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Anchor Health Properties Buys Denver Medical Office Building

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Anchor Health Properties has acquired Renewal Medical Center, a 36,541-square-foot building in Lone Tree, Colo., through its Chestnut Healthcare Fund II, co-managed with Chestnut Funds. Medical Properties of America sold the asset for $13 million, according to Douglas County records.

First Citizens Bank provided $18.7 million in debt financing, with a maturity date set for 2027.

Anchor Health will also provide asset and property management services. Renewal Medical Center was 97 percent occupied at the time of sale. Managing Partner Greg Trainor with Fairfield Asset Advisors represented the seller in the transaction.

The medical office building previously changed hands in 2015, when it traded for $5.2 million, with Baceline Investments as the seller, according to CommercialEdge data.

Rocky Mountain Kidney Care is the main tenant, with the roster also including Insight Surgery Center, Quantum Health Solutions, Broadway Plastic Surgery, T-Mobile and Sprint/Crown Castle. A variety of medical services are available at the property, including nephrology, ophthalmological and cosmetic surgery, plastic surgery and integrative medicine.

Previous owners conducted two rounds of renovations. The 1987-built, Class B asset received a cosmetic upgrade in 2005 and was fully redeveloped in 2012.

Located at 9777 S. Yosemite St., the building is 20 miles from downtown Denver and has access to Interstate 25, with Sky Ridge Medical Center less than 2 miles away. Other medical service providers in the area include UCHealth Lone Tree Medical Center, Lone Tree Medical Plaza, with Centura Parker Adventist Hospital 9.4 miles east.

As of April, 24 medical office buildings—totaling 374,651 square feet—traded in the Denver market over a 12-month period, CommercialEdge data shows. Back in October 2022, another Lone Tree facility changed hands when Healthcare Realty Trust acquired Park Meadows Medical Center from Gulftech International in a $14.8 million transaction.

Denver has a supply pipeline of 10 medical facilities in various stages of development, set to add 611,027 square feet to the existing inventory. The market’s largest medical office underway is a 130,000-square-foot property, developed by Intermountain Healthcare and slated for completion in 2024.

 

Source: Commercial Property Executive

Capturing Value From Health-Care Collaborations

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In the wake of the pandemic, collaboration within and among organizations has become increasingly important—if not necessary.

While turbulent times forged new partnerships across all sectors, some of these preserved and further strengthened their key competencies. Chestnut Funds and Anchor Health Properties’ newly launched Chestnut Healthcare Fund II stands as an example of what can be achieved through perseverance and the successful identification of off-market opportunities. Chestnut Healthcare Fund I was launched in 2015 and raised a total of $50 million, which included the acquisition of 52 assets through direct or joint venture transactions.

In an interview with Commercial Property Executive, Anchor Health Properties Chief Investment Officer James Schmid and CEO Ben Ochs, alongside Chestnut Funds CEO Steen Watson, elaborate on their partnerships and how Chestnut Healthcare Fund I’s success fueled their drive to initiate its successor.

CPE: Tell us more about Chestnut Healthcare Fund II. How does the investment vehicle differ from its predecessor, Chestnut Healthcare Fund I?

James Schmid: The new fund is a follow-up to its successful predecessor, which was our initial health-care real estate acquisition fund. The first fund raised just under $50 million in equity, and we have recently completed placement of these funds. The new fund will continue the investment strategy of medical office acquisitions—primarily core and core-plus assets in major U.S. markets—both through direct ownership and through joint venture investments with institutional equity capital.

CPE: Elaborate on the partnerships you’ve created since you launched Fund I.

Ben Ochs: The initial fund has invested across multiple joint venture acquisitions with both The Carlyle Group and Harrison Street Real Estate. Each of these partnerships continues to expand.

CPE: What kind of assets are you targeting and why?

James Schmid: Core and core-plus medical office acquisitions in major markets continue to be the broadest area of focus. These assets continue to offer attractive risk-adjusted returns and ample debt market liquidity to provide leverage and enhance returns. The Anchor platform has acquired over 50 percent of its recent investments in an off-market fashion, allowing for the continued volume of investment opportunities despite increased investor appetite for sector investments.

CPE: What are the markets you are targeting through Chestnut Healthcare Fund II and why?

Steen Watson: The target market focus generally overlaps with the largest 30 U.S. markets, though we have had particular success building scale in markets such as Boston, New York, Philadelphia, Washington, D.C./Baltimore, Charlotte, N.C., Atlanta, Nashville, Tenn., Denver, San Diego and Seattle.

CPE:Tell us more about the factors and conditions that stimulate growth in the aforementioned areas.

Steen Watson: We carefully evaluate factors such as local demand for health-care services, local population trends, local health-care insurance trends, constraints of supply of new facilities, needs of local health-care systems and medical tenancy, and local and state health-care regulations to make informed decisions about investing in a given market and for a given target asset.

CPE: What are the major changes the medical office sector has seen since the onset of the pandemic?

James Schmid: Perhaps the biggest change was the one that didn’t happen. Health systems and their patients continued to need medical office space to handle patient health-care needs. While elective surgeries—typically the highest margin contributor to medical groups and health systems—generally shut down for 90 to 120 days at the beginning of the pandemic, they quickly reopened and regained previous—and backlogged—case volumes.

While telemedicine became a tool for health-care practitioners in certain circumstances, it did not serve as a replacement for physical space to handle true clinical and acuity needs of patients. Going forward, we see telemedicine as a complement to medical office space for lower-acuity and administrative functions, as opposed to a replacement for said space.

CPE: How do you see the sector going forward?

Ben Ochs: An aging U.S. population will continue to drive demand for additional health-care services in the years to come. Health systems will continue to push to capture market share through expansion into strong demographic locations and through the use of modern, efficient outpatient facilities.

Dedicated facilities for inpatient rehabilitation, behavioral health, memory care and substance abuse should continue to be in demand, fueling opportunities for additional development.

 

Source: Commercial Property Executive

Joint Venture Kicks Off $100M MOB Fund

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Chestnut Funds and Anchor Health Properties have launched Chestnut Healthcare Fund II, a new investment vehicle centered on the acquisition of medical office buildings and other related health-care real estate assets across the U.S.

The $100 million real estate private equity investment fund will seek core and core-plus assets over the next 48 months.

“Chestnut Funds and Anchor anticipate many attractive investment opportunities in 2021 and beyond, with the fund focused on approximately 30 key markets across the U.S., where very specific potential investment targets are being identified,” James Schmid, chief investment officer & managing partner with Anchor Health Properties, told Commercial Property Executive.

The launch of Fund II comes five years after the initiation of Chestnut Healthcare Fund I, which, having raised roughly $50 million, will have completed its four-year investment period early this year with the acquisition of 52 assets via direct or joint venture transactions. Due to the U.S.’s aging population, expanded health insurance coverage and a shift in patient services away from hospitals, the medical office building sector has only grown more popular among investors since the 2016 introduction of Fund I. However, Anchor, which will co-manage Fund II with Chestnut Funds, is undaunted by the increased competition.

“There’s no question that institutional investors continue to recognize the performance of the sector across economic cycles and accordingly commit more dollars to sector investments. On behalf of Chestnut Healthcare Fund II, the Anchor team does an excellent job of sourcing off-market opportunities,” Ben Ochs, CEO & managing partner with Anchor Health Properties, told CPE.

Ochs’ assertion is not hyperbole; historically, more than 50 percent of Anchor’s closed transactions are sourced on an off-market basis.

“This allows the fund the opportunity to avoid broadly marketed processes and/or having to pay large portfolio premiums for aggregated asset pools while continually sourcing over $400 million of sector transactions per year,” Ochs continued. “Other investors new to the sector have found it more challenging to source transactions without deeply established relationships and a national infrastructure–elements notable within Anchor’s integrated operating platform of management/leasing, development and investment services.”

Pandemic-Resistant

While no sector of commercial real estate has gone completely unscathed by the COVID-19 pandemic, medical office buildings have survived the lockdowns and temporary halts in elective medical procedures.

“The strong performance of medical office and health-care real estate during the pandemic has really accelerated demand for these investments as a consistent source of stable cash yield and total return,” Schmid said. “While the period between March and June 2020 saw a modest pause in capital markets activity, new investment closings returned in a meaningful way in the second half of the year, and the pipeline of new attractive investment opportunities remains robust.”

Along with announcing the launch of Fund II, Chestnut Funds and Anchor disclosed that they have completed the inaugural seed investment with the purchase of 1408 3rd St. S.E., a 10,000-square-foot medical office building on the campus of Good Samaritan Hospital in the medical corridor in Puyallup, Wash. The high-quality, two-story, metropolitan Seattle property opened in 1997 and is presently occupied by MultiCare Health.

 

Source: Commercial Property Executive