LOS ANGELES-Even with investor demand remaining strong for healthcare real estate, a shortage of quality properties on the market remains, especially those packaged in larger portfolios.
Yet, because pricing remains strong for such properties, owners in recent months have decided now is a good time to put together and sell medical office building portfolios, which larger investors certainly prefer over smaller deals with just one or two buildings. The sellers have included development companies, equity investment firms and real estate funds.
One of the most recent portfolio offerings came from Jones Lang LaSalle Income Properties Trust Inc., which placed a portfolio of 13 MOBs on the market. Eight of the buildings are in California, in the cities of Bakersfield, Northridge, Glendale and Santa Maria. The other five buildings are in the Arizona cities of Phoenix, Chandler and Gilbert.
According to Healthcare Capital Markets Group of CBRE Group Inc., which is marketing the portfolio, a buyer is likely to be chosen and the sale could be under contract soon. Investor interest was strong, according to Chis Bodnar, who with Lee Asher leads CBRE’s national healthcare group. Other CBRE brokers involved are Matthew Heyn in California and Mindy Korth and Barry Gabel in Arizona.
“It was a very competitive process, as it always is with a high-quality portfolio like this with such a strong health system as a major tenant,” Bodnar adds.
Because San Francisco-based Dignity Health, the country’s fifth largest not-for-profit health system, occupies 33% of the space in the buildings, the portfolio is called the “Dignity Medical Office Portfolio.” With 657,811 rentable square feet, the 13 buildings are 79% occupied. Ten of the buildings are on hospital campuses while three – all in Arizona – are in what CBRE calls “high-traffic” off-campus locations.
For the eventual buyer, there are opportunities to increase the occupancy rate, according to CBRE. For example, the firm notes that Dignity Health has expressed an interest in renting approximately 22,000 square feet in one of the buildings, Mercy North Medical Office Building in Bakersfield.
The 38,621-square-foot building, which is on the campus of Dignity’s Mercy Southwest Hospital, is currently 42.9% leased. Should Dignity take all of the space it has shown an interest in, the building would be nearly 100% occupied, according to CBRE.
CBRE’s marketing materials adds: “The portfolio is offered free and clear of existing debt, providing an incoming investor tremendous value with stable investment grade credit tenancy and strategic on-campus locations.”
Most of the buildings in the portfolio are in the 30,000- to 49,000-square-foot range. One building, however, is significantly larger than the others. McAuley Medical Center, at 500 W. Thomas Rd. in Phoenix, is a nine-story, 168,511 square foot facility on the campus of the 673-bed St. Joseph’s Hospital and Medical Center, which is part of Dignity Health.
John B. Mugford is the Editor of Healthcare Real Estate Insights™, the nation’s first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.