Transactions (October 2007)

Windrose makes $40.2M buy in Buffalo

DIVISION OF HEALTH CARE REIT BUYS MOBs, WELLNESS CENTER WITH 200,000 S.F.

 

By John Mugford

The Windrose Medical Properties division of Toledo, Ohio-based Health Care REIT (NYSE: HCN) recently acquired two medical-related properties in the metropolitan area of Buffalo, N.Y. The seller was North Tonawanda, N.Y.-based Calamar, a developer, owner and manager of commercial real estate.

The sale price was $40.2 million for the two healthcare and medical office properties, which have a combined total of more than 200,000 square feet.

The properties are:

■ Western New York Medical Park in West Seneca. The sale price was $22.1 million. The 14-acre site includes three separate but attached buildings with 96,000 square feet of medical space. Mercy Hospital of Buffalo is a principal tenant. Calamar acquired the property in 2004.

■ Summit Healthplex and Summit Wellness Center in Wheatfield. The sale price for the two separate but attached facilites was $18.1 million. Summit Healthplex has 53,000 square feet; Calamar acquired it in 2001. The firm then developed the 42,000 square foot wellness center in 2003. The property contains doctors’ offices and an outpatient clinic for Niagara Falls Memorial Medical Center.

Calamar officials say they decided to sell the properties due to slowing economic conditions and the firm’s desire to grow geographically.

As part of the deal, The Niagara County Industrial Development Agency agreed to allow Windrose to assume the five years remaining on Calamar’s payment-in-lieu-of-taxes agreement on the Summit Wellness Center.

As of June 30, Health Care REIT reported a portfolio of 617 properties in 38 states, gross real estate assets of about $5.1 billion and market capitalization of about $6.1 billion. It owns hospitals, medical office buildings, skilled nursing facilities and assisted living facilities.

Health Care REIT acquired what was then Windrose Medical Properties Trust in 2006 as part of its strategy to diversify its portfolio, which was heavily listing toward senior care facilities and properties considered vulnerable to changes in federal Medicare and Medicaid reimbursement policies. (For more information on that transaction, please see “Winds of change at HCN” on page 1 of the September  2006 edition of Healthcare Real Estate Insights^™.)

In one fell swoop, the nearly $1 billion acquisition of Windrose padded HCN’s portfolio with more than 92 outpatient facilities, mostly MOBs.

 

 

HR Trust acquires

MOB in Texas;

defines strategy

NASHVILLE, Tenn. – Nashville-based Healthcare Realty Trust (NYSE: HR) in late August acquired a medical office building in central Texas for $26.3 million.

According to a Securities and Exchange Commission (SEC) Form 8-K filed by the real estate investment trust (REIT), the MOB is 66 percent occupied but will be fully leased by the first quarter of 2008, when the facility is slated for completion. The building is on the campus of a hospital now under construction.

Healthcare Realty Trust did not name the hospital campus in news reports or on its Web site; officials did not return a phone call from HREI^™. The company writes in the SEC filing that the hospital under development is part of an AA-rated health system in central Texas.

In the SEC filing, Healthcare Realty Trust reports that it plans to provide property management services for the MOB and that it has plans to develop additional medical facilities on the campus. It currently has a $33 million outpatient facility under development on land across from the hospital.

As of June 30, Healthcare Realty Trust had a portfolio of 178 medical real estate properties for a total investment of about $1.6 billion, excluding assets the company classifies as being for sale. The company’s property management portfolio totals 7.3 million square feet nationwide.

The SEC filing provides some insight into Healthcare Realty Trust’s strategy as it moves forward. For one thing, the company writes that it intends to maintain a portfolio focused predominantly on outpatient services and MOBs – properties the company states are diversified by tenant, geographic location and facility type.

It wants to concentrate on facilities that produce stable and growing rental income. Consistent with that strategy, the firm states that it “seeks to provide a broad spectrum of services needed to own, acquire, manage, finance and develop healthcare properties.”

In February, the company stated that it planned to dispose of its portfolio of senior living assets, which prior to Feb. 26 included 62 properties and 16 mortgages and other notes receivable.

By June 30, the REIT had recognized a net gain of about $37.6 million, as well as a deferred gain of $5.7 million, from the disposition of senior living assets.

Healthcare Realty Trust also tries to diversify its health system affiliations. In fact, only one healthcare provider accounted for 10 percent or more of the company’s revenues during the six months ending June 30, 2007. That system was Birmingham, Ala.-based HealthSouth Corp. (NYSE: HLS) at 11 percent.

In addition, Healthcare Realty Trust has stated that while it intends to continue pursuing selective acquisition opportunities, it was increasing its development efforts.

“By developing, rather than acquiring, outpatient medical facilities, the company expects to earn higher returns with greater growth potential,” according to portions of the SEC filing. “Management also believes that the diversity of tenants in these properties, which include physicians of nearly two dozen specialties as well as surgery, imaging, and diagnostic centers, lowers the company’s financial and operational risk.”

As of August 31, the REIT had eight development projects with a total of 889,676 square feet under way. Three are in Texas, one is in Hawaii, two are in Colorado and two more are in Arizona. The total budget for the eight projects is $220 million.

 

Landmark tower

offered by St. Luke’s

in Texas Med Center

HOUSTON – St. Luke’s Episcopal Health System recently announced that it is looking for a buyer for its landmark outpatient high-rise, the O’Quinn Medical Tower, formerly known as the St. Luke’s Medical Tower. The 28-story tower is located adjacent to St. Luke Episcopal Hospital in the Texas Medical Center, the massive conglomeration of medical facilities just south of Houston’s downtown.

As part of a potential acquisition agreement, St. Luke’s plans to lease back three floors of the building from the potential buyer – most likely floors nine through 12. The O’Quinn name would remain, according to hospital system officials.

The Houston office of commercial real estate broker Holliday Fenoglio Fowler LP’s (HFF) is handling the offering of the building.

In a recent press release from HFF, David Fine, St. Luke’s president and CEO, stated: “St. Luke’s has decided to take advantage of a strong capital market to sell this significant asset to enhance our commitment to our patients and their families.”

The press release further states that St. Luke’s would re-invest proceeds from the sale back into its hospital operations in the Texas Medical Center. A partnership between St. Luke’s and a group of physicians is currently building a new 100-bed hospital in the Houston suburb of Sugar Land.

The 445,725 square foot O’Quinn Medical Tower was developed in 1990 by Hines and was designed by renowned architect Cesar Pelli. The building is currently fully occupied by St. Luke’s and physicians who practice at the adjacent St. Luke’s Episcopal Hospital. The property includes parking for 1,100 vehicles.

Seattle firm selling,

not developing,

site in Honolulu

HONOLULU – Seattle-based HighMark Investments LLC has decided to sell a property near Honolulu’s Chinatown instead of pursuing its previous plans to develop a 225,000 square foot medical facility on the site. The $85 million facility was to include a surgery center, orthopedic facility, retail space and more than 750 parking stalls.

But HighMark, which razed two low-rise commercial buildings on the site, recently decided to pursue other projects instead of the medical facility. The company has listed the 65,000 square foot property for sale for between $14 million and $16 million. The broker representing HighMark is Andrew Friedlander of Colliers Hawaii.

HighMark officials say their decision had nothing to do with a current liquidity crunch having an effect on commercial real estate transactions. HighMark acquired the property last year for an undisclosed price from Excel Equity LLC and Maalaea Harbor Associates LLC.

HighMark President and CEO Michael W. Kerby was quoted in a local news report as saying that four groups are interested in acquiring the property, which has received site and foundation permit approvals and is about three months away from receiving a building permit for a medical center.

Kerby said he believes a medical center is the best use for the site. The lot, which is located on the fringe of Honolulu’s Chinatown redevelopment district, is zoned commercial with a 200-foot height limit. 

Triple Net’s REIT

acquires Pa. MOBs

for $26.7 million

NORRISTOWN, Pa. – Santa Ana, Calif.-based NNN Healthcare/Office REIT, an affiliate of Triple Net Properties, recently acquired a medical-related facility with lab space in Norristown, a suburb of Valley Forge.

The private real estate investment trust paid $26.7 million for the 106,000 square foot facility, which sits on a 10.5-acre site that includes a 3,400 square foot storage building. The seller was New York-based Lexington Realty Trust, which was represented in the transaction by the Philadelphia office of Grubb & Ellis.

The price per square foot works out to $244.

The two buildings were constructed in 1985 and renovated in 2001. The main building is fully leased through April 2011 to Quest Diagnostics Inc. (NYSE: DGX), a Fortune 500 company that concentrates on diagnostic testing, information and services. Financing for the acquisition was provided by LaSalle Bank National Association.

In other news from Triple Net Properties, the company recently acquired a 76,000 square foot MOB in Waldorf, Md., for an undisclosed price. The Old Line Professional Centre has three stories and is about 81 percent occupied. It is located southeast of Washington, about 13 miles from the Capital Beltway.

The seller was a group of private investors that included Sunrise Properties LLC, North Charles Street LLC, and Bryna II LLC. Andy Stape of Transwestern handled the transactions for the sellers. Wachovia National Bank Association provided financing.

N.Y. hospital

changing hands

for $1 – not

SCHENECTADY, N.Y. – Ellis Hospital of Schenectady is in the process of acquiring the 40-bed Bellevue Woman’s Hospital in Niskayuna, N.Y., for $1. The actual price tag, however, is expected to be at least 40 million times the sale price – or $40 million.

Bellevue officials say turning their hospital over to Ellis includes a number of costs that state officials did not consider in ordering the deal to take place. Late in 2006 New York’s Health Care Commission in the 21st Century, otherwise known as the Berger Commission, called for the restructuring of Bellevue. The commission called for the closing of nine hospitals in the state and the restructuring of many others in an effort to reign in healthcare costs.

The state’s Department of Health called for Ellis, which has no maternity department, to take over the administration of Bellevue on Nov. 1. Unanticipated costs associated of the acquisition include $4.3 million for malpractice insurance, $1.8 million to close out the hospital’s pension fund, as well as costs for lawyers and consultants.

Bellevue has asked the state for $28 million from the state fund created under the Healthcare Efficiency and Affordability Law for New Yorkers (HEAL-NY) and the Federal-State Health Reform Partnership (F-Sharp) programs. The money would cost from a pool of $530 million that is intended to reimburse facilities for their costs due to the Berger Commission decisions.

N.J. hospital

plans to close

by end of 2007

WESTWOOD, N.J. – Pascack Valley Hospital in Westwood, just outside of the New York metro area, recently announced that it plans to file for Chapter 11 bankruptcy and begin the process of closing. The hospital, which is located on a 20-acre site in Bergen County, has been in operation since 1959.

In a news release, officials stated that the 154-bed hospital has gone through several years of “significant operating losses and a non-reversible liquidity crisis.” The operating losses are due to decline in patient volume and revenue.

Losses were in excess of $50 million over the past four years. The operating loss in 2006 was $21.9 million and is projected to be more than $16 million in 2007.

The hospital tried unsuccessfully to land a strategic partner over the last year or so. The hospital needs to receive approval from the state of New Jersey before closing. The approval is expected by the end of the year.

For the Record

Stamford, Conn.-based Baywater Properties LLC recently acquired a 13,900 square foot  MOB in Darien, Conn. The seller was Darien-based Darwein Associates LLC, which sold the property for $3.9 million, or about $280 per square foot. The building is occupied by a variety of physicians. Jerry Lowell of Hall Investments LTD represented the seller… Arcadia Plaza Investors LLC recently acquired an 18,317 square foot MOB in Murrieta, Calif., from Murrieta Professional Plaza LLC for $6.37 million, or $348 per square foot. The two-story building has several medical related tenants, including Oaks Surgery Center and Lobue Laser & Eye Medical Center. It was built in 2003 and is part of a medical campus environment including four buildings totaling with about 35,700 square feet. The cap rate on the sale was 6.7 percent. Grubb & Ellis/WestMar represented the seller while a local office of CB Richard Ellis represented the buyer… LDG Commercial Real Estate has acquired a 26,500 square foot MOB in San Diego from a private trust for $5.5 million – about $208 per square foot. The two-story property was built in 1991 on less than an acre in the Richley Medical Plaza. The building was 70 occupied at the time of sale. Tenants include a surgical center and Emergency Care Dynamics. Grubb & Ellis/BRE Commercial represented the buyer while Coldwell Banker Commercial WESTMAC represented the seller, the Eugene & Patricia Shales Family Trust… A buyer has emerged for the old Gateway Medical Center in Clarksville, Tenn. Atlanta-based Schuler Properties, which plans to develop a shopping center on the site in central Clarksville, recently entered an agreement to buy the hospital and 17-acre site from majority owner Community Health System (NYSE: CHS) of Franklin, Tenn., and minority owner Clarksville Volunteer Health. The price was not disclosed. A replacement Gateway Medical Center is currently under construction in nearby St. Bethlehem, Tenn. The 270-bed, 510,000 square foot replacement hospital is expected to open in mid- to late-2008. An MOB is also being developed on the site of the $200 million project. The previous majority owner of Gateway Medical Center was Plano, Texas-based Triad Hospitals Inc., which was acquired earlier this year by CHS… Medical tenants recently signed leases for space in a redeveloped building in a historic business district of Milwaukee. The redeveloped building, to be called Downer Avenue Commons, is located on North Downer Avenue in an area where many properties have become blighted in recent years. The developer of the project is a partnership of Joel Lee, of Van Buren Management Inc., and New Land Enterprises. The overall project includes a $50 million redevelopment of a portion of North Downer. The tenants signing leases for Downer Avenue Commons include Shoreview Pediatrics, Lakeside Obstetrics-Gynecology, Dynacare Laboratories, and Lighthouse Clinic. Those tenants would occupy the second and third floors of the building, which would have retail space on the street level. The overall redevelopment project includes the addition of about 50,000 square feet of medical office space. New Land also is working on plans for an 11-story hotel and condo building just off Downer Avenue… Wake Forest University Baptist Medical Center in Winston-Salem, N.C., has purchased a 25-acre tract in Hillsdale, N.C., in Davie County, where it intends to build a replacement for Davie County Hospital in Mocksville. The land is on NC Highway 801, north of the U.S. Interstate-40 interchange. The price of the land was not revealed. Wake Forest Baptist plans to spend about $125 million to build the 81-bed, 225,000 square foot hospital and an outpatient center on the site. Wake Forest Baptist operates the current Davie County Hospital under a management contract, but it would be the owner of the new hospital… Coronado Partners LLC recently acquired a two-story office building in Hacienda Business Park in Pleasanton, Calif., for $4.3 million. The investor plans to redevelop the Class B building into Class A medical office condominiums that would be called Coronado Medical Plaza. Coronado Partners was represented by Brian Lagomarsino of Colliers International in Pleasanton, which is located north of San Jose. The seller, Trevi Partners, was represented by Mike Copeland and Mark Triska of Colliers… Franklin, Tenn.-based Community Health has reportedly lined up the sale of another hospital that it acquired in its $6.97 billion acquisition of Plano, Texas-based Triad Hospitals in July. Community has signed a non-binding letter of intent to sell Barberton (Ohio) Citizens Hospitals to Akron, Ohio-based Summa Health System. Community owns a 93.5 percent stake in Barberton Citizens Hospital, with Summa and the Cleveland Clinic Foundation each owning 3.25 percent stakes. Summa is interested in the hospital as part of its strategy to seek growth outside of Akron, according to a press release. The Barberton hospital would become the fourth in Summa’s network… University Medical Center, an MOB in Tamarac, Fla., recently was sold for $6.3 million, according to a local office of CB Richard Ellis, which arranged the transaction. Medical Mortgage Holdings sold the three-story, 34,413 square foot MOB to an entity titled MOB 6. The building, which is 72 percent occupied, was formerly owned by an investment group managed by Anthony Cutaia, a real estate investment manager and mortgage broker from Boca Raton, Fla. Mr. Cutaia is currently under investigation by the FBI. In 2005. he had put together about $2 million from dozens of investors and obtained a $4.88 million mortgage with BankAtlantic to buy the building for $6.5 million. Mr. Cutaia had plans to sell the building as medical office condos, but the plan fell through and the company he managed fell behind on mortgage payments. Meanwhile, Medical Mortgage Holdings, the recent seller of the property, was formed to take over the mortgage from the bank. q