Centennial, CO. January 9, 2020– Recentric is pleased to announce the purchase of the Village Plaza at 5657 S. Himalaya in Centennial. Built in 2000, this 31,000 SF building has a unique tenant mix of 75% medical and 25% retail.
According to Recentric’s Managing Partner, Darren Nakos, “We believe this property fits in well with our strategy of acquiring, adding value and managing healthcare facilities. We intend to hold the property for several years and work closely with the tenants to ensure a great experience for them and their patients”. Nakos also added that the building will be re-branded to Saddle Rock Medical Center.
Of particular interest with this acquisition is the fact that it was an off-market deal. “We had the unique opportunity to put this purchase together before it hit the market. That meant that we had to move quickly to mobilize our investors and get it closed. Thankfully, we have a solid group of investors that know our track record and were happy to participate”, explained Nakos.
Recentric is a Denver-Based, regional commercial healthcare real estate investment firm. The firm’s strategy is one of value-add and long-term hold for both new acquisitions and development.
The trend in medical services is moving to outpatient care. As healthcare organizations look to control costs and provide a better patient experience, the concept of delivering critical services under one roof is taking hold. Further increasing demand for outpatient medical facilities is the practice of medical providers expanding services to preventative care and mental health treatment programs. These components, combined with the fact that patients prefer convenience and would prefer not to go to a hospital, has fueled demand for large medical office buildings that are over 150,000 square feet in size.
According to a report by JLL, there are currently 44 medical office developments larger than 150,000 SF under construction in the U.S. This represents 11m SF and $5.3b worth of investment. With a growing population driving demand for outpatient services, the low supply of these new facilities, and the stability of the healthcare industry, medical office investments continue to show tremendous strength.
These large format buildings are capital intensive and can often be a daunting investment for the healthcare systems, especially considering staffing and equipment requirements. Therefore, investors will have increasing opportunities to participate in these developments as healthcare systems look to outside sources for funding build-to-suit medical office buildings.
Recentric continues to look for development and acquisition opportunities to meet the growing demand for larger, out-patient medical facilities. This strategy allows us to take advantage of the growing need for these facilities, and offer new and exciting opportunities to our current and future investors.
As the U.S. economy slows to a 2% growth rate (2018 growth rate was 3.5%), most sectors are following suit. As consumer retail spending continues to dip, and the overall economic outlook remains uncertain, the ripple will be felt throughout most of the economy. There continues to be a handful of exceptions and health care real estate is among them.
Last month, Colliers International released its annual health care report. The report highlighted the following findings that point to optimism for MOBs (Medical Office Buildings)
Vacancy rates remain low (8.2%) despite 20.9 million square feet of medical office space being delivered in 2018
2018 lease rates increased by a dramatic 3.6% and are expected to remain strong in 2019
Although investment volume declined slightly in 2018, this was due to a limited amount of MOB investment opportunities
The reports also indicated that health care systems are expanding their reach with off-campus locations, further strengthening demand for strategically located MOBs.
Although the outlook is strong, we believe that our conservative underwriting for MOB investments takes into account economic uncertainty as a whole. According to the Colliers report, cap rates for the western region are hovering around 6.2%. As a hedge against a downturn, Recentric Realty Capital targets cap rates at 8% +, creating a safety barrier for our investors. These types of deals are difficult to find, but we have a handful of new possibilities that meet this criteria.
Recentric Realty Capital remains very optimistic about the 2019 forecast. With two off campus MOBs, and our aggressive acquisition and development activity, we are poised to take advantage of the opportunity health care real estate provides this year and into the future.
Parker, CO. March 28, 2019– Recentric Realty Capital is pleased to announce their new tenant, Denver Springs, at 16830 Northgate Drive in Parker, CO. Denver Springs will occupy over 6,000 square feet of office space. According to Recentric Realty Capital’s Managing Partner, Darren Nakos, “We are excited to welcome Denver Springs to our Northgate medical office building. They are a great fit for the location and provide an important service to our community, especially for pediatric behavioral health”. Abby Bartolotta of Health Connect Properties represented the landlord in the transaction; while Scott Visin and Ken Brown with Cushman & Wakefield acted as the brokerage team for the tenant. The clinic is expected to open summer of 2019.
Denver Springs is a subsidiary of Springstone, a leading provider of high-quality
behavioral health services in numerous markets throughout the United States.
The new location in Parker will provide convenient, comprehensive child and
adolescent outpatient treatment. The clinic will build upon the high quality inpatient
and outpatient services provided at Denver Springs and increase access to the
full continuum of behavioral healthcare for those who are in need.
Recentric Realty Capital is a Denver-Based,
regional commercial real estate firm that focuses on healthcare. The firm’s
strategy is one of value-add and long-term hold for both new acquisitions and
development.
Health care delivery systems are constantly evolving. These systems are very complex organisms that are influenced by public policy, patient expectations, quality of physicians, societal demands, and payer systems. Health care systems such as hospitals are at the tip of the sword when it comes to meeting the demands of this fickle industry. They must act as a community sensitive force, while evolving and pioneering new concepts to stay materially relevant.
Enter the micro-hospital. Ranging in size from 30,000 to 60,000 square feet, the micro-hospital is designed to bring health care services to the patients, where they exist. According to Vic Schmerbeck, executive vice president of strategy and business development at Emerus, the idea is “to deliver a lot of the pre-acute care in a given neighborhood in a place where people work, live and play, and to bring a higher level of service than what you would find with just a retail clinic or urgent care,” Mr. Schmerbeck said.
The concept of a micro-hospital is to stay small and versatile. The footprint required is much smaller, which makes them a suitable product in urban and dense suburban settings. The key for hospital systems in getting this choice right is carefully assessing the market fundamentals across the continuum of care so other hospital assets are not replicated. Understanding the demographics and patient needs in a defined geographic area is critical in getting the location and size right as well as delivering the right services to the patients.
From an investment perspective, micro-hospitals can also be very stable long term investments. The strength of that investment is largely based on the credit quality of that particular health care system. Moody’s and S&P both cover this industry and can provide a grade to determine the health of the hospital system. For example, Moody’s uses nine symbols as shown below to designate least credit risk to that denoting greatest credit risk: Aaa Aa A Baa Ba B Caa Ca C.
As health care changes, hospitals continue to be the pioneers in our constantly evolving society. With the help of technology, and innovation, micro-hospitals can continue to provide pinpointed quality care as well as steady cash flow to real estate investors.
In today’s frothy commercial real estate market, buying at the top of the market can be risky business. If you don’t understand the downside and the risks, you may very well be buying someone else’s problem. As Sam Zell says, “I am very focused on understanding the downside.”
Recentric Realty Capital’s approach to real estate involves three principals. Safety, Income and Growth. While this may seem like an ideal, commonly held philosophy in the private equity world, this three-legged stool only works when all three principals are on solid ground.
Safety
CBRE, one of the biggest real estate asset managers in the world, recently bought a 95% stake in a portfolio comprising 25 medical office buildings, reports The Wall Street Journal’s Peter Grant. “If someone needs a hip replacement, they need to go get that done regardless of where the economic cycle is,” Matt Tepper, managing director of CBRE Global Investment Partners told The Wall Street Journal.
Income
Health care real estate is a complex asset. When underwriting a deal, there are many future costs to account for such as: tenant improvements, leasing commissions, capital improvements, vacancies and more. Given the attraction to this sector, we are seeing investors purchase real estate without accounting for these costs. This will have a very large impact on the ability to generate the anticipated income for their investors.
Growth
While population growth in certain markets will provide some assurance of a stable occupied asset, the biggest component to asset appreciation or growth is rent increases. Stable assets within commercial real estate are valued primarily on their income. If an asset has steady rent increases over the life of the leases, that asset can rely on steady asset appreciation.
Health care is still the safest sector of commercial real estate to invest in given the necessity of bricks and mortar to provide care. Recentric takes a very conservative approach when underwriting our investment opportunities. If we can’t provide an acceptable return given all the costs associated, we will pass on the deal. As the 9-year bull run in commercial real estate continues, Recentric is taking a very cautious approach to ensure our strategy does not leave us with the stool tipping over.
