The estimated $140M deal seeds a programmatic partnership between the two firms
By John B. Mugford
Portfolio recapitalizations have been taking place at a rapid clip in the healthcare real estate (HRE) sector in recent years, including a record-setting 10-plus such deals in 2021.
These recapitalizations are often the start, or the “seeding,” of new programmatic, joint venture (JV) partnerships between experienced HRE ownership firms and large investors, including institutional fund managers, with a goal of acquiring or investing in the development of HRE facilities, including medical office buildings (MOBs), moving forward.
While many of the HRE sector’s longstanding, well-known firms have entered such partnerships in recent years, one of the last holdouts was Cleveland-based Woodside Health, which is heavily focused on acquiring value-add or core-plus healthcare properties and which, since its founding in 2008, has completed 47 purchases.
Woodside, which is led by principals Ted Barr, Joe Greulich, Ben Sheridan and Ben Barr, was, as noted, one of the last holdouts – until recent weeks, that is.
The firm announced last week that it has recapitalized a portfolio of 10 properties totaling 423,000 square feet of space with Chicago-based Heitman LLC, a global real estate investment management firm founded in 1966 and which has about $53 billion of assets under management (AUM).
The portfolio, which does not represent all of Woodside’s holdings, spans the states of Texas, Arizona, Georgia and Florida. The occupancy rate is 94 percent and the remaining weighted average lease term (WALT) is 4.3 years. The average annual rent escalation is 2.8 percent.
While the firms did not disclose the price of the recapitalization, industry sources tell HREI that it was valued at about $140 million and that Heitman likely acquired a 90 percent ownership stake.
As noted, the deal kicks off a programmatic partnership between Woodside and Heitman, with Woodside searching for acquisition opportunities, with a heavy focus on the country’s top 50 metropolitan areas and an even heavier focus on areas where Woodside has a concentration of properties, such as Greater Phoenix, Texas, Florida and other high-growth areas.
Heitman has plenty of experience in investing in the MOB sector, as it has done so since 2003. Since then, it has acquired, developed and/or financed, often with other HRE firms as partners, “nearly 250 assets valued at over $4.5 billion in gross value.”
Advising Woodside in its recapitalization and its search for a new capital partner was the Healthcare Capital Markets team with Newmark Group Inc. (Nasdaq: NMRK), which was led by Jay Miele, senior managing director. Also on the team were Ben Apple, executive managing director, and John Nero and Michael Greeley, both senior managing directors.
“As a leading owner and operator, Woodside has successfully executed a value-add strategy that has solidified its dominant position in the medical office building sector,” Mr. Miele said in a news release. “Its partnership with Heitman will support Woodside’s aggressive growth objectives by augmenting its investment criteria to include larger transactions across an expanded geographic footprint.”
Brian Pieracci, managing director of acquisitions in North America for Heitman, said the “new joint venture with Woodside Health creates the opportunity to aggregate a portfolio of assets in high growth markets with strong healthcare fundamentals. The seed portfolio’s granular rent roll provides stable current cash flow with the ability to mark rents to market in an inflationary environment.”
The focus will continue to be on value-add, even what Ben Barr calls “light value-add” purchases as well as core-plus medical facilities.
“This partnership really gives us the opportunity to make larger acquisitions than we could with investments from family offices,” Mr. Barr added. “We were looking for the right partner and we are really happy to have found that in Heitman, whom we mesh with culturally and which will allow us to remain entrepreneurial and really focus on the types of transactions we are best at and that highlight how well we work with our tenants.”
Mr. Barr would like HRE facility owners who are thinking about selling properties to know that Woodside – despite what many in the sector consider to be a current slowdown in transaction activity – is an active “buyer looking to deploy capital for the right deals. While we’re not being overly aggressive and while other investors might be slowing down and hitting the pause button for a bit, we might view an asset differently than someone else. We feel that with our operational expertise we can make deals work that others might not be interested in.”
Ted Barr, who leads acquisition efforts for Woodside, reiterated why the firm is bullish about the new partnership.
“Shared investment philosophy, cultures and growth objectives were important criteria driving our decision to partner with Heitman,” he said. “We are excited to continue acquiring portfolios and individual assets for the joint venture as we bolster our presence in key markets and expand into new ones.”
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