And competition is growing fierce. In Ohio, county-owned Clinton Memorial Hospital has attracted three for-profit suitors. All of them are based in Brentwood, TN: Regional Care Hospital Partners, formed in 2009 by former Province Healthcare executives Martin Rash and John Rutledge, Capella Healthcare, and Life Point. "Competition is heating up for these acquisitions with more capital available," says Jone Koford, president of strategic growth and development for Life Point, which operates 47 hospitals in 17 states. The company is targeting one to three acquisitions this year, Koford reveals.

"If we find the right opportunity and it's number four, we're in a position to respond to that," she adds.

The recent uptick in acquisitions follows a two-year drought during which even investor-owned hospital companies found it difficult to access the cash necessary to make big buys. According to Norwalk, CT-based Irving Levin Associates, which publishes merger

and acquisition data on the healthcare industry, hospital transactions peaked in 2006 with 249 hospitals purchased representing 54,551 beds. Compare that to 2009, when 80 hospitals were bought for a total of 10,604 beds.

But with values continuing to drop dramatically-in 2006, the average hospital deal was $878.8 million, compared to $84.4 million last year, according to Irving Levin data-"hospital companies need to be sure they're ready for what many people believe is going to be a really big year," says the firm's Steve Monroe. "Now that health care reform has a little closure, I think these companies feel they can go out and do financial models with some known quantities as opposed to the past 12 to 18 months where people have been sitting on the sidelines wondering what was going to happen."

Exactly what role newly enacted health care reform legislation is playing in current acquisitions is a matter of debate. After all, most of the key provisions don't take effect until 20 14. But in a report released in March, Moody's Investors Service said that reform will only heighten consolidation within the industry, with for-profits snapping up nonprofits.

"You're going to see a lot of consolidation because of the health care bill," says New York City-based Jeffrey Cooper, who serves as executive managing director at Savills US. "The profitability of operations is going to be limited as a result of more usage

by people who now get some form of insurance," he adds. "Reimbursement will also continue to be somewhat lower, whether it's private pay, Medicaid or Medicare. It's certainly not going to keep up with the costs."

What's more, patients simply are not approaching hospitals the way they used to. "There are fewer overnight stays and a lot of same-day surgeries," says Robert Malone, a partner at New York City based Drinker Biddle & Reath LLC and vice chair of the corporate restructuring practice group. "For instance, urology groups and plastic surgeons now have their own operating rooms, which has put a strain on hospitals." Add to this verexpansion and over-saturation and the outlook is even more dire.

In fact, New Jersey's Hoboken Hospital is in trouble-according to its latest budget report, the hospital posted a loss of $8.7 million in 2009-and has hired law firm Lowenstein Sandler as council to assess the institution's financial situation. Meanwhile, the

state is conducting an audit on Hudson County hospitals including Jersey City Medical Center, Christ Hospital and Hoboken Hospital, all of which are located within a roughly 20-mile radius.

Also in the Garden State, Pascack Valley Hospital is struggling to find its footing following an $80-million expansion, which has left owner Hackensack University Medical Center with the task of breaking up the campus.

So what happens to those assets that are floundering? In the case ofbankrupt St. Vincent's Hospital in New York City, Grubb & Ellis recently sold one of its buildings-555 Sixth Ave., also known as Staff House-to Stonehenge Partners Inc. for $67.3 million. St. Vincent's had also attracted a previous offer of $48 million from Taconic Investment Partners. Vincent Carrega, executive managing director at Grubb & Ellis, says 555 Sixth, which was used to house employees and other affiliated residents, "benefits from its proximity to an abundance of outstanding restaurants and top-tier retailers as well as all the other amenities associated with Chelsea and the Flatiron District."

The six-story elevatored building, which occupies a block front between West 15th and West 16th streets, contains a total of 178 studio, one bedroom and two-bedroom apartments, along with a 90-car parking garage and 27,585 square feet of commercial space. Stonehenge plans to reposition the retail and residential components of the building. A spokesperson for st. Vincent's says the hospital has not made any decisions on placing other properties on the market yet. According to Cooper, this is a best case scenario. "St. Vincent's is on very good land that has a higher and better use," he observes. "It can be sold off as residential because there is a lot of value." But other assets are not finding it as easy to attract investor interest, which is something Malone knows firsthand. Back in 2009, he was in charge of pulling St. Mary's Hospital in Passaic, NJ out of Chapter 11. The hospital, which had an older facility at 211 Pennington Ave., decided to purchase Passaic Beth Israel's newer location at 350 Boulevard after the latter filed for bankruptcy. "It made a lot of sense at the time," says Malone. "They bought the facility in an asset-purchase agreement and moved nearly all of the operations to the newer building." The hospital then attempted, albeit unsuccessfully, to shed the older assets. "They thought there were opportunities to sell 211 Pennington but each one fell through, which in turn put some stress on the hospital itself because the financing it received from the state with respect to the New Jersey Healthcare Finance Facility Authority was agreed upon with the assumption that it would sell 211 Pennington, pay down a lot of the debt on the bonds and continue operating the hospital," notes Malone.

Even in Chapter 11, he says, the firm had a tough time finding buyers, so Drinker Biddle opted to reorganize the existing hospital around 350 Boulevard and place the older building into a trust so that it was no longer part of the debtor case. It's now up to the trustee to dispose of the former facility. Malone says the lack of interest may have had something to do with the bankruptcy process itself.

North General Hospital in Harlem also flatlined this summer, filing for Chapter 11 bankruptcy just two months after St. Vincent's shut its doors. Located at Madison Avenue and E. 122nd Street, the main building will be converted into a nursing care facility run by the City Health and Hospitals Corp., in a deal negotiated by Gov. David Paterson.

Cooper believes it wise to retain a medical modus operandi. "While North General is a modern physical facility, it really has no use other than a hospital or medical treatment facility," he notes. The deal hammered out by the Paterson Administration and federal officials brings to a close highly sensitive political negotiations that took place over the past year. North General's bonds are backed by the state, and the hospital has an interest-only bond payment due on August 15 of nearly $3 million.

Still, Cooper says that most of the conversions he's witnessed have fallen flat. He cites the Beacon in Jersey City, which sits on the 14-acre grounds of the former Jersey City Medical Center campus, JCMC emerged from bankruptcy and moved to its new quarters at Grand Street and Jersey Avenue in 2004. Metrovest Equities is now converting the 10 federally landmarked buildings into two million square feet of residential and retail space for a price tag that is upward of $350 million. The problem, says Cooper, is that the facility, which is set apart from the waterfront, is largely surrounded by low-income housing and is not targeting the right demographics. "If they were doing market rate, okay, but these are luxury condos," he observes. "I just don't know what they were thinking."

Even more disconcerting are the secondary and tertiary markets. "There, it's a disaster," says Cooper. "Hospital buyers generally don't want to run these facilities because they closed for a reason-either a portion of the population has moved out or the assets were not modern enough. So there's nothing to do with the left over properties aside from leveling them."

Finding alternative uses for community hospitals can certainly constitute a challenge, agrees Malone.

"Quite frankly, even though st. Mary's came out of bankruptcy, we told the court that community hospitals are going to have a hard time surviving as standalones in this new environment' The key, he adds, is to look for a strategic partner or join a healthcare system.

"Take New Jersey," he says. "If you look up and down the state, you'll see that there are mostly healthcare systems comprised of two or three hospitals, which allows them to combine resources from administrative to purchasing." Ideally, these larger systems are then able to cut down on costs and turn a profit. Even so, it's not a surefire safeguard for all hospital assets. In fact, non-traded REIT Healthcare Trust of America has acquired about $700 million in assets in the past several months. These acquisitions have been larger, in the $ 150-million to $170- million range, and most have been with healthcare systems, says Scott D. Peters, chairman, president and CEO of the trust. "That will be the new process," he observes. "Healthcare systems are getting real estate off their balance sheets, they're turning into businesses."

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