RICHMOND, VA—Even though large healthcare real estate investors prefer to make large investments that typically top $50 million, many are not shying away from a rather smallish offering in Richmond.

The facility is a brand new 22,000-square foot freestanding emergency department (FED) operated by the three-campus Henrico Doctors' Hospital, part of HCA Virginia and Nashville-based HCA Inc. (NYSE: HCA). The HCA Freestanding Emergency Department & Imaging Center, also known as the Hanover Emergency Center, opened to patients in recent weeks on a 3.7-acre site in the northern part of the Richmond area.

FEDs seem to be all the rage in a growing number of metropolitan areas, as they provide health systems with another strategy for gaining footholds in new markets without having to build full-blown hospitals or large outpatient campuses.

“This is a commodity-driven real estate product,” says Toby Scrivner, a director with Tulsa, OK-based Stan Johnson Co., which is representing the seller in the transaction, an undisclosed development firm. “We knew based on the facility size that it would attract syndicated funds and private equity funds, and we've also heard from some REITs because even though it might be a smaller deal than they prefer, they like the product type and everyone out there is looking for properties right now.”

While some healthcare and healthcare real estate (HRE) professionals have expressed concern about a possible overbuilding of FEDs, the newly listed FED in Richmond, Mr. Scrivner notes, is well-insulated from oversaturation. That's because the facility had to receive a Certificate of Public Need (COPN) from the Virginia Department of Health in order to be constructed.

“If someone wanted to build another one of these facilities somewhat nearby, they'd have to apply for and go through the lengthy process of receiving a COPN, which creates a strong barrier to entry for this facility,” says Mr. Scrivner, who heads Stan Johnson Co.'s healthcare properties arm along with Director Jeff Matulis.

The location of the FED, at 9275 Chamberlayne Road, is quite strategic for HCA, as it is within two miles of a hospital operated by the system's main rival in Richmond, Bon Secours Richmond Health System. HCA's nearest hospital, the 200-bed Parham Doctors' Hospital, is 6.3 miles away.

According to HCA officials, the around-the-clock emergency facility will likely treat 20,000 to 30,000 visitors annually.

While the yield on the acquisition is relatively low – an assumed first-year capitalization (cap) rate of 6.25 percent – it is offset by the low risk of the investment, Mr. Scrivner notes.

“HCA is an extremely strong system that is entering a 10-year, absolute triple-net lease with an option for a five-year renewal, there are guaranteed annual rent escalations (2 percent), and this is a chance to acquire a new facility for below the construction cost because the tenant is contributing about $2 million to the build-out.”

Indeed that is the case, as the asking price of $8.8 million is less than overall construction cost, which exceeds $10 million.