Big Sky Medical Expands Dallas-Fort Worth Footprint With Medical Office Building Acquisition

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Big Sky Medical has acquired Richardson Medical Center I, a 118,472-square-foot medical office building in Richardson, Texas, from Pillar Commercial.

Bank of America provided the acquisition loan, according to Collin County records. Newmark represented the seller.

The property previously traded in 2019 as part of a portfolio transaction that also included the 120,000-square-foot Richardson Office Center II, CommercialEdge data shows. Pillar Commercial bought the duo from Buchanan Street Partners with healthcare conversion in mind for both assets. That same year, Methodist Richardson Medical Center purchased RMC II to accommodate the expansion of the hospital’s campus.

Originally completed in 1998, the two-story RMC I underwent cosmetic renovations in 2017. The property features 60,000-square-foot floorplates, a passenger elevator, controlled access and offers 720 car parking spots at a ratio of six spaces per 1,000 square feet. Its repurposing into a medical office building began earlier this year.

Located at 3101 E. President George Bush Highway, the property is some 20 miles Northeast of downtown Dallas. Medical providers in the surrounding area include the 334-bed Methodist Richardson Medical Center, Breckenridge Medical Plaza, Nova Medical Centers and Texas Health Neighborhood Wellness Cityline.

The Newmark team representing the seller included Vice Chairmen Chris Murphy, Robert Hill and Gary Carr, Senior Managing Director John Nero and Executive Managing Director Ben Appel, alongside Senior Managing Directors Jay Miele and Michael Greeley.

Big Sky Medical’s Texas Presence

Big Sky Medical has invested in more than 7 million square feet of health-care assets, valued at more than $2.2 billion. Earlier this year, the company expanded its Texas medical office footprint with several other acquisitions. The firm purchased Texas Tech Physicians of El Paso at Transmountain, a 110,465-rentable-square-foot medical office building in El Paso.

More recently, Big Sky Medical acquired a three-property portfolio totaling 110,636 square feet in metro Houston, from Caddis Healthcare Real Estate. The buildings are fully leased to Memorial Hermann Health System.

 

 

Source: CPE

Healthpeak Properties, Physicians Realty Trust Enter $21B Merger

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Healthpeak Properties and Physicians Realty Trust have entered into a definitive agreement to combine in an all-stock merger valued at $21 billion.

The new company will operate a portfolio of 52 million square feet of health-care facilities, of which 40 million square feet represent outpatient properties in Dallas, Houston, Nashville, Phoenix and Denver. The partners expect to generate run-rate synergies of more than $40 million by the end of the first year, and $60 million by the end of the second year.

Healthpeak will also assume Physicians Realty Trust’s existing debt and will enter into a new five-year, $500 million loan at a rate of SOFR plus 85 basis points. The tax-free transaction is expected to close in the first half of 2024.

Transaction Details

Under the agreement, each Physicians Realty Trust common share will be converted into 0.674 of a newly issued Healthpeak common share. Healthpeak and Physicians Realty Trust shareholders will own 77 percent and 23 percent of the combined company, respectively. The new firm will pay an annualized dividend of $1.20 per share.

Barclays and Morgan Stanley & Co. are Healthpeak’s lead financial advisors, along with J.P. Morgan, Mizuho Securities USA, RBC Capital Markets and Wells Fargo serving as additional advisors. Latham & Watkins LLP is acting as legal advisor for the firm. Physicians Realty Trust worked with BofA Securities and KeyBanc Capital Markets as lead financial advisors, along with BMO Capital Markets Corp. Baker McKenzie is acting as legal advisor.

The medical office market is returning to more stable fundamentals, after having weathered recent economic headwinds, a recent IPA report on the matter shows. Medical office projects only represent 10.7 percent of the overall national office pipeline. The main challenge the sector’s expansion is facing is the health-care labor shortage, rather than supply-related obstacles.

 

Source: CPE

Medical Office Building Sector Remains Stable, Attractive

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Having weathered recent headwinds, the medical office building sector is seeing a return to more stable property fundamentals, according to a new Medical Office National Report from Institutional Property Advisors.

There was a COVID-driven fall-off in medical visits in 2020, but this has “generally dissipated,” the report states, adding that “medical office vacancy has stayed between 8 and 10 percent and, in June 2023, the rate was just 50 basis points above the long-term average.”

Rising construction costs have helped to prevent overbuilding, with medical office space totaling only 10.7 percent of the overall office pipeline. IPA points to a very different factor limiting the product type: “… the sector’s main challenge is not supply, but rather a health-care labor shortage.” The pandemic has exacerbated an existing worker shortage that may hinder practices seeking to expand to meet future medical care demand.

High interest rates have affected both deal flow and pricing. Transaction velocity in the MOB sector fell by more than 30 percent over the 12 months that ended in June.

“The average sale price has begun to recalibrate accordingly,” IPA reported, “dropping 3 percent from the high reached in 2022 to $295 per square foot for the yearlong span ended in June.”

MOB regional performance

MOB regional performance. Table courtesy of IPA Research Services; Bureau of Labor Statistics; Federal Reserve; Centers for Medicare & Medicaid Services; Moody’s

On top of that, a paucity of transactions, especially those of $10 million or more, have hampered price discovery.

Geographic Diversity

A variety of regions across the country split up top marks for different performance metrics.

The Mid-Atlantic and the Southeast (driven by Florida) lead in terms of low average vacancies, and the former is tops for a falling overall vacancy, having dropped by 40 basis points year-over-year. The Mountain States too have seen a sizable fall in overall vacancy, by 30 basis points.

Asking rents are highest (at $32.74) in the Pacific region, and lowest in the Midwest ($17.50). Rental growth was far and away the highest in the Central Plains region, with 7.8 percent year-over-year. The Northeast (4.6 percent) and Southeast (4.5 percent) were essentially tied for a distant second place.

 

Source: Commercial Property Executive