Piedmont Healthcare, one of the largest health systems in the South, occupies nearly two-thirds of this 9-story, 257,528 square foot building in the vibrant Buckhead/Midtown area of Atlanta. The asset is a critical component of Piedmont’s delivery model, allowing the health system to place a state-of-the-art cancer center, surgery center, and other major services away from its highly trafficked flagship hospital 1.2 miles away. The property features a retail component and 1,025-space parking garage that provides convenient access to all floors. The asset won BOMA International’s 2012 TOBY® Award and has proven popular with patients and tenants alike.
Remedy purchased the property from the original developer and plans to break ground in 2021 on Phase II of the medical park, which will include a 6-story, 150,000 square foot medical office building and 6-story parking garage. Thanks to its positive experiences at this and other properties in Atlanta, Piedmont has formed a programmatic development partnership with Remedy, starting with an on-campus medical office building in Newnan, Georgia.
Remedy acquired this 3.2 million square foot portfolio from a joint-venture partnership between a publicly traded healthcare REIT and a pension fund. The portfolio contains highly desirable assets in 17 states and 27 MSAs, including Birmingham, Chicago, Dallas, Oklahoma City, Orlando, Pensacola, Phoenix, and Washington, D.C. Property types include multi-tenant medical office buildings, ambulatory care centers, surgery centers, women’s centers, a hospital with birthing center, and a long-term acute care hospital. Over 53% of the portfolio is located on campuses of major hospital systems, with Ascension and USPI being two of the largest tenants.
Remedy purchased 100% of the membership interests in the existing entities rather than the more typical property interest. This required additional due diligence that Remedy was willing to undertake to provide the most flexibility to the seller. Remedy has increased the value of the portfolio through lease renewals, re-tenanting initiatives, and operating expense reductions. In particular, Remedy was able to reduce overhead by running the portfolio more efficiently. By combining these properties with its existing portfolio, Remedy was able to leverage volume discounts from vendors.
OrthoCarolina, the nation’s third-largest orthopedic provider, operates in 10 ambulatory care/surgery centers throughout the greater metropolitan areas of Charlotte and Winston-Salem, offering orthopedic care, orthopedic surgery, urgent care, general imaging, and physical therapy services. The buildings are 100-percent leased by OrthoCarolina, and were owned by a third-party entity that included OrthoCarolina physicians and a private equity real estate investor. The private equity investor wanted to exit, presenting a challenge for the physician owners.
Remedy acquired the portfolio with a creative, tax-efficient deal structure called an assets-over merger. This structure enabled the physicians to realize an increase in value on their initial investment and roll over those gains—along with their initial investment—into a new joint-venture with Remedy while deferring capital gains tax. Profits from the properties are shared on a pari-passu basis with the physician co-owners.
This multi-use high-rise with a single-entity seller required a unique buyer who could creatively solve for the complexity of the investment. Remedy responded by teaming with Arbor Lodging Partners and Metro Park Inc. on the acquisition and by vertically subdividing the Class A, 40-story property into medical office space (floors 7-13), hotel space (floors 14-40), and parking garage (floors 2-6). By partnering with specialists, Remedy and the other two buyers could focus on their respective investment expertise. The building is located in Chicago’s Near North Side medical district, across the street from Northwestern Memorial Hospital, Lurie Children’s Hospital, and the Shirley Ryan AbilityLab.
The medical office space, which is 99% leased, is home to prominent healthcare providers such as the Osher Center for Integrative Medicine at Northwestern University and the Eating Recovery Center. High demand for space in the building is expected to continue, as the average occupancy rate for medical space within a five-mile radius is 97%. The adjacent Northwestern Memorial Hospital campus receives more than 2.5 million outpatient visits annually and was recently named by U.S. News & World Report as the best hospital in Illinois for the seventh consecutive year.
Centegra Health System (now part of Northwestern Medicine) was in the process of acquiring McHenry County Orthopedics, a leading regional orthopedic practice located in close proximity to four Centegra hospitals and in the highly desirable Chicago suburb of Crystal Lake. However, the physician practice owned its medical office building, and Centegra was not interested in acquiring the property. The health system preferred that the property be owned and managed by an institutional investment partner with professional real estate management experience.
In executing the acquisition of the medical office building, Remedy negotiated a new long-term lease with the health system, achieved the physician owners’ desired investment goals in the purchase/sale of the property, and enabled Centegra to complete the strategic acquisition of the practice. Not long after, Centegra partnered with Remedy again to execute a similar but larger portfolio transaction involving some hospital-owned medical office buildings on two Centegra campuses as well as several off-campus locations.
Proliance Surgeons, one of the country’s largest surgical practices, partnered with Rainier Orthopedic Institute in 2012. The practice performs over 2,400 surgeries per year in its ambulatory care/surgery center, which was owned by a partnership of seven physicians now employed by Proliance. The building, part of a network of 20 area clinics, is 90% leased to Proliance and 10% leased to Summit Physical Therapy. Some of the physician owners wished to divest themselves of the property, while others were interested in retaining ownership.
Remedy offered to acquire the building in a joint venture transaction that enabled each of the physician investors to select their desired individual outcome. Some took their sale proceeds and moved on, some became co-investors in the new joint venture, and some did a little of both. The structure of the joint venture included follow-on liquidity options that gave the co-investors the ability to sell Remedy their interests at a time dependent on their personal financial or retirement planning goals. Remedy negotiated new long-term leases with both tenants and achieved the physician owners’ desired investment goals in the purchase/sale of the property.
Kaleida Health is the largest healthcare provider in Western New York with four hospitals, more than 80 outpatient clinics, and two long-term care facilities. Kaleida’s urology, oncology, and imaging divisions occupy this four-building portfolio. These high-acuity divisions feature extensive interior buildouts and advanced medical equipment, including five linear accelerators, MRI, CT, ultrasound, and X-ray.
While analyzing the investment with the third-party seller, Remedy structured an incremental purchase to help the seller achieve tax efficiency for their proceeds. In executing the acquisition, Remedy negotiated a new long-term lease for 100% of the portfolio’s rentable area with Kaleida Health, which expects continued growth and expansion going forward. Remedy also improved the buildings with roof replacement, structural repair, parking resurfacing, and HVAC replacement.
Arizona Kidney Disease & Hypertension Centers (AKDHC), one of the largest nephrology and hypertension specialists in the country, was interested in embarking on an aggressive expansion throughout Arizona. Remedy entered into a creatively structured programmatic investment agreement under which AKDHC renovates buildings for their use and Remedy then buys once all improvements and upgrades are complete. This perpetual cycle has provided AKDHC with working capital as well as the ability to continue expanding and focusing on its operations.
Remedy formed a relationship with AKDHC when it purchased two properties the group occupied in 2015 from a third-party seller. Based on this experience, AKDHC recognized Remedy’s dedication to partnership and pursued the programmatic structure. To date, the portfolio includes eight buildings located in Phoenix, Tucson, Flagstaff and several smaller markets, comprising a total of 260,000 square feet. The properties are 91% long-term leased, occupied by AKDHC and/or an AKDHC/Fresenius joint venture. Two additional assets are currently in the 2020 investment pipeline.
This off-campus ambulatory care center is 100% long-term leased by Baptist Health, a leading regional health system in Kentucky and Southern Indiana. The building location was strategically chosen to provide medical care to this underserved area of Bourbon Country, 35 minutes south of Louisville. Services at the facility include primary and family care, cardiology, imaging and lab services, ENT, foot and ankle care, orthopedics, physical therapy, pulmonary care, sports medicine, urology, neurology, and vascular surgery. The building was originally developed by Hardin Memorial Health, which has since been purchased by Baptist Health.
Remedy partnered with the developer to provide a majority of the equity capital for the development, locked in the developer’s upside via a forward commitment to purchase it upon completion, and assisted with the construction. This structure allowed the developer to maintain liquidity and de-risk its exit. Within three months of its opening in August 2018, the medical plaza was exceeding expectations, with a 64 percent increase in all medical imaging and 229 percent increase in 3D mammography.