Transactions (January 2007)

Hermann buys physician-owned facility

HOUSTON SPECIALTY HOSPITAL HAD TROUBLE LANDING MANAGED CARE CONTRACTS

By John Mugford

Perhaps a state-of-the-art facility and physician control aren’t enough to guarantee success for a new specialty hospital. Perhaps just as important is the need to gain affiliations with the necessary managed care providers.

Houston Town & Country Hospital, a joint venture of more than 100 physicians and Nashville, Tenn.-based GP Medical Partners, seems to be a prime example. According to reports and industry sources, the 105-bed, $50 million hospital opened to great fanfare in November 2005. However, it looks as if the hospital had difficulty lining up contracts with major insurance providers. As a result, the patient volume was too low to continue.

In recent weeks it was announced that Houston-based Memorial Hermann Healthcare System has agreed to acquire the land and buildings of the west-side hospital for an undisclosed price from the property owner, Birmingham, Ala.-based Medical Properties Trust LP (NYSE: MPW). Memorial Hermann, which reportedly plans to use the facility as a long-term acute-care (LTAC) hospital, consolidating services it provides at an area hospital and another medical facility.

The sale involves the 105-bed hospital, an adjacent 120,000 square foot medical office building (MOB) and the 26-acre parcel at U.S. Interstate 10 and Beltway 8 in Houston.

Estimates put the transaction price at about $70 million. While Medical Properties Trust (MPT) officials would not disclose the actual sale price, they stated in press releases and news reports that their firm invested about $65 million in the campus.

In a press release, Edward K. Aldag Jr., MPT’s chairman, states: “We have repossessed a $65 million hospital and medical office building, released it to a highly experienced operator for a short period and recovered all of our investment, including working capital loans, with what appears to be very limited financial impact. The fact that Memorial Hermann was willing to act very quickly and accept terms that provided such a positive outcome for us further demonstrates the high quality and desirability of our hospital assets.”

The press release further states that the sale is expected to result in a gain to MPT in fiscal 2007 in an amount sufficient to substantially offset costs incurred in 2006.

Officials with MPT confirm that Town & Country was unable to obtain the necessary managed-care contracts and that the operator lacked the necessary capital to absorb early losses. Mechanicsburg , Pa-based Vibra Health Care took over operations in October 2006.

More than 100 doctors originally invested about $8.2 million in the venture, which was called the Stealth partnership, which ran Town & Country Hospital. Stealth’s general partner was West Houston GP, which is owned by GP Medical Ventures. Of the 100 or so beds, 35 beds were leased to Houston-based Triumph HealthCare, a long-term acute-care hospital that is now looking for a new location.

The sale is expected to close before the end of January 2007 and is subject only to customary closing conditions.

New Jersey hospital

is top bidder for

bankrupt facility
PASSAIC, N.J. – St. Mary’s Hospital in Passaic in mid-November submitted a bid of $36.7 million for the bankruptcy-protected PBI Regional Medical Center, also of Passaic. A federal judge announced recently that St. Mary’s is the leading candidate for an acquisition that is expected to close at the end of February.

According to news reports, St. Mary’s bid tops an earlier offer of $30 million from an investment firm.

St. Mary’s officials have said that if the hospital acquires PBI, it would likely consolidate the two acute-care hospitals, which are about two miles apart. St. Mary’s is a not-for-profit facility that, along with three other groups, had provided not-for-profit PBI with a $5 million emergency bridge loan to remain open. Those other groups are a local bank, the New Jersey Health Care Financing Administration, and a local group of donors calling themselves the “Good Samaritans.”

St. Mary’s wants to block a potential buyer from turning PBI into a for-profit hospital in a town that has too many beds, according to hospital officials. St. Mary’s, with 200 beds, operates at an average occupancy of 65 percent while PBI has 264 beds and a significantly lower occupancy.

As of recent weeks, PBI owed creditors more than $60 million and would have been forced to close if not for the bridge loan, which had to gain the approval of a U.S. Bankruptcy Court judge.

St. Mary’s officials say the hospital would finance the acquisition of PBI with a $46 million bond issue by the New Jersey Health Care Financing Administration and with financing on accounts receivable.
GP Med Ventures,

docs team to buy

bankrupt hospital

BIRMINGHAM, Ala. – GP Medical Ventures of Nashville, Tenn., is partnering with a physicians’ group in acquiring bankrupt Carraway Methodist Medical Center in Birmingham. The joint venture will pay about $26.5 million for the 288-bed not-for-profit hospital, according to U.S. Bankruptcy Court documents. A judge approved the transaction in early November. Carraway had filed for bankruptcy protection in September, posting debts of about $144 million.

Carraway, a 288-bed not-for-profit hospital, will be converted to a for-profit facility called Physicians Medical Center, according to statements by hospital officials. The physicians’ group is composed of 54 local doctors.

GP Medical was part of a joint venture with 85 doctors at the 100-bed Houston Town & Country Hospital. The partnership faulted last month on its lease with Medical Properties Trust, a real estate investment trust (REIT) that concentrates on healthcare real estate. MPT has since turned over the lease to a new partnership, according to MPT officials.

Stockholders approve

Trammell Crow sale

to CB Richard Ellis
DALLAS – The mega-deal in the Metroplex is a done deal. In a special meeting in December, Dallas-based Trammell Crow Co.’s stockholders approved the sale of the company to El Segundo, Calif.-based CB Richard Ellis Group for an estimated $2.2 billion.

The sale entails CBRE paying $46.51 in cash per share of Trammell Crow common stock. Trammell Crow becomes a wholly owned, independent subsidiary of CB Richard Ellis (NYSE: CBG), maintaining its headquarters in Dallas and continuing to develop, own and manage properties. By bringing Trammell Crow into its fold, CBRE is expected to become the first real estate services firm listed on the Fortune 500.

In other words, Trammell Crow is expected to continue doing business as it has done for more than half a decade. The same holds true for Trammell Crow Healthcare Services (TCHS) and the firm’s wholly owned healthcare fund, Partners Health Trust (PHT). Trammell Crow’s healthcare effort is led by Kevin O’Neil.

“It really is status quo when it comes to the healthcare end of our business,” says Matt Khourie, president of development and investment for central operations.

In the November 2006 edition of Healthcare Real Estate Insights™, Messrs. Khourie and O’Neil stated that PHT’s healthcare portfolio is expected to grow to about $400 million in assets by the end of 2007 and that TCHS is expected to be developing about $350 million worth of hospital-related and MOB developments annually in coming years. The growth had been planned even before the merger with CBRE, according to the officers.

For the Record

Community Health Systems of Brentwood, Tenn., recently closed on two separate long-term leases of not-for-profit hospitals. Community acquired a 30-year lease on the 78-bed Campbell Hospital in Weatherford, Texas, from Parker County (Texas) Hospital District, and it signed a 30-year lease for the 47-bed Union County Hospital in the far southern-Illinois city of Anna. Community, which now has a portfolio of 77 hospitals, has managed the hospital in Anna since September 2001… Hackensack University Medical Center in New Jersey has agreed to acquire the 154-bed Pascack Valley Hospital in Westwood, N.J., from Well Care Group. Financial details were not disclosed; the deal is expected to close in early 2007. Hackensack plans to help establish new service lines at Pascack, which lost $13.7 million on revenue of $81.6 million through August of this year, according to Standard & Poor’s rating agency. Pascack has a debt rating of B+ with a negative outlook. S&P is not likely to take action on the rating until it learns more about the transaction… NTS Realty Holdings Limited Partnership (AMEX: NLP) recently announced that it has entered agreements to sell Springs Medical Office Center and Springs Office Center, two of its office buildings located in Louisville, Ky., to an unaffiliated Kentucky limited liability company. The two properties have a total of about 225,000 net rentable square feet… Trammell Crow Co. also recently announced that its healthcare unit, Trammell Crow Healthcare Services, acquired a contract to manage 2.5 million square feet of space for Cleveland Clinic in Cleveland.  Trammell Crow acquired the contract from Pittsburgh-based Armstrong Development Co. In entering the Cleveland market, Trammell Crow also acquired a commercial brokerage firm, Brandon Wiant Converse