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Allianz Lends $234M For MOB Portfolio Acquisition

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In a $620.4 million deal, Nuveen Real Estate and NexCore have acquired a coast-to-coast portfolio of health-care and life science properties encompassing nearly 1.2 million square feet. The seller was IRA Capital.

The majority of the portfolio is a diversified group of 27 health-care assets that traded for $463 million. The portfolio encompasses properties in multiple states: Arizona, California, Florida, Illinois, Michigan, North Carolina, New Jersey, New York, Pennsylvania, Texas and Wisconsin.

Totaling nearly 750,000 square feet, the properties range from medical office buildings, micro-hospitals and ambulatory surgery facilities to cancer treatment centers. NexCore Group joined Nuveen Real Estate in underwriting the deal and will manage the assets.

The health-care portion of the transaction was led by Nuveen Real Estate’s new U.S. Cities Office Fund and brings the value of the firm’s holdings in the sector to more than $1 billion. Andrew Pike, head of health-care, cited the firm’s plans for aggressive growth in the sector.

Allianz Real Estate provided a $234 million loan toward the medical office acquisition. The loan will provide 51 percent of the total acquisition price, and the sponsors will have $228.9 million of equity in the transaction. The deal is structured on a seven-year term with a fixed-rate tranche of $163.8 million (70 percent) and a floating-rate tranche of $70.2 million (30 percent).

The portfolio is 99 percent occupied by 38 tenants, of which 92 percent are investment-grade credit healthcare systems. The portfolio rent roll has a weighted average unexpired lease term of 12 years, providing for a reasonable lease rollover profile during the loan term, according to Allianz.

Twenty of the 27 properties are in Certificate of Need (CON) states, where local governments require an extensive approval process to demonstrate a need for new healthcare facilities, providing high barriers to entry and regulatory restrictions around new supply.

Medical Sector Recovers

In a prepared statement, Mike Cale, co-head of U.S. Debt, Allianz Real Estate, U.S., said:  “The pandemic has emphasized the need for improved access to health-care. That trend has been illustrated by the demand for both outpatient facilities and hospital space for acute care. The medical office sector represents a unique, resilient asset class.”

This transaction marks Allianz’s second U.S. debt deal with Nuveen Real Estate, following Allianz’s $94 million financing of a six-property industrial portfolio for Nuveen’s U.S. Cities Industrial Fund in 2020.

The lack of demand for routine care and limitations on elective procedures, both in response to the COVID-19 pandemic, contributed to a 6.4 percent loss in health care employment in 2020, according to an April report from CBRE. That loss, however, was much less than in the overall economy, and health care jobs are rebounding rapidly.

Medical office buildings showed similar resilience, with annual investment volume falling by just 12.7 percent, the smallest decline for any major product category. Meanwhile, medical office property sales volume jumped in the fourth quarter of 2020, as cap rates continued a decade-long decrease.

Also part of the deal is the $157 million acquisition of two life science properties in Madison, Wis., and Orange County, Calif. Fully leased to three tenants, the assets comprise 420,000 square feet and will add to Nuveen’s 4 million-square-foot life science portfolio. The properties were acquired via TIAA’s balance sheet, according to Nuveen Real Estate.

Since November 2020, Nuveen and NexCore have teamed up on transactions valued at $687 million, noted Todd Varney, NexCore’s chief development officer & managing partner. The assets include 34 buildings totaling 1.4 million square feet, along with 200,000 square feet in development.

 

Source: Commercial Property Executive

When It Comes To Healthcare, CRE Is Driven By Data

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Understanding and analyzing data is especially important in the healthcare industry, where reimbursements are often tied to the percentage of square feet dedicated to patient care.

For commercial real estate, that means healthcare providers can now be more judicious when it comes to design and space allocation.

GB Architects principal Lois Broadway says clients are now looking at local demographics to determine the average customer age, and also using data to determine the most likely type of care that its patient base will require.

“We are working with a client that started a full assessment on their local demographics to determine ages, admissions into local hospitals and what they need while there,” said Broadway, whose colleague Melissa Kelii will moderate a panel at Bisnow’s National Health Series: Pacific Northwest.

This data drives decisions, like whether a hospital should include more maternity units or make more space for geriatric specialties like cardiology and knee replacement specialists, she said. Hospitals should also consider how much time they allow patients to recover. For example, some hospitals let patients remain in the hospital for three days, while others end the visit after 24 hours.

“Adding to the issue is that fact that Medicare and Medicaid reimbursement is based on the percentage of the facility that provides direct patient care,” Broadway said. “They look at the whole picture and then give you a facility charge,”

So if 60% of the facility is dedicated to patient care and 30% is dedicated to secondary patient support space, such as storage areas, the provider will be reimbursed at different rates for the different uses. Areas like parking garages, which are necessary but not related to patient care, are not reimbursed at all, she said.

All this makes maximizing space a smart financial decision. It is particularly important to find ways to minimize the amount of square footage dedicated to data storage. Often, data is now being stored off-site through cloud providers. The healthcare-focused cloud computing industry is set to hit $40B by 2026, according to a report by Acumen Research and Consulting.

“The cloud can reduce IT costs, provide quick access to business applications and forms and provide medical teams with on-demand patient data from anywhere,” Qentelli VP and Head of Innovation Vishnu Nallani told Bisnow. “However, as data storage moves to the cloud, healthcare companies must be careful to secure it and ensure the privacy of their patients. Data breaches cost healthcare organizations millions of dollars each year, because patient data is seen as extremely valuable on the black market. Having security features in their cloud like perimeter and internal firewalls, intrusion detection systems and data encryption is extremely important.”

“Meanwhile, storing all this data off-site can increase the percent of square feet dedicated to patient care and increase revenue,” Broadway said. “Healthcare provider companies are looking at ways to increase revenue without adding space. Sometimes remodels work. Maybe they can add another patient per hour to a general practitioner’s schedule. Internal remodels that add rooms but not square footage can pay off. Turning space previously used for data storage into patient care areas increases the reimbursable space. It’s not just about how and where to store data. It’s also about collecting the information you have and analyzing it to determine if you are managing your human, resource and capital assets efficiently.”

When designing and selecting healthcare facility sites in Seattle, Broadway hears a lot of concern from clients about transportation to and from the facilities.

“All of our clients express concern about transportation,” Broadway said. “That includes the location of bus stops, access for staff and patients and even other forms of transportation such as shuttles, ride-share and valet.”

Broadway said her clients in Seattle, as well as in other suburban cities, are looking for more bicycle storage and electric charging station stalls.

 

Source: Bisnow