Hartford Business Journal

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Continued CT med-office sales spotlight sector's rising demand By Gregory Seay gseay@HartfordBusiness.com L ast April, one of America's leading medi- cal-office space investors plunked down $178 million in stock for 29 medical- office properties in the Hartford region and southern Connecticut from Avon commercial developer-builder-landlord Casle Corp. It was the first time that Arizona-based Healthcare Trust of America Inc. (HTA), a real estate investment trust (REIT) found- ed in 2006 with a medical-office port- folio totaling about 17.5 million square feet spread across some two dozen U.S. markets and worth around $4.2 billion, has invested in Nutmeg State real estate. But it won't be the last, HTA officers say. C o n n e c t i c u t ' s m e d i c a l - o f f i c e market, as well as many others nation- wide, presents an opportunity for HTA and other investors to con- solidate what some see as a fractured market- place, similar to the nation's healthcare system. For HTA, Casle's stable roster of health- related tenants who serve Connecticut's pop- ulation of aging but affluent residents were linchpins to the purchase, said HTA Chief Financial Officer Robert Milligan. "We are interested in continuing to expand in the area, particularly around Hartford and New Haven,'' Milligan said recently. In June, HTA followed up its Casle deal with the acquisition of a pair of Middletown medical office buildings on Saybrook Road that New York landlord Seavest LLC had bought just six years earlier. Seavest said it wasn't looking to sell, yet it got about $11 million — more than double the $4.8 million it paid for them. Seavest, too, insists that despite selling its only two medical-office buildings in Con- necticut, it hasn't given up on this state's mar- ket. Seavest says it prefers properties that are close to hospitals that are ranked high for their patient services and outcomes. "We could very easily tomorrow find opportunity to develop or acquire in Con- necticut,'' said John L. Winer, senior manag- ing director and chief investment officer for Seavest Healthcare, the unit that ran and sold the pair of Middletown medical offices. Connecticut's medical-office sector, HTA and other realty experts say, is among one of the most active segments of the commercial real estate market. Connecticut Children's Medical Center, Hartford Hospital, St. Francis Hospital and Medical Center, plus physician groups such as ProHealth Physicians, are among major tenants in many medical-office locales statewide. There are also myriad pri- vately-owned urgent-care and other outpatient clinics that have cropped up in recent years. Generally, real estate stands out right now among other investment-asset classes, Winer said, due to its relatively better rate of return than, say, money-market accounts and certifi- cates of deposit, or certain types of equity or other investment options. Medical offices are particularly attractive, Winer said, because they typically attract creditworthy tenants willing to commit to long-term leases in an industry that draws its share of patients in good and lean times. But a key driver in the growth of medical- office space, he said, has been the desire of hospitals and other care providers to "unbun- dle'' their ambulatory, or "outpatient,'' ser- vices into suburban offices and clinics to be nearer where health consumers reside. Demand for medical-office space also reflects Connecticut's and America's aging population. HTA prefers markets like Connecticut that offer an aging, affluent population, Mil- ligan said. Counting the Casle portfolio and the two Seavest properties, HTA has now invested just over $1 billion in about 3 mil- lion square feet of medical-office space in markets within a 110-mile radius of Hartford, Milligan said. Those include New Haven, Bos- ton and White Plains, N.Y. Casle's portfolio especially, HTA's finance chief said, was "an opportunity to come into Largest U.S. Medical Office Deals of 2015 Buyer Seller Sale Price Ventas REIT Ardent Health Services $1.6B Ventas REIT ARC Healthcare REIT (HCT) $1.3B Medical Properties Capella Healthcare $600M Trust (MPW) SNH REIT Cole Properties Trust $539M Health Care REIT G&L Realty $443M HCP Inc. Memorial Hermann $225M Health System S O U R C E : R E V I S T A M E D . C O M (Left) David Sessions, CEO of Avon commercial developer-landlord Casle Corp. Last April, Casle sold its medical-office portfolio to one of the nation's leading medical-office REITs. (Right) A retail center for Farmington insurer ConnectiCare, which plans to open four storefronts this fall. P H O T O | C O N T R I B U T E D P H O T O | H B J F I L E Medical Office Vacancy Rate & Asking Rent S O U R C E : R E V I S T A 11.00% 10.50 % 10.00% 9.50% 9.00% 8.50% 8.00% $24.00 $23.50 $23.00 $22.50 $22.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 Office Gross Rent Overall Vacant Percent Total

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