Colorado Real Estate Journal -
Denver-based Fleisher Smyth Brokaw and Seavest Healthcare Properties of New York earned a rare opportunity to buy a portfolio of on-campus medical office buildings for $41.25 million. The Centura Health properties in Denver and Littleton comprised the only hospital portfolio in the country to sell in 2011, and there was vigorous competition for it. Fleisher Smyth Brokaw and Seavest were among 10 groups that made offers for the 317,026-square-foot portfolio. In the final round, they beat out two real estate investment trusts, largely because of their ties to the Centura and Adventist health systems, according to FSB Chief Executive Officer and owner Michelle Brokaw. The company has been on the Littleton Adventist Hospital campus, where two of the buildings are located, for 15 years as owner of Arapahoe Medical Park Plaza III. “I think it’s a rare opportunity and it’s an opportunity we were uniquely positioned for because we had owned the Arapahoe building for so many years, and we had a strong relationship with the seller, Centura Health, and the Adventist Health system,” said FSB President Glen Sibley. Seavest, a real estate investment management firm focused on health care real estate, has a relationship with Adventist in Florida, he added. The portfolio included three medical office buildings on Centura’s 368-bed Porter Adventist Hospital campus at 2525 S. Downing St. in Denver and two buildings at its 231-bed Littleton Adventist Hospital campus at 7700 S. Broadway in Littleton. They include: • Porter Medical Plaza, 2535 S. Downing, 76,098 sf; • Harvard Park East MOB, 950 E. Harvard Ave. in Denver, 80,543 sf; • Harvard Park West MOB, 850 E. Harvard, 70,394; • Arapahoe Medical Park Plaza, 7720 S. Broadway in Littleton, 63,331 sf; and • Arapahoe Medical Park Plaza II, 7750 S. Broadway, 26,660 sf. The buildings house more than 100 tenants, including hospital clinical services and independent physician groups. Occupancy was 88 percent. Health systems value relationships with owners of buildings on their campuses, and in this case, Centura will have a single owner on both campuses. New 55-year ground leases with extension options were executed for the buildings. The buyers also had a comprehensive plan for capital improvements and freshening the look and feel of the buildings, which were built from 1979 through 1985, said Chris Bodnar of the CB Richard Ellis Healthcare Capital Markets Group, who marketed the portfolio with partner Lee Asher of the group’s Atlanta office.
Lobby and common-area renovations are planned for most of the properties, and select buildings will receive HVAC, elevator and other building system upgrades. The cost of the improvements will amount to several million dollars over the next couple of years, Sibley said. Fleisher Smyth Brokaw will handle leasing and management. “We expect to improve operations and ensure that these facilities continue to serve the residents of Denver and Littleton, and the surrounding communities at the highest level,” said Brokaw. FSB owns nonmedical office buildings, but ownership and management of medical buildings are its core business. “We believe the medical office portion of the office building business to be a really good business because, particularly on-campus, buildings tend to be very stable and they are very closely aligned with the hospital in most cases,” said Sibley, who added availability of on-campus buildings is scarce. A joint venture of Centura and Adventist sold the portfolio because it had a loan coming due, it already had third-party management in place, and, “It just made sense for them to seek outside capital to own these properties and pursue a new equity source that was synergistic to their goal,” said Bodnar. “This was obviously a very attractive opportunity given the credit behind Centura Health. Their bonds are rated AA-, and Centura leases about 30 percent of the properties,” Bodnar said. “We believe this is the perfect time to transfer these important assets to an organization with proven capabilities in the ownership of on-campus medical office buildings,” Randy Haffner, CEO of Centura Health’s Porter Hospital, said in a statement. “The sale enables Centura to dedicate further resources to deliver on our mission of providing quality, accessible and affordable care for the people in our communities.” “It was just a really good, strong fit for us and the Seavest folks,” said Sibley. “Both of us have a long-term view of the market in terms of a long-term hold strategy. Both of us intensively manage our properties.”