CREJ - Healthcare Properties - October 2018
Denver Health recently broke ground on a 293,000-square-foot building, which will “significantly” increase the hospital’s ability to provide outpatient care and meet the future needs of Denver. Close to half of the $157 million cost to build the Outpatient Medical Center comes from a citywide bond measure, Elevate Denver, which was passed by Denver voters last fall. The OMC is expected to be completed in 2020. “As demand for health care increases along with Denver’s population, Denver Health is looking to future requirements and will need additional floor space and updated facilities,” said Dr. Robin Wittenstein, Denver Health CEO, who noted that Denver Health provides medical care to nearly one-third of Denver’s population. “The new Outpatient Medical Center will provide the city with a state-of-the-art medical facility which will offer the highest quality medical services to Denver residents for many years to come.” Elevate Denver is a 10-year, $937 million general obligation bond program approved by voters in 2017 that will enhance the city and county of Denver by providing critical improvements to the city’s infrastructure – improving roads, sidewalks, parks, recreation centers, libraries, cultural centers, Denver Health, public-owned buildings and safety facilities. “As a Denver Health patient myself, we all know that everyone who walks through these doors gets the same high-quality care, that’s why the people of Denver voted last year to include this new facility we see emerging today in the Elevate Denver bond package,” said Denver Mayor Michael B. Hancock. “This is about equity for our residents – the Elevate Denver Bond project for the new Outpatient Medical Center will increase access to health care and deliver high-quality care to Denver residents, expanding Denver Health’s capacity significantly.” “This state-of-the-art facility will let Denver Health serve significantly more people than it now does. It will also bring specialty clinics together under one roof,” said Congresswoman Diana DeGette. “It will meet the needs of current and future Denver residents from all walks of life. Denver Health is truly a gem of our health care system, and I am pleased to see its growth over the years to expand and meet our community’s growing needs.” In the coming years, Denver Health anticipates many of its clinics will reach capacity. According to a feasibility study for the center, patient demand will exceed capacity in Denver Health outpatient clinics by 2019. The OMC will enhance Denver Health’s ability to provide treatment for heart disease, cancer and diabetes. It also will be a center for behavioral health, dental and oral health, and offer expanded services for eye exams and physical therapy. Once completed, the center will centralize numerous services under one roof in an easy-to-access downtown location on Denver Health’s main campus. It will include a day surgery center, expanded pharmacy operations, lab services and radiology. Consolidating clinics also will free up much needed space on the campus, allowing the hospital to boost primary care services, increase the number of inpatient psychiatric beds and expand operating rooms. It will be built on the site of the former Denver Health administration building at 660 Bannock St. HKS is the architect for the OMC and Turner Construction is the contractor. NexGen Properties acquires EastRidge Medical Office Building Greenwood Village-based NexGen Properties picked up a Highlands Ranch medical office building for $4.73 million. The 23,119-square-foot EastRidge Medical Office Building at 6660 Timberline Road was sold by LNR. Brad Cohen, Larry Thiel and Lauren Quiram of Transwestern’s Denver Capital Markets Group brokered the transaction on behalf of the seller. Built in 2005, EastRidge Medical Office Building is 89 percent leased to nine tenants, five of which have occupied space in the building for more than 10 years. The property was sold on the Ten-X auction platform and involved over 150 signed confidentiality agreements resulting in 12 registered bidders. “It's rare that a bank-owned medical office building comes on the market, much less in Highlands Ranch where there are only 11 medical buildings total, so this asset generated a substantial amount of interest among investors. The property’s tenancy, location and accessibility are all incredibly strong, and we believe NexGen is an excellent buyer for this asset,” said Cohen. “NexGen Properties wanted to take advantage of the rare opportunity to acquire a well-constructed medical office building with a strong tenant mix in the supply-constrained Highlands Ranch submarket below replacement cost,” said Matt Bernstein, director of acquisitions and asset management at NexGen. “We were not only attracted to the EastRidge Medical Office Building’s prime location, but we also think there is a real opportunity to add value to the building by improving its position in the marketplace and potentially monetizing the unfinished space in the lower level. NexGen Properties looks forward to bringing long-term stability to the asset.” NexGen Properties partnered with Dunton Commercial to provide property management services for the building. With the acquisition of the EastRidge Medical Office Building, NexGen Properties owns 225,322 sf of office, industrial and retail space primarily in Colorado. Partnership celebrates opening of expanded NICU at St. Francis RTA Architects, in partnership with GE Johnson Construction Co. and Penrose-St. Francis Health Services, celebrated the opening of the expanded Level III Neonatal Intensive Care Unit at St. Francis Medical Center in Colorado Springs. It is the first phase of a multiphase 168,000-square-foot, $102 million expansion that also includes a new emergency department, new operating rooms, antepartum rooms and shell space for future growth. Level III NICUs provide the highest level of care for premature or critically ill babies with a clinical team comprised of a wide variety of highly specialized staff. The new NICU at St. Francis Medical Center is based on the Family Integrated Care model and includes: • Increased capacity from 30 beds to 46 beds. Single patient rooms have been zoned for staff, infant and family. Sliding glass doors provide visibility for staff with a privacy curtain for family bonding. The design emphasizes room flexibility to allow maximum medical gas to accommodate all patient acuity levels. Rooms also feature a family sleeping zone with privacy partitions and full restrooms. • Two state-of-the-art couplet care rooms where mothers and babies are kept together in the same room and are cared for by the same nursing team, receiving round-the-clock care. This promotes mother-baby bonding, and St. Francis Medical Center’s NICU is the only one in Colorado, and only the fourth in the nation, with couplet care rooms. • Advanced room lighting to support and stimulate babies’ circadian rhythms to promote growth and speed release to home. • Increased space to care for multiples (twins, triplets, etc.) in the same room, easing family visits. • A NICU family lounge to allow families to connect with and support each other and to provide a sense of community. • A breast milk lab room with a dedicated nutritionist on staff. • A family predischarge room that closely models the experience of home with the safety net of nursing staff right outside the door to support parents preparing to transition from the hospital back to their homes. Years of research and collaboration with the owner are reflected in the interior design of the new NICU. Biomimicry and local artwork are featured throughout the space. Skylights provide daylighting in the wellness garden and reception area, according to RTA. The wellness garden provides a place of respite with seating areas and unique whimsical art pieces. The garden leads to a sky lobby, an outdoor patio with mountain views for staff and families. Both the wellness garden and the sky lobby provide additional spaces for families to connect. The project was executed using the integrated project delivery method with a multiparty agreement. A true IPD project contractually requires all parties – including the architect, owner, general contractor, subcontractors, design consultants and suppliers – to solve problems together throughout the life of the project. The parties share responsibility, both risk and reward, with contracts dictating how partners will jointly address cost overruns regardless of which party was responsible for them as well as how financial incentives will be distributed if efficiencies are achieved that result in lower costs or shorter schedules. The St. Francis Medical Center expansion is one of the few true IPD projects in the state of Colorado. “This was the first time our office utilized the integrated project delivery method. As part of this approach the owner and the design team utilized Lean Design principles, including co-location and cloud-based file sharing for real-time documentation, which enhanced our ability to meet the project objectives,” said John Hoelscher, AIA, principal-in-charge of the project. “The close collaboration and integration of the owner, user groups, the contractor/trade partners and our design team provided St. Francis Medical Center with an innovative operational model while still controlling costs and schedule.” The next phases of the expansion will increase the number of beds in the emergency department from 23 to 48, remodel the existing NICU and boost the number of operating rooms from six to 10. The project will provide additional parking, larger staff support areas, larger single-patient rooms with direct access to light and views, and shell space for future expansion. Future phases will be completed in early 2019. Dry Creek ASC in Englewood sells to investor for $4 million A confidential investor paid $4 million for the Dry Creek Ambulatory Surgery Center in Englewood. An institutional owner, represented by CBRE’s Dann Burke and Naum Nasif, sold the 20,046-square-foot building at 135 Inverness Drive East. The buyer will continue to operate the property as a neighborhood surgery center. “While sometimes buildings designed for very specific uses can sit on the market, in this case the property was well-positioned for the buyer’s intended use and allowed for the new physician’s practice to open for business quickly with few modifications,” said Nasif, senior associate with CBRE’s Healthcare Services in Denver. “The emergence of ambulatory surgery centers is another example of how health care is evolving to meet the needs of consumers. For some patients, the convenience of operating close to home and having flexibility in scheduling is very attractive. As the baby boomer generation continues to age, we anticipate demand for health care services, and thus health care-related real estate, to continue to rise,” added Burke, first vice president with CBRE’s Healthcare Services in Denver. Built in 2000, the Dry Creek Ambulatory Surgery Center features six operating rooms, two procedure rooms, four convalescent care rooms as well as pre-op and post-op areas. The building is located adjacent to a separate 57,000-sf Class A medical office building, and a contiguous 3.87-acre parcel is also approved for medical zoning. Located at the corner of South Havana Street and East Dry Creek Road, the Dry Creek Ambulatory Surgery Center is within walking distance to hotels, restaurants, shops and the Dry Creek light rail-station. Cushman & Wakefield’s Stuart Thomas represented the buyer. Medical office space tight in several markets, including Denver Transwestern recently released a new study on the health care real estate sector, in which it noted that swelling demand for health care services may push forecasted demand for medical office space well above supply in several U.S. markets. The report, Medical Office Space Gets Tight, based its predictions on the anticipated growth in health care workers through 2019 and compares average space usage per worker to space that now exists or is currently under construction in 14 markets. “The segment of the population at or over the age of 65 is growing at a rate 14 times faster than those aged 64 or younger,” said Jay Johnson, managing director of Healthcare Advisory Services. “A greater demand for health care services means more workers, and this is going to make health care space much tighter in some markets.” Specifically, current projections estimate that just over 150,000 health care practitioners will be added to the economy over the next two years, and total demand for medical office space across the U.S. could range from 150.5 million to 225.8 million square feet by the end of 2019, according to the report. “There is approximately 110 million square feet of available medical office space in existing and underconstruction buildings in the U.S. as of the second quarter of 2018,” said Director of Research Elizabeth Norton, the report’s author. “If all health care practitioners added to the economy through 2019 aim to locate within medical office space, absorption of this demand is impossible without a major shift in how people expect and receive health care.” New York, Dallas-Fort Worth, Atlanta, Denver and Miami-Fort Lauderdale would be the most challenging for practitioners wishing to locate within medical office space. But other real estate options could provide feasible solutions, including leasing nontraditional spaces in conventional office buildings or repurposing empty retail space for medical uses. Norton noted that the emergence of new forms of health care, such as telemedicine, digital health and shared service centers, could suppress future demand to some degree, depending on how quickly these new approaches are adopted by the health care industry. Buyer pays $1.5 million for Arvada medical office building An unidentified buyer paid $1.5 million, or $117.43 per square foot, for a single-tenant medical office property at 6303 Wadsworth Bypass, south of West 64th Avenue on Wadsworth Bypass, and within one mile from Olde Town Arvada and the new Regional Transportation District Gold Line in Arvada. The 12,774-sf building, originally constructed in 1986, underwent extensive renovations in 2016. Pinnacle Real Estate Advisors LLC’s Jeff Johnson and Corey Sandbery of the firm’s Johnson Ritter Team represented both buyer and seller in the transaction. “The buyer was able to complete the upleg of its 1031 exchange, purchasing a fully renovated building, housing an excellent tenant and producing a very healthy return,” stated Sandberg. Construction starts on The Lodge at Grand Junction senior community Construction has begun on The Lodge at Grand Junction, a Rocky Mountain Senior Housing and WellAge senior living community in Grand Junction. The site for the 38,700-square-foot, 48-unit senior living community is located across from St. Mary’s Medical Center, with frontage along Patterson Road and less than 2 miles from Interstate 70. OZ Architecture designed the facility, which features 36 assisted living studios and one-bedroom units and 12 memory care studios. Amenities at The Lodge at Grand Junction include a two-story entry lobby and dining facilities – complete with private dining room – served by a full on-site commercial kitchen. Communal living spaces will have televisions, comfortable lounge seating and fireplaces. OZ Architecture also designed a multipurpose room with a kitchen for resident use, and a theater room, computer room and library to support social programs and community. Wellness amenities include a gym, salon and spa, and on-site wellness clinic with an on-staff nurse to assist with developing personal care plans. For off-site medical visits, complimentary transportation is provided. Assisted living residents will have use of a greenhouse, which offers residents the opportunity to grow vegetables and flowers during all four seasons of the year. Memory care residents will have access to an interior sun room and an enclosed, landscaped garden outside. These amenities promote a stronger connection to the outdoors, which is an important part of the WellAge senior living model, according to the firm. “It has been really exciting for OZ Architecture and our team to continue our work for older adults on Colorado’s Western Slope,” said Jami Mohlenkamp, head of the senior living practice area at OZ Architecture. “We appreciate the support we’ve received for the project from the city of Grand Junction and its community, and we look forward to this project adding additional care and services for aging adults.” The Lodge at Grand Junction is slated to open in summer. Shaw Construction is the general contractor on the project; Bow River Capital Partners teamed with Pacifica Capital Investments and Rocky Mountain Senior Housing as an equity partner. Bank of Colorado Glenwood Springs provided financing. Arvada MOB trades for $2.51 million Nirvana Properties LLC purchased an Arvada medical office building for $2.51 million, or $123.52 per square foot. The 20,320-sf building, located at 5730 Ward Road in Arvada, was sold by 5730 Ward Road LLC. Joshua Cohen of John Propp Commercial Group represented the seller of the building. CHAL celebrates anniversary Cherry Hills Assisted Living and Memory Care, a privately owned, boutique senior living community located in Centennial, is celebrating its one-year anniversary. “We are thrilled at the success of our first year, achieving 100 percent occupancy in less than nine months,” stated CHAL ownership. “The views, finishes and amenities of the building offer an experience unlike anything else in Colorado. Coupled with a diligently selected management team and staff, we feel that CHAL offers an extraordinary senior living option for our community.” Senior housing occupancy rate remains steady The occupancy rate for seniors housing across the United States was steady in the third quarter of 2018, according to new data from the National Investment Center for Seniors Housing & Care, a nonprofit organization that provides data and analytics on the sector. Occupancy in U.S. seniors housing properties averaged 87.9 percent in the third quarter of 2018, unchanged from the prior quarter and down 0.8 percentage point from a year ago. This places occupancy at its lowest level since the second quarter of 2011 (87.5 percent). Current occupancy is 2.3 percentage points below its most recent high of 90.2 percent in the fourth quarter of 2014. “While the seniors housing occupancy rate has declined by 2.3 percentage points since year-end 2014, the number of occupied seniors housing units has actually increased during this same period by 8.9 percent, which equates to a solid 2.4 percent annual pace of increase,” Chuck Harry, NIC’s chief of research and analytics, said in a release. “It’s the fact that the rate of inventory growth has exceeded the absorption of units through this period that has driven the decline in the occupancy rate.” The occupancy rates for independent living and assisted living properties averaged 90.2 percent and 85.3 percent, respectively, during the third quarter of 2018. The occupancy rate for independent living was unchanged from the prior quarter and down 0.4 percentage point from a year ago. The occupancy rate for assisted living was up 0.1 percentage point from the second quarter. The occupancy rate for assisted living was down 1.2 percentage points from a year ago. Seniors housing annual absorption was 2.4 percent as of the third quarter of 2018, down 0.1 percentage point from the second quarter of 2018 and down 0.1 percentage point from one year earlier. The seniors housing annual inventory growth rate in the third quarter of 2018 was 3.4 percent, unchanged from the second quarter. Preliminary data on construction as a share of existing inventory for seniors housing was 6 percent in the third quarter of 2018 and was 1.1 percentage points below its recent high of 7.1 percent in the fourth quarter of 2017. Seniors housing construction starts within the 31 primary markets during the third quarter of 2018 preliminarily totaled 2,349 units, which included 905 independent living units and 1,444 assisted living units. On a preliminary four-quarter basis, starts totaled 18,025 units. Construction starts data is often revised retrospectively in subsequent quarters as additional information becomes available. During the third quarter of 2018, the average rate of seniors housing’s annual asking rent growth was 2.9 percent, up 0.2 percentage point from the prior quarter and down from a recent high of 3.8 percent in the fourth quarter of 2016. For comparison purposes, labor expense growth as measured by the annual change in assisted living average hourly earnings was 4.2 percent in the second quarter, according to the Bureau of Labor Statistics. “Rent growth has been less than wage growth for the past six quarters,” said Beth Burnham Mace, chief economist for NIC. “With today’s tight labor markets, upward pressure on wages is likely to continue, which will put pressure on some operators’ ability to grow NOI.”