One Of The Nation’s Biggest Physician Groups To Shed 72 Leases In Six States

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One of the largest independent primary care U.S. physician groups is asking a bankruptcy court to reject 72 leases across the country as it restructures its business and reduces debt.

Cano Health, a Miami-based healthcare provider headquartered at 9725 NW 117 Ave. that went public in 2021, has filed for Chapter 11 bankruptcy protection. (PHOTO CREDIT: CoStar)

Miami-based Cano Health just filed for Chapter 11 bankruptcy protection in the District of Delaware after facing financial challenges stemming from its rapid expansion coupled with industry and regulatory headwinds.

The company has received a commitment for $150 million in new debtor-in-possession financing from some of its existing secured lenders to support its operations through bankruptcy proceedings. As the company restructures through the bankruptcy court, it is also exploring opportunities for a sale of all or substantially all of their assets, according to court filings.

Cano Health is asking the court to reject 72 of what it calls “dark leases,” locations where the company no longer has operations but is still paying rent.

In Florida, the majority of the leases Cano Health wants to reject are concentrated in Miami-Dade, Broward, and Palm Beach counties, with some additional offices and medical centers in the greater Orlando area and Tampa. Other locations include sites in Las Vegas; the Los Angeles area; San Antonio; Houston; Albuquerque, New Mexico; Chicago; and Puerto Rico.

At the end of last year, Cano Health successfully divested operations in Texas and Nevada and exited the California and Puerto Rico markets, according to a company statement.

After considering the revenue, occupancy costs, and capital and business planning variables associated with reopening the closed medical centers associated with the “dark leases,” the company concluded the locations are unlikely to generate significant revenue for the debtors, according to court documents.

Rejecting the dark leases will allow the debtors to “avoid the accrual of unnecessary administrative expenses with no foreseeable benefits to their estates,” the motion said.

“We have taken decisive actions over the past few months to advance our previously disclosed Transformation Plan and strengthen our financial position,” said Mark Kent, CEO of Cano Health, in a press release. “By entering this court-supervised restructuring process, we are positioning the Company to achieve those goals on an accelerated basis.”

Cano Health employed 300 medical providers across 95 medical centers, and maintained affiliate relationships with 630 provider practices as of Feb. 4, according to Kent’s declaration to the court.

Going Public

Cano Health went public in 2021 through a deal with JAWS Acquisition Corp., a special purpose acquisition company led by Barry Sternlicht, chairman and CEO of Starwood Capital Group. The deal raised more than $1.4 billion for Cano Health.

Sternlicht resigned from Cano Health’s board in March 2023 because of a “fundamental disagreement with management” and pushed for the removal of the company’s CEO at the time, Dr. Marlow Hernandez.

Hernandez ultimately stepped down over the summer last year and was replaced with then-chief strategy officer Kent in June on an interim basis before being confirmed in August as the company’s permanent CEO.

Since Kent took the helm, Cano Health has “significantly advanced and accelerated” its strategy to focus on its core lines of business — patients using different types of Medicare, according to the statement. Cano Health expects to achieve $290 million of annualized cost reductions by the end of 2024, the statement said.

Weil, Gotshal & Manges LLP and Richards, Layton & Finger PA are serving as legal counsel for Cano Health in the bankruptcy proceedings while Houlihan Lokey Capital is serving as investment banker and AlixPartners is the company’s financial adviser.

The deadline to file an objection to the proposed lease rejections is Feb. 29 and a hearing over the motion is scheduled for March 7.

 

Source: CoStar

Medical Offices Ready For Spike In Record High Number Of Insured

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The total number of uninsured in the US has reached a new low and the medical office asset class stands to benefit from it, according to Marcus & Millichap’s 2024 National Investment Office Forecast.

This robust demographic will need and seek more visits to healthcare providers, subsequently driving tenant demand for medical spaces, particularly in markets such as Louisville, Seattle-Tacoma, Portland, and Boston.

Those areas have sub-6.5 percent vacancy rates. Texas has the largest percentage of uninsured residents nationwide and carries an office vacancy rate above 15 percent in San Antonio, Houston, and Dallas-Fort Worth.

Arizona and Nevada, too, have high uninsured populations, with vacancies in Tucson, Phoenix, and Las Vegas above 12 percent.

In Florida, some metros notably refute this trend as the state’s uninsured rate is over 11 percent, but West Palm Beach and Miami-Dade have some of the lowest vacancies among major U.S. markets. Medical office projects are slated to constitute approximately 70 percent of the space completed in Tampa this year.

In 2023, fewer medical office assets changed hands than in 2022. However, transaction activity is above the 10-year average in most regions. An aging population will necessitate medical office expansions long-term.

Marcus & Millichap cited a challenged borrowing environment and said this pressure will likely ease in 2024 as many investors expect interest rate cuts.

“Additionally, private investors have become more active in the space as institutions pull back,” according to the report. “Deals in lower price tranches have increased the use of seller financing in some cases, circumventing lender-based headwinds.”

The report said that the new supply would fall to a nearly two-decade-low construction as it will be reduced by 8.5 million square feet to approximately 500,000 fewer square feet of medical office space this year compared to last. This will push total inventory up by just 0.7 percent.

“Limited additions will prevent any major supply headwinds going into 2024 and beyond as new starts decrease as well,” according to Marcus & Millichap.

Vacancy rates will climb by 20 bps to about 9.8%, according to the report. Meanwhile, medical office tenants will still grapple with a prevailing labor shortage, complicating operator expansion plans.

The average asking rent for medical office space will rise by 1.3% to $23.40 per square foot by December as new buildings come online, reaching a more than two-decade high. Metros such as West Palm Beach, Salt Lake City, and Portland are expected to lead the nation in rent growth, concurrent with local vacancy rates below the national average, according to the report.

 

Source: GlobeSt.

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MedProperties Realty Advisors Acquires Pair Of Healthcare Properties In Texas And Florida

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Despite the inherent challenges of closing transactions during the capital markets turmoil of 2022 and 2023, MedProperties Realty Advisors, LLC approached market conditions over the past eighteen months as more of a buying opportunity to acquire high-quality, best-in-class healthcare properties.

Utilizing its discretionary equity capital and available debt financing, MedProperties capitalized on these opportunities through numerous acquisitions during 2023.

Most recently, the firm has completed the acquisition of two healthcare properties totaling more than 96,000 square feet. The transactions were completed with separate sellers in Pearland, Texas, in the Houston market and Nokomis, Florida.

MedProperties acquired the two-story, 44,510-square-foot Pearland Sports Park building located on the Memorial Hermann Pearland Hospital campus. The recently developed building, which was completed in September 2023, is 100% leased to Memorial Hermann Health System, UT Physicians, and Athlete Training + Health.

The property has a long-term WALT and has excellent demographics including a population of 194,317 within a 5-mile radius and an average household income of $117,622.

MedProperties also purchased the newly constructed PAM Health Rehabilitation Hospital of Venice in south Sarasota County for $34.3 million. The 50,000-square-foot facility, located near Sarasota Memorial Hospital’s Venice campus, was previously owned by an LLC linked to Catalyst Health Care Real Estate.

Debt for the transaction was provided by Capital One and Siemens Financial Services.

 

Source: REjournals