Hot Property: Interest high in Boston-area MOB

The Musculoskeletal Center in Peabody, Mass., is 93.8 percent occupied

Name: The Musculoskeletal Center
Address: 4 Centennial Drive
City: Peabody, Mass.
Number of buildings: 1
Square footage: 38,188
Date completed: 1976
Date redeveloped: 2003
Occupancy: 93.8%
Average PSF rent: $23.66/NNN
First year NOI: $879,276
Suggested price: $12.295 million
Brokerage firms: MANSARD, Coppola Properties

PEABODY, Mass. – Boston’s healthcare real estate (HRE) scene is not easy to break into, as it is considered one of the country’s highest barrier-to-entry markets.

That’s why Jeremy Cyrier, president of Wakefield, Mass.-based MANSARD, says investor interest has been high for a north suburban medical office building (MOB) that he is marketing with Nick Coppola, president of another area commercial real estate firm, Coppola Properties.

Offers are due in late January for the Musculoskeletal Center at 4 Centennial Drive in Peabody, about 17 miles north of downtown Boston in what is known as the Northshore Medical Market. Major providers in the area include Beverly Hospital, Mass General Hospital, Lacey Clinic and others.

The 38,188 square foot MOB is almost 94 percent occupied, with major tenants including Orthopaedic Trauma & Reconstructive Services, which has more than 33 percent of the space; Spaulding Rehabilitation Network, part of Boston-based Partners Healthcare, with nearly 17 percent of the space; and North Shore Medical Center and North Shore Physicians Group, affiliated groups with a combined occupancy of about 28 percent of the building

“The opportunity at the Musculoskeletal Center is unique among other offerings in the market today,” Mr. Cyrier told Healthcare Real Estate Insights™. “Rarely are such prime medical office investments available along the 128 corridor in the sub-$15 million investment market.”

According to materials from MANSARD and Coppola Properties, the suggested price for the property is $12.295 million, or a price per square foot (PSF) of about $322. At that price, the capitalization (cap) rate would be 7.15 percent.

So far, the majority of investor interest in the property has come from family offices, non-traded real estate investment trusts (REITs), private equity funds, and high net-worth investors, Mr. Cyrier notes.

When asked why the MOB would be a good investment, Mr. Cyrier responded that “the Musculoskeletal Center provides the opportunity to realize durable cash flows and the ability to create value through several different avenues.” For example, according to the brokers, the 93.8 percent occupancy rate provides “solid in-place cash flow with a possibility of even better returns” by landing a tenant for the only available remaining suite, which has 2,340 square feet.

“When conservatively leased at the building’s average rental rate of $23.66 per square foot, triple net, that suite adds an additional $55,364 of net operating income and $774,327 in equity value at a 7.15 percent capitalization rate,” according to the brokers. They add that the current leases include built-in rental escalations and that the property has “minimal downside exposure to capital expenditures like HVAC replacement, which is a CAM (common area maintenance) reimbursable item.”

The property is being offered free and clear of existing financing, which the brokers say will allow the buyer to “take advantage of today’s historically low interest rates and competitive environment or to deploy significant cash in a single transaction.”

– John B. Mugford