Biggest Deal of 2021
After a rather lackluster first half of 2021 for medical office building (MOB) sales, the year’s largest deal to date is grabbing plenty of headlines.
And rightly so, as a partnership of Chicago-based Nuveen Real Estate, one of the five largest global real estate investment managers, and Denver-based NexCore Group LLC, last week closed on the acquisition of a $620.4 million purchase of MOBs and life science facilities.
The deal comprises 29 assets in 13 states with a total of 1.165 million square feet of space.
As for the MOB portion of the portfolio, it includes 27 facilities in 13 states with a total of more than 747,000 square feet of gross leasable space. The price for the MOB portfolio was $463 million, making it the largest MOB transaction so far in 2021.
According to Allianz Real Estate, which provided the buyer with a $234 million loan for the purchase of the MOBs, 20 of the MOBs are in states with Certificate of Need (CON) requirements, meaning they are in high barrier-to-entry markets.
The price for the two life science facilities, which are in Aliso Viejo, Calif., and Madison, Wis., was $157 million, according to professionals involved in the sale.
The MOB portfolio is “99 percent occupied by 38 tenants, of which 92 percent are investment-grade credit healthcare systems,” according to Allianz. “The portfolio rent roll benefits from a weighted average unexpired lease term (WALT) of 12 years… The portfolio is well-diversified across traditional medical offices, urgent care centers, outpatient surgeries and specialty treatment centers, and specialty hospitals.”
The seller was Irvine, Calif.-based IRA Capital, a commercial real estate (CRE) investor with a heavy focus on medical facilities. In 2020, IRA made investments totaling about $500 million and it intends to invest about $1 billion “in the next year with a primary focus in the healthcare sector, as well as other asset classes such as multifamily, industrial, net lease, and hospitality.”
For IRA, the sale took place after the firm had looked into recapitalizing a large portion of its healthcare portfolio, Amer Kasm, principal and co-founder, tells HREI™, noting that the firm had engaged a team with New York-based Eastdil Secured to explore the possibility of a recap.
“After running a process for the recapitalization, we decided that a recapitalization was much more complex than anticipated given some potential conflicts that were created, so we decided to pursue a sale,” Mr. Kasm says. “The sale gives us additional buying power of about $1.2 billion, which we look forward to continue deploying in healthcare real estate and some other asset classes.”
When the decision was made to sell the portfolio, Eastdil presented the opportunity to a “select pool of qualified” investors, according to those involved in the transaction.
“Coupled with our competitive capital structure, principals of both NexCore and Nuveen have maintained a longstanding relationship with IRA, having past partnered on successful transactions,” Mr. Varney says. “The IRA portfolio was attractive to NexCore-Nuveen predominantly because of its highly diversified geographic presence, credit health system tenancy, single-tenant lease structures and long-term leases.”
With the purchase, NexCore’s managed portfolio now totals about 93 properties with about 6.5 million square feet in 26 states.
That portfolio is sure to increase as a result of NexCore’s partnership with Nuveen, which started in late 2020.
Although Nuveen has invested in HRE facilities in the past through various funds, NexCore serves as its “strategic advisor, partner, and property manager targeting developments, acquisitions, and sale-leasebacks in the healthcare and life sciences asset classes.” The partnership is “structured to dramatically expand our collective footprint to include a national presence in credit healthcare assets,” Todd Varney, chief development officer and managing partner, tells HREI.
Since November 2020, NexCore and Nuveen have partnered on more than $687 million in acquisitions, including 34 buildings comprising 1.4 million square feet, as well as two additional buildings in development, which will add another 200,000 square feet.
Jarrod Daddis, NexCore’s president and managing partner, noted in a news release that “we at NexCore are proud to continue the synergies between our two leading firms, combining NexCore’s expertise in developing, leasing and managing healthcare real estate with Nuveen’s capital resources and generational real estate expertise.”
Mr. Varney adds that the firm continues to “uphold excellent relationships with our many investment partners, both private and institutional.”
For NexCore, which has long been involved in MOBs and has recently branched into senior housing facilities as well, the recent transaction represents its move into the life science real estate sector as well.
According to Mr. Varney, “we are making a significant investment in life sciences acquisitions and development, as we currently have three life sciences projects in predevelopment in Boulder, Colo., Los Angeles and Irvine, Calif. We will be announcing more about those projects soon.”
For IRA Capital, the sale still leaves it with a significant portfolio, which according to Mr. Kasm is valued at about $750 million. The transaction with Nuveen-NexCore represents its second large sale in the past year or more, as in early 2020 it sold a portfolio of 18 MOBs to Welltower Inc. (NYSE: WELL) for an undisclosed price.
“(We) continue building upon (our) medical office portfolio throughout COVID, with a primary focus on shifting (our) strategy towards health-system transactions,” according to IRA.
The company, according to Mr. Kasm, goes into “all our investments with a minimum five- to seven-year holding period, sometimes longer. In certain instances, we may decide to exit sooner as a result of certain factors.”
As it looks to the next year or so, IRA is planning to invest up to $1 billion, as noted, with a heavy emphasis on healthcare facilities.
“We’re continuing to find interesting and unique opportunities,” Mr. Kasm says. “Our goal is to continue building and maintaining relationships with all of our health system partners, and to do whatever we can to facilitate their growth and efficiency.”