Healthcare Realty buys medical income and a Chapel Hill entitlement

Healthcare Realty has acquired a medical portfolio from Hammes for $56 million, according to Connect CRE, whose headline rounds the figure to $58 million while its story reports $56 million. The purchase spans a nearly 100,000-square-foot multi-tenant medical office building in Summerville, South Carolina, anchored by the Medical University of South Carolina; a 22,261-square-foot ambulatory surgery center in the same Summerville collection, fully leased to a joint venture led by SCA Health; and roughly five acres at 5936 Farrington Road in Chapel Hill, North Carolina, fully entitled for a six-story, 168,000-square-foot medical and office building with a structured parking garage.

The underwriting is legible from the tenant roster. Both buildings are 100 percent leased, with a weighted-average lease term of about seven years and fixed annual rent escalations, and S&P rates the anchors AA and AA-. That is tenancy a buyer can price a building off of, with the credit doing the underwriting and the real estate riding along. It matters while the office market splits trophy towers from commodity stock, because medical office, on this evidence, trades on its own bid — set by who signs the lease rather than by what the surrounding submarket is doing.

The Chapel Hill parcel is the part of the deal that carries no rent: it arrives fully entitled for six stories and 168,000 square feet with structured parking, and the coverage names no tenant for it, which suggests Healthcare Realty bought the right to build on a health system's schedule, with the occupant still to come. That option is neither free nor immediate. Because the $56 million covers the leased buildings and the land together, the implied yield on the two Summerville assets has to be better than the blended number the price produces—the entitlement absorbs the difference and returns nothing until a lease is signed.

Newmark's Ben Appel, Jay Miele, Justin Shepherd, John Nero, Michael Greeley and Ron Ott advised Hammes on the sale. Hammes exits a stabilized medical collection and an unbuilt entitlement in one trade; the coverage does not say what it paid for either, which leaves the gain on the buildings and the markup on the land equally unstated.

With valuations firm and rate relief slipping, the income statement is where value gets made, and Healthcare Realty bought exactly that: contractual rent with fixed bumps from rated health-care tenants, plus an entitlement it can hold at leisure. The risk sits in the second half of the purchase, because if the REIT starts construction on Farrington Road, it has stopped collecting rent and started underwriting demand on a site whose justification is a lease nobody has signed. The number that settles this trade is that lease: 168,000 square feet, no tenant in the coverage, and a buyer that has already paid for the right to sign one.