Page 12 —
COLORADO REAL ESTATE JOURNAL
— June 15-July 5, 2016
Medical Office
by Jill Jamieson-Nichols
Catholic Health Initiatives is
selling 3.1 million square feet of
medical office space across 10
states in what will be the largest
deal of its kind ever recorded.
CBRE Group Inc. just closed
the first part of the transaction,
which involved 26 properties,
including three in Colorado.
Milwaukee-based Physicians
Realty Trust paid $324 mil-
lion for the assets and expects
to complete the acquisition in
multiple phases by year-end.
The portfolio is valued at
approximately $700 million,
making it the largest health
system monetization of medi-
cal office buildings on record,
according to Real Capital Ana-
lytics. Historical data also con-
firms it will be the largest MOB
portfolio ever to trade outside
of a merger or acquisition,
CBRE said.
Chris Bod-
nar and Lee
Asher, execu-
tive vice pres-
idents and co-
founders of
CBRE’s U.S.
He a l t h c a r e
Capital Mar-
kets Group,
handled the
t ransac t i on
for CHI with Tim Lorman, alli-
ance director of CBRE’s Health-
care Services Group.
“Like many health systems,
Catholic Health Initiatives is
taking advantage of favorable
market conditions to unlock the
capital they have invested in
these properties,” said Bodnar.
“This monetization of assets
will strengthen operations and
enhance the care they provide
to the communities they serve.”
“This initiative is part of an
overarching strategy by Catho-
lic Health Initiatives to obtain
maximum value from their
owned and leased real estate
assets while creating a partner-
ship with a reputable inves-
tor,” added Asher. “Physicians
Realty Trust plans to own the
properties for the long term,
infusing significant capital into
the portfolio while providing
first-class management services
to CHI and their physicians.”
Catholic Health is leasing
back approximately 80 percent
of the portfolio, with the rest
leased to third parties, accord-
ing to CBRE.
According to Bodnar, mon-
etization of real estate is among
many options health systems
are considering to enhance their
margins and operate more effi-
ciently.
“For a lot of health systems,
the one thing that gets looked at
very closely by the rating agen-
cies is their liquidity. By freeing
up equity that is tied up in
real estate, it will enhance that
equity position by the hospitals
and make them, from a finan-
cial standpoint, more favorable
to the rating agencies,” he said.
“The second thing I think is
looked at is where else could
this money be utilized? Since
the Affordable Care Act went
into law and was fully imple-
mented in 2014, hospitals are
operating at lower margins.
They’re not getting the same
(Medicaid and Medicare) reim-
bursements that they once
were, and they are trying to
enhance their patient base,
they’re trying to enhance their
services to the community, and
that costs money. So the ques-
tion becomes, ‘Does it make
sense to keep money tied into
bricks and mortar or does it
make sense to redistribute that
equity into services to expand
their network and capture a
greater market share?’”
In addition, while “a lot of
health systems have great real
estate teams and are well orga-
nized,” real estate owners may
operate buildings more effi-
ciently since that is the business
they’re in, he said.
Given merger and acquisition
activity between hospitals and
physician groups over the last
few years, Bodnar anticipates
seeing increased monetization
of health system real estate.
“Because of that type of activ-
ity and health systems trying
to force ways to become more
efficient and create more cash
on their balance sheets, I think
it will continue to be something
that is looked at,” Bodnar said.
Colorado properties included
in the first tranche of the Catho-
lic Health Initiatives portfolio
were:
• Dacono Neighborhood
Health, 3101 Summit View
Drive, Dacono. The 10,800-sf
ambulatory surgery center
opened in 2014.
• Peak One Surgery Center,
350 Peak One Drive, Frisco.
The center opened in 2005 and
includes three operating rooms
for a variety of procedures,
including general surgery, gas-
troenterology, gynecology, oph-
thalmology and more.
• Thornton Neighborhood
Health Center, 4075 E. 128th
Ave., Thornton, a 10,700-
sf building that offers fam-
ily medicine, women’s health,
radiology, and health and well-
ness services. It was completed
in 2014.
Catholic Health Initiatives
is one of the nation’s largest
health systems, with 105 hos-
pitals in 19 states, along with
inpatient and outpatient facili-
ties, nursing colleges and home
health agencies.
Physicians Realty Trust is
a publicly traded health care
real estate investment trust that
acquires, owns and manages
health care properties leased
to physicians, hospitals and
health care delivery systems
and providers, according to its
website.
s
The St. Alexius-Minot Medical Plaza in North Dakota was among 26 properties that were part of the first
tranche of what will be a record-breaking health system medical office space monetization.
Chris Bodnar
