In recent months, getting transactions done in the medical office sector, or perhaps any real estate sector for that matter, has often been quite difficult.
With inflation in the high single digits and the federal funds rates rising steadily, as well as other uncertainties, the difficulty lies not only in buyers having difficulty finding affordable debt but in trying to find clarity in the prices for assets, which have been a moving target that has left many would-be investors waiting for some stability.
But deals are still getting done, as evidenced by a recent acquisition by the year-old programmatic joint venture (JV) partnership of Jupiter, Fla.-based Rendina Healthcare Real Estate, a long-standing healthcare real estate (HRE) development and management firm, and Chevy Chase, Md.-based Artemis Real Estate Partners, which was founded in 2009 and has invested about $9.5 billion in various sectors of real estate with about 100 operating partners. The partners made a rare, large purchase – at least rare and large compared to what has been taking place in the market in recent months.
The partnership acquired a 12-property, 352,981 square foot portfolio spanning eight states: Florida, Georgia, Illinois, Minnesota, Nevada, Ohio, Texas and Virginia.
The healthcare providers in the buildings offer a wide range of “high acuity services” and the portfolio is 96 percent occupied. The portfolio includes 10 medical office buildings (MOBs), plus two dialysis clinics occupied by Denver-based DaVita Inc. (NYSE: DVA) with a total of about 18,000 square feet accounting for the remainder of the space.
Richard M. Rendina
Chairman & CEO
We’re excited about this purchase because of the fundamentals – the strong occupancy and strong tenants – and the ability to add a portfolio of assets such as this to our portfolio with Artemis. This also gives us an opportunity to provide the property management of these assets.
The portfolio includes 10 assets located in Certificate of Need (CON) states, a weighted average remaining lease term (WALT) of 6.6 years, and average annual rental rate increases of 2.2 percent. At net operating income per occupied square foot of about $21 NNN (triple net), average rents across the portfolio are about 10 percent below national portfolio averages traded during the past five years.
The Rendina-Artemis JV’s portfolio did indeed receive a strong boost with this most recent acquisition, as it now has invested about $300 million, including a recent $16 million acquisition of a 62,535 square foot MOB in Clifton, N.J., and the ongoing development of a 134,966 square foot outpatient campus and MOB for The Jackson Clinic and Baptist Memorial Health Care in Jackson, Tenn.
The JV was launched with a $116.5 million recapitalization of a six-MOB, 229,645 square foot, 99 percent occupied Rendina portfolio of assets. The partners say they plan to make investments, both acquisitions and developments, of about $1 billion in the coming years.
Rendina has a strong pipeline of development projects both under construction – it started about 350,000 square feet in 2021 that will be completed in coming months – and in planning. It also started construction earlier this year, in partnership with White Plains, N.Y.-based Rethink Healthcare (formerly Seavest Healthcare Properties), on three freestanding emergency departments (FSEDs) and urgent care centers in the Jacksonville, Fla., market for UF Health.
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