Special Report (September 2007)

Sold for $99.7 million



By John Mugford

In late 2006, Latham, N.Y.-based First Columbia LLC announced that it was putting its entire, nine-property medical office building (MOB) portfolio on the sale block. The portfolio is composed of newer, mostly on-campus buildings in and around the Capital Region of New York; with an overall occupancy rate of more than 95 percent.

At the time of the announcement, a principal with the firm chosen to market the 398,000 square foot portfolio, Philip J. “P.J.” Camp of New York-based Shattuck Hammond Partners, predicted that interest would be quite high in the offering.

As things turned out, Mr. Camp was correct.

“It really had a lot of exciting assets in the portfolio,” Mr. Camp says, “so it didn’t surprise us that a lot of investors submitted bids.”

Within a matter of weeks after issuing the offering, about 50 potential investors requested bid packages and information about the portfolio. By the Feb. 21 deadline for submitting bids, more than 50 firms made a run at the portfolio.

In late August, the sale of the portfolio closed.

The buyer was LaSalle Investment Management of Baltimore and one of its private real estate investment trusts (REIT), LaSalle Medical Office Fund II, which acquired the portfolio on behalf of its investors, many of whom are large institutions.

The sale price was $99.7 million, or about $250 per square foot (PSF). The expected annual net operating income (NOI) for the portfolio is $6.8 million, meaning the cap rate at the time of sale was 6.8 percent. First Columbia will continue to manage the MOBs for LaSalle, leaving its commercial property management portfolio – both medical and other types of properties – at about 1.4 million square feet. LaSalle officials say future collaborations could be in the works between the two companies.

While a majority of the MOBs are on hospital campuses or close to them, each is affiliated with a hospital or health system in the Hudson Valley region, according to Mr. Camp. The New York state hospitals and health systems include:

▪ Two-campus St. Luke’s Cornwall Hospital in Cornwall and Newburgh.

▪ Troy-based Seton Health, which is part of St. Louis-based Ascension Health.

▪ Albany-based St. Peter’s Healthcare Services, which is a part of the Newton Square, Pa.-based Catholic Health East system.

▪ Benedictine Hospital in Kingston.

▪ St. Clare’s Hospital in Schenectady – the system is owned by the Albany Catholic Diocese.

▪ Glens Falls Hospital.

During a period of time in which garnering credit has become more difficult for investors – and certainly more expensive – Mr. Camp offered praise for First Columbia.

“There is a liquidity crunch right now and the cost of debt has gone up no matter who you are,” Mr. Camp says. “But we were very pleased with the way LaSalle performed because they did not re-trade the price despite the fact that their cost of debt did increase during their due diligence.”

In a story about First Columbia’s portfolio offering in the December 2006 issue of Healthcare Real Estate Insights, Mr. Camp stated that interest would be high because of the quality of the newer buildings, which are between two and 15 years old, and the fact that most of the buildings are on hospital campuses but owned by First Columbia. Plus, Mr. Camp noted that the Capital Region in and around Albany is slated for continued growth in years to come.

Mr. Camp says that First Columbia decided to sell the portfolio because the timing was right and the development firm was looking to reinvest the proceeds into other projects it is working on in the Hudson Valley area. The development firm owns a total portfolio of more than 1.3 million square feet in the Capital Region. It is currently working on some redevelopment projects and a master plan for an area near the waterfront in Troy, where First Columbia has proposed a new hotel, residential units, conference center, parking garage and other projects.

The company also bought an interest in Saratoga National Golf Club in Saratoga Springs, N.Y., and has plans to increase its investments at the 260-acre New York International Plaza in Newburgh, near Stewart International Airport on the lower Hudson River. q

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