Single-Tenant Healthcare Demand Continues

MURFREESBORO, TN-With healthcare-related properties viewed by many as among the most stable types of properties these days, it should come as no surprise that single-tenant deals in the arena continue to attract attention from a variety of investors.

Among recent deals is a $55.5-million, four-property sale-leaseback portfolio being purchased by Murfreesboro, TN-based public REIT National Health Investors Inc. The skilled nursing facilities, all located in Texas and totaling 595 beds, are being sold by affiliates of Legend Healthcare LLC, which is already of a tenant of NHI’s. The REIT closed on the purchase of three of the facilities at the end of June and expects to close on the fourth by August 1. Legend is leasing the properties back for a 15-year term, at an initial rate of 10% plus annual increases, and has an option after seven years to repurchase the facilities.

In another healthcare-related transaction, Tulsa, OK-based Stan Johnson Co.’s Michael Cropper recently brokered the sale of a 5,916-square-foot medical building on behalf of its seller, MDG Development Group LLC for $2.8 million. The buyer, an individual investor in California, was represented in the deal by Travis Trautvetter of Marcus & Millichap Real Estate Investment Services Inc. The West Salem, OR property is a build-to-suit fully leased to Fresenius Medical Care.

“We continue to see strong demand for medical-oriented real estate investments. Investors are attracted to the stability of the customer demand, strength of credit and high-quality real estate,” says Cropper. “Medical tenants are among the few tenants nationally that continue to expand in the face of this recessionary economy. I believe that this niche will be an area of continued strength in the coming years.”

And last month non-traded REIT Grubb & Ellis Healthcare REIT Inc., based in Santa Ana, CA, announced its acquisition of a portfolio of two medical office buildings in its second sale-leaseback deal with Aurora Health Care. The 130,000-square-foot, two-building portfolio in Mequon and Franklin, WI consists of ambulatory surgery centers that were built in 2001 and 2004 “and are an essential part of the Aurora Health Care delivery network in Southeastern Wisconsin,” according to Grubb & Ellis Healthcare REIT.

To-date it has been largely for-profit healthcare systems that have, like corporate America, sought to monetize their owned real estate for capital. But in May Chicago-based Jones Lang LaSalle, in its 2009 Healthcare Real Estate Financing Outlook, predicted that not-for-profit healthcare providers will soon begin following suit.

The outlook “predicts one of the trends that will influence the healthcare sector in the coming years is the adoption of sale-leasebacks by non-profit hospitals as they leverage medical office buildings and core real estate holdings such as acute and sub-acute hospitals as a source of capital,” according to JLL. “This trend began in the for-profit sector, but will gain traction in the non-profit sector due to a dramatic decline in charitable donations…combined with the fact that many providers are edging ever closer to their bond capacities.”

“Throughout 2009, healthcare providers will be focusing inward—controlling expenses and enhancing revenue through creative real estate avenues,” says Poe Corn, executive vice president in JLL’s capital markets healthcare practice. “There is little doubt that 2009 will be a year of very limited investment transactions in the healthcare sector, though those that do occur will take place as joint ventures, or as large non-profits acquire smaller, regional hospitals or providers execute sale-leasebacks to raise capital.”