KATY, TX—Healthcare continues to garner interest from investors from a future needs perspective. The latest example is Katy Medical Arts Center, a 61,082-square-foot medical office building that recently sold to a private equity-backed healthcare real estate investor. The building is fully occupied by a range of healthcare tenants that provide primary care, ophthalmology, cardiology, podiatry, lab, endovascular surgery, mammography, hand and general surgery, nephrology, oncology, imaging, dermatology, and gastroenterology services.
The mix of tenants allows for a strong referral network within the facility. Katy Internal Medicine and Katy Cardiology Associates are the largest tenants in the building, occupying 18% and 10% of the gross leasable area, respectively. The abundance of private-practice tenants allows for future credit enhancement, should it be acquired. Occupants with a national presence include LabCorp, US Oncology and Quest Diagnostics.
The seller of the asset, Katy Med-Arts Partners Ltd., was a partnership of more than 20 physicians associated with practices occupying the building. Gino Lollio and Scott Niedergang, managing director, both of Cushman & Wakefield's healthcare capital markets team, facilitated the sale. Prior to going to market, Cushman & Wakefield consulted these physicians on approaching the tenants to negotiate lease terms that would maximize the value of the building upon sale. By securing longer terms and fixed rent escalations, and converting gross leases to triple-net, significant value was added to the property.
“From a capital markets perspective, healthcare real estate investors continues to show significant interest in the Houston MSA. Economic activity has picked up since Hurricane Harvey and job growth is expected throughout 2018. Although it is unlikely that energy companies will begin to hire additional office staff, most local economists are expecting 50,000 to 70,000 new jobs in 2018,” Niedergang tells GlobeSt.com. “Cushman & Wakefield research predicts job gains in sectors including manufacturing, real estate, arts and entertainment, and healthcare. The combination of this economic growth and the continued expansion of healthcare providers into suburban Houston communities bodes well for investment opportunity in the market.”
Previous transactions by the team include a portfolio sale of Memorial Hermann and UT Physicians assets in Sugar Land and Richmond for $58 million and the $40.4 million sale of a Memorial Hermann Surgery Center and Rehab Hospital in Katy. To date, the team has closed on the sale of more than 100 medical office properties in 20 states valued at more than $700 million. Transactions include single-asset and portfolios of medical office buildings, ambulatory surgery centers, and outpatient facilities occupied by a variety of specialties.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
