Hot Property: Portfolio spans 5 states, 292,974 s.f.

94.5 percent occupied portfolio is being offered by Montecito, Harrison Street

The Bon Secours Health Center at Harbour View in Suffolk, Va., is one of seven buildings offered in the MMIC Medical Office Building Portfolio II. (Photo courtesy of CBRE)

Name: MMIC Medical Office Portfolio II
Number of Buildings: Seven
Locations: California, Arizona, Kansas, Ohio, and Virginia
Size: 292,974 square feet
Type of Buildings: Medical Offices and One Surgery Center
Asking Price: N/A
Hospital Tenancy: 60.3 percent, 51.4 percent of which is investment grade
Average Age of Buildings: 13-1/2 years
Occupancy: 94.5%
Seller: Partnership of Montecito Medical Investment Co., Harrison Street
Tenants: Cleveland Clinic, Bon Secours Health System, John C. Lincoln Health Network, Palomar Health, etc.
Brokerage Firm: CBRE Group Inc.

By John B. Mugford

As noted in past editions of Healthcare Real Estate Insights™, portfolios with significant space are a hot commodity among investors, especially larger, well-capitalized ones looking to grab scale in the medical office building (MOB) sector.

Perhaps that’s why plenty of interest is being generated by a portfolio offering from Santa Barbara, Calif.-based Montecito Medical Acquisition and Development Co. and its investment partner in the buildings, Chicago-based Harrison Street.

Offers were due in late April for the seven-building, 292,974 square foot MMIC Medical Office Portfolio II, whose buildings are located in San Diego: Phoenix: Suffolk, Va.: Leawood, Kan., outside of Kansas City; and Elyria, Ohio, near Cleveland.

According to Chris Conk, senior VP of acquisitions for Montecito, the partnership acquired the properties from 2006-08, during which time Montecito – with other capital partners, such as Harrison Street, Newport Beach, Calif.-based Buchanan Street, New York-based Clarion Capital Partners LLC and others – acquired a portfolio totaling about $500 million and 2.5 million square feet.

Since then, Montecito has, periodically, packaged and then sold certain assets.

“There are times when the hold periods come to an end for our capital partners and they’re ready to sell, and that’s the case with Harrison Street and these buildings,” Mr. Conk says. “The portfolio is certainly one with high-quality assets.”

Brokering the portfolio for Montecito is the national Healthcare Capital Markets Group of CBRE Group Inc. (NYSE: CBG), which is led by Chris Bodnar and Lee Asher. Local CBRE brokers in the various markets are also involved.

According to materials from CBRE: “The portfolio’s appeal is evident in the stability of its tenancy, quality of construction and strategic locations.”

Here’s a closer look at the properties:
■ Cleveland Clinic Chestnut Commons MOB, 303 Chestnut Commons Dr., Elyria, Ohio. The 40,000 square foot property in the Cleveland suburbs was completed in 2008 and is 100 percent leased to the Cleveland Clinic Foundation for 15 years on a triple-net basis.

■ Bon Secours Health Center at Harbour View, 5818 Harbour View Blvd., Suffolk, Va. The 111,084 square foot ambulatory care facility and multi-tenant MOB is 98 percent leased. Constructed in 2004 and expanded in 2007, the facility is anchored by Bon Secours Health System, which occupies about 73.2 percent and provides an emergency department, family practice, a women’s center, an endoscopy center and a cafe.

■ Escondido Medical Arts Centre, 225 E. 2nd Ave., San Diego. The 49,302 square foot, multi-tenant facility is 87 percent leased. Built in 1994, it is located near the 319-bed Palomar Medical Center in Escondido, Calif. The anchor tenant is Graybill Medical Group, the largest primary care group in the area and part of the hospitalist program for inpatients at Palomar Medical Center.

■ John C. Lincoln Medical Plaza I & II, 9225 N. 3rd St., Phoenix. The two buildings have a total of 46,572 square feet and are 95 percent occupied. Combined with the building listed below, North Mountain Medical Plaza, the three buildings are a combined 89.5 percent occupied, 44 percent of which is leased by Phoenix-based John C. Lincoln Health Network.

■ North Mountain Medical Plaza, 9100 N. 2nd St., Phoenix. The 27,094 square foot building is 80.6 percent occupied.

In the meantime, while Montecito is looking to sell the above portfolio, the company is ready to make hundreds of millions of dollars of acquisitions once again, also in partnerships.

Last fall, the company announced that it had formed a joint venture (JV) investment partnership with Boston-based Berkshire Realty Ventures that plans to spend anywhere from $700 million to $1 billion in coming years.

The JV, called MMAC Berkshire LLC, made its first acquisition in January, closing with another partner, CNL Healthcare Properties, on an MOB in Claremont, Calif., for $19.25 million.

“We’re very active right now,” Mr. Conk says. “And we’re seeing a lot of opportunities and activity out there.”

Mr. Conk says Montecito is prepared to make acquisitions totaling about $200 million in 2013, including closing on one purchase in May and perhaps several others in July.

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