Transactions (June 2007)

NNN Healthcare continues buying spree

WITH LATEST PURCHASE, NEW REIT BOOSTS MOB PORTFOLIO TO ABOUT $110 MILLION

By John Mugford

Santa Ana, Calif.-based NNN Healthcare/Office REIT Inc., which made its first medical office acquisitions as a new real estate investment trust (REIT) in January of this year, recently announced three new separate medical office building (MOB) purchases totaling about 280,000 square feet of space.

(For more information on the new REIT, please see “Triple Net launches REIT” on page 1 of the March 2007 issue of Healthcare Real Estate Insights™)

The most recent acquisition closed in mid-May, when the REIT acquired Thunderbird Medical Plaza in the Phoenix suburb of Glendale. The property composes three low-rise, multi-tenant MOBs with a total of about 110,000 square feet of space. The MOBs are located on 8 acres and sit across the street from 397-bed Banner Thunderbird Medical Center, which recently began construction on a $200 million expansion that will add 200 beds.

According to officials with NNN Healthcare/Office REIT, Thunderbird Medical Plaza is 78 percent occupied with leases to 17 tenants, including an urgent care center, imaging center, and a cardiovascular consulting group. The REIT acquired the MOB complex for an undisclosed price from unaffiliated third parties represented by Kevin Shannon of the Phoenix office of CB Richard Ellis.  

In early May, NNN Healthcare/Office REIT closed on the acquisition of two properties near Piedmont Fayette Hospital in the Atlanta metro area. The two MOBs are: Yorktown Medical Center, a 92,000 square foot, 82 percent occupied MOB on 2 acres in Fayetteville; and the 23,000 square foot Shakerag Medical Center in Peachtree City, Ga. Shakerag Medical Center is 100 percent occupied and includes tenants such as Piedmont Medical Care Corp. The seller of the two Atlanta-area MOBs was Yorktown Building Holding Co. LLC.

Also, in April NNN Healthcare closed on the acquisition of Commons V Medical Office Building in Naples, Fla. The three-story, 55,000 square foot MOB is located near a 250-unit senior apartment complex, a medical office building, and Naples Community Hospital. The MOB’s occupancy rate is 97 percent and the building has five tenants, including Anchor Health Center and Collier Surgery Center. NNN Healthcare/Office REIT acquired the property for an undisclosed price from Commons V Investment Partnership, which was represented by Doug Connell and Steve Ware of the local office of Grubb & Ellis Co.

The acquisitions were financed with funds that NNN Healthcare/Office REIT raised during its initial public offering (IPO) starting in the third quarter of 2006. As of May 15, NNN Healthcare/Office REIT had sold approximately seven million shares of its common stock for more than $71 million. 

With the inclusion of the two newest acquisitions, the REIT has accumulated a portfolio valued at nearly $110 million. The REIT was launched by NNN Realty Advisors Inc., a national commercial real estate asset management and services firm based in Santa Ana.
Montecito Medical,

ING Clarion JV

buy more MOBs

SANTA CLARA, Calif. – The joint venture partnership between Santa Clara, Calif.-based Montecito Medical Investment Co. and ING Clarion Partners (NYSE:ING) is continuing to make inroads into the MOB arena.

After kicking off the partnership with the acquisition of four properties in four states for $90 million earlier this year, Montecito and New York-based ING Clarion recently announced another purchase: Vero Medical Suites, a 39,966 square foot MOB located across the street from Indian River Memorial Hospital in Vero Beach, Fla.

The hospital is the only community, not-for-profit hospital in Indian River County. It recently announced a partnership with Durham, N.C.-based Duke University Health System and is working on plans for a major expansion project. Montecito officials report that the MOB is a Class A property with an occupancy of 100 percent.

The medical acquisition is the 17th in the last 12 months for Montecito Medical, which was launched in 2005 as a subsidiary of Jacksonville, Fla.-based Montecito Property Co. LLC, one of the country’s largest residential condominium conversion firms. Montecito Medical’s portfolio tops 1 million square feet.

The joint venture between Montecito and ING Clarion should continue to be active in the MOB market, as officials with the joint venture have a goal of acquiring 5 million square feet of medical space during the next year or so. (For more information on the JV’s acquisition in early 2007, please see “New Montecito, ING JV buys MOBs” in the March 2007 edition of HREI™.)

ProMed Properties

acquires MOBs

in Miami area

NORTH MIAMI BEACH, Fla. – Just weeks after acquiring a medical office and research building in Philadelphia for $113 million, ProMed Properties Inc. announced another acquisition: two MOBs in the Miami area for a total of $20.6 million.

The MOBs, which have a total of 53,000 square feet and sit on 3.23 acres of land, are in Kendall, Fla., close to Baptist Hospital, which is part of the largest not-for-profit health system in South Florida.

With the latest acquisition, ProMed’s medical portfolio now contains four buildings with 740,000 square feet and two parking garages. ProMed, which is a wholly owned subsidiary of Israel-based Gazit-Globe, a $9 billion international real estate firm, plans to acquire up to $2 billion worth of medical properties in a two-year span.

The company’s most recent transaction involved the acquisition of an 18-story, 435,000 square foot medical office and research building on the campus of the Science Center in the University District of Philadelphia. (For more information on that transaction, please see “ProMed is pro-medical” in the May 2007 issue of HREI™.)

ProMed’s first transaction in the United States took place in February 2006, when it acquired a 252,000 square foot MOB and two multi-story parking garages for $87.5 million on the campus of Hackensack University Medical Center in Hackensack, N.J. (To read more about that transaction, please see “New Jersey MOB fetches $87.5 million” in the April 2006 edition of HREI™.)

“This acquisition builds upon ProMed’s existing platform and furthers our strategy of owning and operating a portfolio of properties in strategic locations with strong demographic characteristics,” said the company’s president and CEO Roni Soffer in a press release. “We continue to seek out properties in the regions that are located near best-in-class hospitals and medical-research universities.”

He adds that the acquisition establishes a relationship with leading healthcare providers in South Florida. In addition to being close to two hospitals with about 1,000 beds in the Baptist system, one of the major tenants in the MOB is Public Health Trust, operator of the Jackson Memorial Health System.

The estimated un-leveraged return on the MOBs, after leasing and operational improvements, is approximately 6.5 percent, according to ProMed, which financed the acquisition with existing cash.

Tenet sells hospitals

in Philadelphia

to new company

PHILADELPHIA – Dallas-based Tenet Healthcare Corp. (NYSE: THC) in recent weeks announced that it is selling two Philadelphia-area hospitals to a newly formed company called Solis Healthcare.

The hospitals are the 137-bed Roxborough Memorial Hospital in Philadelphia and the 151-bed Warminster Hospital in Warminster, Pa., located in the northern suburbs. Solis’s leadership includes Jack Donnelly, who has been the CEO at Roxborough for the last 17 years, and Robert Souaid, a longtime owner of healthcare facilities in the southeastern part of the United States.

The Roxborough and Warminster hospitals were among nine hospitals that Tenet had slated for divestiture in June 2006 as part of a restructuring plan. To date only one hospital – Lindy Boggs Medical Center in New Orleans – has not been sold as part of the 2006 divestiture plan. Two hospitals in California remain unsold from Tenet’s 2003 divesture plan.

Even with the sales, Tenet currently owns or operates 62 hospitals, including five currently for sale and two with leases that expire in August of this year.

Judge allows

hospitals to leave

Cincinnati system

CINCINNATI – Three disgruntled hospitals recently received the right to leave the seven-hospital, 13-year-old Health Alliance of Greater Cincinnati. Judge Fred Nelson of the Hamilton County (Ohio) Court of Common Pleas made the ruling in recent weeks, saying the alliance breached its fiduciary duties in its management of the healthcare system.

The ruling was the conclusion of a bitter court battle between the alliance and the three hospitals, which accused the system of reneging on provisions of a joint operating agreement. The three hospitals are 470-bed Christ Hospital of Cincinnati; 217-bed St. Luke Hospital East of Fort Thomas, Ky.; and 177-bed St. Luke Hospital West of Florence, Ky.

Officials with the Health Alliance say they are deciding whether to appeal the ruling, adding that the system did not agree with the judge’s decision, adding that the system did nothing wrong and that splitting up the alliance would cause “irreparable” harm to the overall system and its role as a safety net provider for the poor and uninsured.

Prince George, Md.,

system receives

one-year reprieve

CHEVERLY, Md. – When Maryland state lawmakers finished their legislative session in April, it looked as if the Prince George County (Md.) Hospital System near Washington, D.C., was on its way to being shut down. That’s because lawmakers had culminated the 90-day session without passing a bill to provide financial assistance to the four-facility, county-owned system.

As the legislative session had neared a conclusion, talks broke down between county and state officials – county officials had rejected a final offer from the state. Following the legislature’s non-action, Maryland Gov. Martin O’Malley told members of the local media that “an orderly closure appears unavoidable” for the Prince George system, which is run by Dimensions Healthcare System, a private, not-for-profit company.

But eight days after Dimensions Health’s CEO G.T. Dunlop Ecker said the county’s rejection of the state’s offer was a “breach of public trust,” the Prince George County Council announced that it would subsidize the hospital system through June 2008. Since then, the county council has authorized the spending of $250,000 for consultants to examine the future of the health system beyond June 2008.

The system’s main hospital is the 384-bed Prince George’s Hospital Center in Cheverly, Md. Satellite facilities are the 115-bed Laurel (Md.) Regional Hospital; Bowie (Md.) Health Campus; and the 30-bed Gladys Noon Spellman Specialty Hospital and Nursing Center in Cheverly.

In all, the facilities see about 180,000 uninsured patients annually.

Adventist buys land

for replacement

hospital in Maryland

SILVER SPRINGS, Md. – Rockville, Md.-based Adventist HealthCare recently acquired 48 acres in Silver Springs, Md., for $11 million. The provider is planning to move its Washington Adventist Hospital from Takoma Park, Md., to the new site in Montgomery County, Md.

Adventist officials say the 100-year-old Washington Adventist facility would continue to provide some healthcare services. The new site is about six miles from the current hospital, which totals about 455,092 square feet but lacks room for expansion. Officials also say that parking is a problem and that the hospital is accessible only by small neighborhood streets.

Adventist’s next step is to obtain Certificate of Need (CON) approval from the Maryland Health Care Commission. The state plans to evaluate whether the site is geographically accessible, financially viable and cost-effective in meeting the healthcare needs of the region, among other criteria.

The new location will give the hospital the ‘‘ability to do things better,” according to Adventist officials, giving it room for a larger emergency department and more comprehensive outpatient services.

About 41 percent of patients at Washington Adventist currently reside in Montgomery County, with about the same number coming from nearby Prince George’s County. The announcement comes at a time when Dimensions Healthcare System in Prince George’s County is struggling and facing a possible closure.

Washington REIT

buys two MOBs

in D.C./Baltimore

WASHINGTON – In recent weeks, Washington Real Estate Investment Trust (WRIT) of Rockville, Md., acquired two MOBs – one in Washington, D.C., and the other in the Baltimore area.

In Washington, WRIT acquired a 108,521 square foot, Class A MOB in the West End business district for $50 million, or $460 per square foot. The property, which is named after its address – 2440 M St. – includes a three-level parking garage. The seller was a partnership of Washington-based Perseus Realty Capital and Westbrook Partners. WRIT expects a first-year unleveraged yield of 6 percent on a cash basis and 6.5 percent on a GAAP basis.

Washington REIT (NYSE: WRE) funded the acquisition of the building with cash from operations and its line of credit.

The eight-story MOB is 96 percent occupied and leased to 49 tenants, according to WRIT. It is located three blocks from George Washington University Hospital and 1.5 miles from Georgetown University Hospital. Tom Howland, managing director of Perseus Realty Capital, represented the seller in the transaction. Michael Daugard and Thomas Regnell handled the deal in-house for WRIT.

In the Baltimore area, WRIT recently acquired the 125,000 square foot Woodholme Medical Office Building and the 73,000 square foot Woodholme Center, a general office building. The buildings are part of a larger mixed-use project with retail store and restaurants located just off the Baltimore Beltway in Baltimore County, Md. The price for the offices buildings was $49 million and the property includes 844 parking spaces.

The first-year, unleveraged yield is expected to be 7 percent on a cash basis and 7.2 percent on a GAAP basis.

The five-story MOB is 97 percent occupied, according to a press release from WRIT. It also has 567 parking spaces. According to WRIT, demand is high for MOB space in the area, and the Woodholme MOB is located about five miles from Sinai Hospital and three miles from Northwest Hospital – both hospitals are part of Baltimore-based LifeBridge Health.

Woodholme Center is a four-story class A office building with 73,000 square feet of space and 277 parking spaces. The building has a 95 percent occupancy rate and is leased and primarily to law and professional service firms.

WRIT will assume a $21.2 million loan with an interest rate of 5.29 percent and the remaining balance will be funded through our line of credit.

With the acquisitions, WRIT, which concentrates on the Washington/Baltimore area, now has a portfolio of 87 properties: 14 retail centers, 26 general purpose office properties, 15 MOBs, 23 industrial/flex properties, nine multi-family properties and land for development. The REIT focuses on properties in the Washington-Baltimore area.

For the Record

Medical Properties Trust Inc. (NYSE: MPW) of Birmingham, Ala., recently announced a $50 million investment in healthcare real estate in the San Diego market. The investment is on the campus of Paradise Valley Hospital, operated by Prime Healthcare Systems, Medical Property Trust’s (MPT) largest tenant. The investment includes a sale/leaseback and a loan collateralized by real estate in equal amounts of $25 million. With the transaction, MPT has reached a total investment of $141 million for 2007. It has a goal of acquiring $200 million for the year. In a press release, Edward K. Aldag Jr., MPT’s chairman, president and CEO, stated that MPT could reach its acquisition goal by mid-year… HealthSouth Corp. of Birmingham, Ala., and Wellmont Health Systems of Kingsport, Tenn., recently announced that they are forming a partnership to own and operate the 50-bed HealthSouth Rehabilitation Hospital in Kingsport. The two entities also plan to team up on the development of a new 25-bed rehabilitation hospital in Bristol, Va., located about 30 miles from Kingsport. HealthSouth needs to receive Certificate of Need (CON) approval from Virginia regulators in order to proceed with the new hospital. HealthSouth operates 93 rehabilitation hospitals and 10 long-term acute-care hospitals… Northwestern Memorial Hospital in Chicago recently signed a 150,000 square foot lease in a building owned by a joint venture of Chicago-based Golub & Co. and Richmond, Va.-based Wachovia Securities. With the new lease, the building, which is located at 541 North Fairbanks in the Streeterville neighborhood, is almost fully occupied. The 30-story, 542,000 square foot building had an occupancy rate of about 30 percent when the partnership acquired it about a year ago. Northwestern plans to occupy about 100,000 square feet by the end of 2007 and will move into the rest of the space at a later time… Brentwood, Tenn.-based LifePoint Hospitals, Inc. (Nasdaq: LPNT) recently completed the $72.9 million sale of 325-bed St. Joseph’s Hospital in Parkersburg, W.V., to Signature Hospital Corp. of Dallas. St. Joseph had been classified as an asset held for sale since LifePoint acquired it in June 2006 from Nashville, Tenn.-based HCA Inc. LifePoint plans to use proceeds from the sale to pay down a portion of its outstanding debt… St. John Detroit Riverview Hospital, a 285-bed facility in Detroit, is in the process of being acquired by the Barbara Ann Karmanos Cancer Institute, which is expected to spend between $20 million and $25 million to buy and prepare the general hospital to become a cancer hospital. St. John Health officials say the decision to sell is being driven by the fact that the hospital is expected to lose $23 million for the current fiscal year. St. John operates another hospital, 589-bed St. John Hospital and Medical Center, not far from Riverview. The Karmanos system is planning to start an 18-month renovation as soon as the transaction closes… A trio of entities has teamed up to acquire a 78,000 square foot MOB in Memphis, Tenn., for $9.1 million. The buyers are Chicago-based Kessler/Berwyn Medical LLC with a 65 percent share, Chicago-based Chicago/Pauline Holdings LLC with a 15 percent share, and Memphis-based 135 No. Pauline Properties LLC with a 20 percent interest. The seller was listed as 135 No. Pauline Properties LLC. In conjunction with the sale, the seller transferred interest in, or quitclaimed, to the buyers a vacant lot adjacent to the property… Santa Ana, Calif.-based Triple Net Properties LLC recently acquired Culver Medical Plaza in Culver City, Calif., a suburb of Los Angeles. The sellers were Walt Asher and Brent Clark. The seven-story, 51,600 square foot multi-tenant MOB is 100 percent occupied and is located adjacent to the Brotman Medical Center. The seller was represented by the San Diego office of Marcus & Millichap Real Estate Investment Services. Commercial Realty Capital arranged financing, which was provided by PNC Bank… A subsidiary of Plano, Texas-based LifeCare Holdings Inc. recently agreed to sell an under-construction, 62-bed long-term acute care hospital (LTAC) in San Antonio to Toledo, Ohio-based Health Care REIT Inc. for $15.6 million. Health Care REIT (NYSE: HCN), in turn, has agreed to lease the facility back to LifeCare for 15 years with a 15-year renewal option. Construction of the long-term acute care hospital is slated for completion later this year. LifeCare Hospitals of San Antonio, a subsidiary of LifeCare Holdings, currently operates a 34-bed facility on the second floor of Methodist Specialty and Transplant Hospital in San Antonio… Radnor, Pa.-based DeSanto Realty Group, a sponsor of tenant-in-common (TIC) transactions, recently announced the $25.7 million acquisition of Cypress Medical, a 74,518 square foot, Class A medical office complex in Wichita, Kan. The two-building property is fully occupied and includes a variety of tenants, such as an ambulatory surgery center operated by Symbion Healthcare. The facility is located near the Kansas Heart Hospital, Kansas Spine Hospital, and the University of Kansas School of Medicine… Boulder Real Estate Investments purchased a 12,080 square foot MOB in the St. Rose Professional Park in Henderson, Nev. The price was $3 million, or about $248 per square foot. The single-story MOB was built in 2005 and sits on about an acre. It was acquired in shell condition. Arlene Williams of Vanquish Realty in Las Vegas represented the seller, St. Rose Medical Nine LLC. Shirley Rappaport of Las Vegas-based Tower Realty & Development represented the buyer… Charlotte, N.C.-based MedCath Corp. (NASDAQ:MDTH) recently announced that it plans to sell its 51 percent interest in the Heart Hospital of Lafayette (La.). the buyer would be a group of local physicians and investors who previously owned 49 percent of the hospital. The 32-bed heart hospital opened in March 2004. It also contains two operating suites, two heart catheterization labs and an 11-bed heart emergency department. Terms were not disclosed.  q