Healthcare Investor Buying Massive Atlanta Medical Office Portfolio

A Nashville medical office building investor is readying a massive portfolio purchase in Atlanta that involves some of the biggest health system names in the state.

Healthcare Realty Trust is under contract to buy 15 medical office buildings from Meadows & Ohly for $612.5M. The portfolio is 1.3M SF and includes nine buildings — most of which are on hospital campuses.

The portfolio includes 773K SF more than half leased to WellStar Health System, three buildings leased either in full or in part to Piedmont Healthcare and three MOBs totaling nearly 270K SF that are more than 30% leased by Gwinnett Medical Center. 

According to documents filed with the Securities and Exchange Commission, the portfolio includes:

• Kennestone Cancer Center, Kennestone Physicians Center I and II and Kennestone Outpatient Pavilion, all in Marietta;
• Douglas Physicians Center I and II, both in Douglasville;
• Paulding Physicians Center and Paulding Outpatient Pavilion, both in Hiram;
• Vinings Health Park in Smyrna, the new WellStar campus under construction in Cobb County;
• The 134K SF Piedmont Physicians Plaza in Atlanta;
• The 123K SF Piedmont Medical Plaza in Newnan, which was completed in 2012;
• 340 Exchange Blvd., a nearly 20K SF MOB, in Bethlehem;
• Gwinnett 500 Building and Gwinnett Physicians Center, both in Lawrenceville; and
• The nearly 70K SF Hudgens Professional Building in Duluth.

The portfolio is expected to pump nearly $30M of operating income after expenses are deducted, company officials said in a release.

The purchase comes at a time when MOB sales were down from last year, according to a recent Marcus & Millichap report. As of Q1, transaction velocity dropped 9%, mainly because of fewer medical office sales, Marcus & Millichap said in the report. Average per square foot pricing for MOBs during that period was about $180/SF.

In this sale, the per square foot price was two and a half times greater than that average, at $471/SF.

The purchase also will mean Healthcare Realty is assuming $90.8M in mortgages secured by seven of the buildings from Meadows & Ohly, according to documents filed with the Securities and Exchange Commission.

“Similar to Healthcare Realty’s existing portfolio, the properties in the Portfolio are over 90% occupied by hospital-centric specialties, such as obstetrics/gynecology at 13%, oncology at 12%, cardiology at 11%, and orthopedics at 9%,” Healthcare Realty officials said in a release.

For Vinings Health Park, Healthcare Realty is expected to provide $67M interim mortgage financing, with plans by the company to purchase it a full year after construction is done, according to SEC documents.

Although more than 96% leased, Healthcare Realty said that more than half of the square footage is facing leases set to expire in the next five years.

“The portfolio enhances the company's potential for continued rent growth,” officials said in a release. Meadows & Ohly will maintain management and leasing on the portfolio for 10 years.