Page 4B—
COLORADO REAL ESTATE JOURNAL
—
March 2-March 15, 2016
A
s medical office building
investment in the
Denver area continues
to rise, it’s important to take a
closer look at how ownership
structures are changing in the
medical sector. With over $240
million closing in 2015, the
Denver metro area medical
office building market again saw
significant new investment. This
volume was slightly higher than
the 2014 totals of $235 million in
sale deals, although 2013 still was
one of the highest on record, with
$315 million in medical office
acquisitions.
Private equity groups were
the most active buyers pool of
medical office buildings in the
area, leading new ownership types
in multiple categories including
the number of transactions, sales
dollar volume and total square
footage. Private equity is equity
capital that is not quoted on a
public exchange and consists of
investors and funds that make
investments directly into private
companies, including developers.
Of the 69 medical office sales
in 2015, private equity accounted
for 40 deals, or 58 percent of the
total number of buildings sold.
Physician groups, also known as
independent or regional health
care providers not owned by
health systems, came in second
with 17 acquisitions of medical
office buildings, which related to
25 percent of the total amount of
buildings sold. This was followed
by real estate investment trusts
with seven new procurements of
medical buildings (10 percent of
the total) and health systems, or
hospital-owned entities, with five
health care facilities purchased (7
percent of the total).
In regard to the sales dollar
volume during 2015, private
equity again led the way with $146
million of new investment or 61
percent of the $240 million total
of 2015 medical office sales. Real
estate investment trusts, which
only consisted of 10 percent of
the number of sales, came in
second with 22 percent of the sales
dollar volume, with transactions
on $53.5 million of new medical
office assets. Health systems
totaled 9 percent of the new
dealings dollar volume followed by
physician groups with 8 percent,
or $22 million and $18 million,
respectively.
On a pure square footage basis,
there was a total of 1.6 million
sf of medical office space that
was acquired in 2015. Private
equity again had the highest
total, acquiring 40 percent of the
total square footage that traded.
Physician groups accounted for 36
percent and health systems and
REITs were tied for third at 12
percent each.
MedicalOfficeOwnership
As of the end of 2015, the
leading owners of medical office
buildings in the Denver metro
area were private equity firms
with 103 buildings, or 43 percent
of the total number of buildings.
REITs were the next largest group
possessing 20 percent of the total
number of medical buildings,
followed by physician groups at 21
percent and health systems at 16
percent.
However, based on total square
footage controlled through 2015,
health systems were the largest
owners of medical space with
over 3.2 million sf of assets, or
33 percent of the total Denver
market. Kaiser Permanente was
the health system with the largest
percentage of ownership with 45
percent of the total for health
systems.
REITs had the next highest
total in the Denver area with over
2.8 million sf under ownership,
approximately 29 percent of the
Denver market. Private equity
firms were a close second with
just over 2.6 million sf of assets
(27 percent of the total square
footage) and physician groups
had the lowest amount of square
footage owned with just over 1
million sf, which was 11 percent of
the total medical office market.
Top2015Sale
In addition, the top sales in
2015 were led by private equity
firms including the sale of The
Urology Center of Colorado,
purchased by Olympus Ventures,
in December. Olympus Ventures
paid $35.15 million ($637 per sf)
for the 55,100-sf building located
near Sports Authority Field at
Mile High. Originally developed
in 2006 by Denver-based
Development Solutions Group,
in partnership with the Urology
Center of Colorado, the TUCC
building sold in 2010 to another
private equity firm, TUCC Medical
Center Joint Venture LLC, for
$23.25 million, which then
profited $12 million in the 2015
sale to Olympus Ventures.
Olympus Ventures made
another splash in the market in
2014 by purchasing the Red Rocks
Medical Center at 400 Indiana in
Golden for $52 million ($442 per
sf), which also was developed by
Development Solutions Group in
2011.
2016Predictions
Private equity groups and REITs
will continue to battle for medical
assets, due to Denver’s many
robust market dynamics, including
a steadily growing population
and strong market fundamentals.
The struggle between private
equity and REITS will help spur
transactions, and I expect 2016 to
see over $300 million in medical
office sale transactions – for the
first time since 2013.
With solid examples such as
The Urology Center of Colorado
sale, existing owners of medical
office buildings should take a hard
look at monetizing their assets in
2016, as investors will seek stable
alternatives compared to the stock
market.
Physician groups and health
systems will increase their
ownership percentage as well;
however, the majority will be
through developing new facilities
in many of Denver’s growing
neighborhoods. Areas that will
experience substantial new
development will be the northern
and southern Denver suburbs, as
well as Fort Collins.
John Gustafson
Director, Newmark Grubb
Knight Frank, Denver
Charts courtesy Newmark Grubb Knight Frank
