But I think everyone agrees that even though CBRE does a lot of things, it is great at brokerage and at having a global footprint. At Trammell Crow, we do a lot of things as well, but our strength is in development and investment in real estate. As a result, the two companies certainly are complementary and will continue to do what each does best, with the added benefit of being able to tap into all of the existing relationships and footholds that each has established over the course of many years.”

The same holds true for Trammell Crow’s healthcare end of the business, according to Mr. Khourie and Kevin O’Neil, who leads Trammell Crow Healthcare Services (TCHS). Trammell Crow is formally involved in healthcare through TCHS and the company’s wholly owned healthcare fund, Partners Health Trust (PHT), which has an estimated $200 million worth of assets.

“It really is status quo when it comes to the healthcare end of our business,” says Mr. Khourie.

Both TCHS and PHT should see plenty of growth, but that growth will not necessarily be related to the merger with CBRE, according to Messrs. Khourie and O’Neil. According to the two officers, PHT’s portfolio is expected to grow to about $400 million in assets in a relatively short time frame, while TCHS is expected to continue to build upon its $250 million to $300 million worth of hospital and hospital-related developments and $75 million to $100 million worth of MOB developments per year.

Trammell Crow also provides property management services for about 30 million square feet of healthcare properties – 18 million square feet of which is on the clinical side for hospital systems while the remaining 12 million square feet is for MOBs.

“We’ve been planning to grow and have felt the demand to continue growing the healthcare side of Trammell Crow prior to the agreement with CB Richard Ellis – it’s been part of the strategy,” Mr. O’Neil says. “But we do think the additional contacts and organizations that will come our way through CBRE will only help that effort. CBRE’s brokers are certainly plugged into many local communities everywhere.”

Mr. O’Neill says TCHS’ 500 people will not be affected by the merger with CBRE. q

Lillibridge acquires

448,000 square foot

portfolio in Alabama

BIRMINGHAM, Ala. – Chicago-based Lillibridge has launched its third joint-venture medical properties fund in a big way, acquiring a portfolio of three on-campus MOBs with a total of 448,000 square feet in Birmingham, Ala.

The three buildings are on the campus of 282-bed Medical Center East (MCE); the sale price was not disclosed. Lillibridge, a privately owned real estate investment trust (REIT), acquired the MOBs from Birmingham, Ala.-based Inkana Development, which acquired two of the buildings in 2004 and completed construction of the third in April 2005.

MCE is managed by St. Vincent’s Health System, whose parent organization. St. Louis-based Ascension Health, is the country’s largest Catholic and not-for-profit healthcare system. St. Vincent is in the process of merging Medical Center East into the Ascension system.

According to officials involved in the transaction, Lillibridge was invited by Ascension Health to acquire the MOBs. The two entities established a relationship in 2003 and Lillibridge currently owns, leases and manages 24 buildings with 1.7 million square feet on four Ascension campuses.

Lillibridge acquired the Birmingham properties through its newest fund, Lillibridge Healthcare Properties Trust, a joint venture with Prudential Real Estate Investors (PREI).

Prudential, which has committed $50 million to the newest fund, is also involved in another fund with Lillibridge. Lillibridge’s overall portfolio includes medical properties with a total market value of about $800 million and 8.5 million square feet.

The three medical office buildings are: MOB 48, a 116,972 square foot building built in 1989; MOB 52, a 104,000 square foot building built in 1985; and Regional Care Center, a 227,237 square foot facility built in 2004.

According to Joe Kurzydym, the chief financial officer and an EVP with Lillibridge, the two older buildings are nearly filled up while there is space remaining in the newest MOB.

As for Lillibridge’s acquisition, Mr. Kurzydym  says: “This is definitely a special situation where we do a lot of business with our client and friend, Ascension Health. The property was owned by a third-party developer, Inkanan, with financing by GE Healthcare Financial Service – so it was a pretty complicated, four-way negotiation process. But we definitely think it was worth it because the properties are high-quality facilities, with room for leasing up the third building. It also continues our strong relationship with Ascension Health.”

According to a report in the Birmingham Business Journal, friction had developed between Inkana Development and some doctors on the staff at Medical Center East. A group of doctors, according to the recent report, decided to develop an MOB less than a half-mile from the MCE campus.

In a press release, Todd W. Lillibridge, chairman and CEO of Lillibridge, stated that the acquisition strengthens the company’s relationship with Ascension Health and complements adds to its growing presence in the Southeast part of the United States, including Texas, Georgia, Florida and Tennessee.

CHW would add

311-bed Nev. hospital

under pending deal

RENO, Nev. — San Francisco-based Catholic Healthcare West (CHW) is on the verge of taking over sponsorship of 311-bed St. Mary’s Regional Medical Center in Reno, Nev. The change would be part of a pending deal between CHW and the hospital’s current sponsor, the Dominican Sisters of San Rafael. Financial terms were not disclosed.

According to CHW officials, however, CHW would invest in St. Mary’s services and facilities, including the emergency department. The Dominican Sisters are currently one of seven sponsoring religious orders under the CHW umbrella.

The deal is expected to close by the end of the year, pending the approval of each system’s board of directors. CHW is a 41-hospital system that already operates two campuses of St. Rose Dominican Hospitals in Henderson, Nev., with plans for a third campus in Las Vegas. Over the past two years, CHW has assisted St. Mary’s with strategic planning and other financial options.

For the Record

Tenet Healthcare Corp. of Dallas recently announced that it has agreed to sell 151-bed Alvarado Hospital Medical Center in San Diego for about $36.5 million. The buyer would be Los Angeles-based Plymouth Health, which was formed by a pair of physicians and brother, Pejman and Pedram Salimpour, to own and operate Alvarado. The brothers currently operate CareNex Health Services, a healthcare technology and patient-care management firm. The deal is expected to close by the end of the year… Nashville, Tenn.-based HCA Inc. has been cleared by a Tennessee judge to go ahead with a planned shareholders’ meeting to vote on a planned $33 million buyout by private investors, including founder Thomas Frist Jr. Some shareholders have filed a lawsuit against HCA and had requested a delay of the meeting to allow their attorneys more time to review thousands of pages of documents. The shareholders’ meeting was scheduled for Nov. 16… Triad Hospitals of Plano, Texas, and Knoxville, Tenn.-based Baptist Health System of East Tennessee have delayed a planned joint venture for at least two months. The delay gives the partners more time to complete regulatory filings, according to Baptist officials. The joint venture was originally set to close Nov. 1 and have Triad own 80 percent, with Baptist owning the remaining 20 percent. The joint partners now want to add physicians as investors prior to the deal’s closing… Triad Hospitals also announced that it has closed on the acquisition of St. Joseph Hospital in Augusta, Ga., for more than $30 million. Part of that deal gives physician investors a 35 percent stake in the hospital. The seller was St. Louis-based Ascension Health. q