HTA Finds MOB Portfolio Along the East Coast

SCOTTSDALE, AZ—With prices for medical office buildings remaining as strong as they've ever been, the buyer of a $200 million portfolio of MOBs along the East Coast called the recent deal a good one for both his firm and the seller.

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Scottsdale, AZ-based Healthcare Trust of America (NYSE: HTA) recently closed on the six MOBs in Boston, Baltimore and Greater Miami for about $450 per square foot (PSF), well above the most-recent national average PSF of about $245 in the first quarter (Q1). The seller was New York-based ProMed Properties, a subsidiary of Israel-based Gazit-Globe (NYSE:GZT).

“We really feel this was a good deal for us as well as for ProMed,” Scott D. Peters, HTA's chairman and CEO, told Healthcare Real Estate Insights^™. “These assets are all either on campus or right next to the hospitals, which is what we still believe in because we consider them to be in core critical locations that will be relevant for the next 40 to 50 years.”

Peters gave an indication of why the final PSF was well above the national average.

“The assets are located in attractive, high barrier-to-entry markets that feature above average income levels and health insurance coverage,” he said. Robert Milligan, HTA's chief financial officer, added that the rents in the markets are substantially higher than in most U.S. cities.

ProMed accumulated the buildings, which have a total of about 444,000 square feet of space, between 2008 and 2012, paying a total of about $171 million for the six facilities.

When asked if the deal was an “off-market” one, HTA's Peters described it as a “relationship transaction for us. It really didn't go on the market for bids but was something that we had continuing discussions with them about. What they wanted to sell and what we wanted to buy fit well together.”

While Peters did not disclose the capitalization (cap) rate, which is an estimated first-year return on an investment, he noted that it was in the 6.25 percent to 7 percent range for the portfolio. The six buildings are 96 percent occupied.

The buildings acquired are The Biewend and Tupper buildings on the campus of Tufts Medical Center in downtown Boston; three MOBs in Greater Miami on or near campuses of Baptist Health System hospitals; and the Johnson Professional Building in northern Baltimore that includes four floors atop MedStar Health's Union Memorial Hospital.

“We continue to prefer, from a big picture perspective, MOBs and we still like on-campus or across the street from a hospital facilities,” Peters says. “And for us, growth is defined as growing our portfolio by plus or minus 10 percent of our overall portfolio on an annual basis, which we have been pretty close to doing. So that means $350 million in acquisitions is a good year for us. It allows us to chug along, be selective … and allows us to find assets that fit our asset management program.”

ProMed Properties, whose officials did not comment on the deal, still has significant holdings in its portfolio. Upon making its most recent acquisition – the Johnson Professional Building in Baltimore in late 2012 – the company said its portfolio contained about 1.5 million square feet of space.