H2C Advises Health System on $135 Million of Real Estate Acquisitions
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About Hammond Hanlon Camp LLC ("H2C")
H2C is an independent strategic advisory and investment banking firm committed to providing superior advice as a trusted advisor to healthcare organizations and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare mergers and acquisitions, capital markets, real estate, and restructuring transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value. H2C offers securities through its wholly owned subsidiary H2C Securities Inc., member FINRA/SIPC. For more information, visit h2c.com.
Kelly T. Duong
Hammond Hanlon Camp LLC
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H2C CLIENT TRANSACTIONS
NEW YORK — Nov. 3, 2020 — Hammond Hanlon Camp LLC (“H2C”), a healthcare-focused investment banking firm, served as the exclusive real estate and financial advisor to a nationally recognized, not-for-profit health system based in the Midwest (“System”) in connection with its $135 million acquisition of seven medical office buildings (“MOB”) throughout its primary market area.
The System engaged H2C in 2019 to evaluate a portfolio of over 30 leased properties, many of which were nearing deadlines at which time the System would have the opportunity to extend leases or exercise purchase options through right-of-first-refusal (“ROFR”) and/or right-of-first-offer provisions. As part of its engagement, H2C reviewed the System’s joint venture with a privately held healthcare development firm—the developer of seven MOBs for the System, of which the System and its development partner jointly owned four.
During the first phases of this engagement, H2C conducted an extensive analysis that provided the estimated value of medical office buildings, market lease rates, and the potential savings the System could achieve by purchasing select properties from third-party owners. After reviewing the System’s portfolio and discussing the strategic nature of each property with the executive leadership team, seven MOBs were targeted as potentially accretive acquisitions. During the transaction phase, H2C led negotiations with the third-party owners of the MOBs to strike agreement on favorable acquisition prices for the properties. In addition, H2C worked closely with the System’s accounting and finance teams to ensure proper financial statement treatment and optimal financing strategies for the acquisition.
With six properties acquired from the original developer and one acquired from a national healthcare real estate investment firm, the seven-property portfolio represents long-term strategic assets for the System. By owning these properties, the System is able to grow its footprint within space it would have had to lease, consolidate practices into strategic locations, and realize savings through rent and potentially real estate taxes.
“This transaction allowed the System to gain full ownership of almost a half million square feet across seven MOBs which are strategic assets, while significantly lowering its overall cost of occupancy,” said Philip J. Camp, Principal, H2C. The System utilized its strong credit profile to finance the acquisition at historically low interest rates through bond financing. “The market in which the System operates has seen robust growth, which has led to rapidly rising lease rates. The System took a forward-thinking approach to acquire these strategic assets now before rental rate increases would make them more costly to occupy,” added Matthew T. Tarpley, Vice President, H2C.
H2C is finding that more and more health systems are taking a proactive approach in optimizing their leased and owned real estate portfolios. By acquiring leased properties, health systems are able to consolidate from other leased space, mitigate future lease liabilities, and avoid paying real estate taxes, depending on the local and state regulations. The potential savings is compounded by financing acquisitions through traditional debt sources or bond financing at historically low interest rates, sometimes with rates equating to the annual escalation of rent increases due to today’s capital markets environment.