July 27, 2020
John B. Mugford

Hammes Partners Kicks Off Q3 with a $147.1 Million Healthcare Portfolio Purchase

While the total MOB sales volume for Q2 has yet to be finalized, it is likely to show a significant decrease from previous quarters due to the effects of the COVID-19 pandemic.

However, one deal that closed recently is a bright spot for the start of Q3.

In that deal, Milwaukee-based Hammes Partners, the affiliated investment arm of longtime development firm Hammes Company, closed July 7 on the acquisition of 13 buildings, mostly MOBs, from Allentown, Pa.-based Lehigh Valley Health Network (LVHN), a system with eight hospitals and numerous outpatient locations in a seven-county area of eastern Pennsylvania and a small area of New Jersey.

The health system’s real estate monetization included 11 buildings in Pennsylvania and two in Phillipsburg, N.J., which is just across the Delaware River from Easton, Pa.

In compiling information from Revista sales data, the 87.5 percent occupied portfolio that Hammes acquired from the health system has a total of 475,498 square feet of space, meaning the average building size is 35,577 square feet.

The price was $147.1 million, or a price per square foot (PSF) of $309, according to the Revista data. The capitalization (cap) rate, or first year estimated return, was not indicated.

In describing the acquisition, Todd Kibler, principal with Hammes Partners, said the firm acquired “a portfolio of outpatient assets and land parcels that are affiliated with the Lehigh Valley Health System. The transaction was consummated on an ‘off-market’ basis and the seller was represented by (West Palm Beach, Fla.-based) Healthcare Real Estate Capital.”

Mr. Kibler added that “prior to this transaction we had been looking for opportunities to continue to build our relationship with the health system as well as expand our presence in the Lehigh Valley. We look forward to partnering with LVHS to reposition the subject assets within LVHS’ ambulatory network.”

Hammes Company, he notes, was chosen in recent years by the City of Allentown to develop the PPL Center, a sports arena, and “adjacent real estate as part of a large mixed-use urban revitalization project in downtown Allentown. The revitalization program included the development of LVHN’s One City Center, a sports, fitness and wellness facility.” According to local news reports, the $65 million, 186,170 square foot project was completed in 2014.

According to Revista’s listings of the MOBs involved in the Hammes purchase, a majority of the buildings are occupied by Allentown-based Coordinated Health, a 22-location, two-hospital, 100-plus-doctor practice and system focused on orthopedic services that became part of LVHN in December 2019.

Included in the portfolio is the 80,000 square foot Coordinated Health HQ Building at 3435 Winchester Road in Allentown. Revista data indicates that the price for the facility was $22.9 million, or $286 PSF.

The next largest, and second-most expensive, property in the deal was the 79,400 square foot Coordinated Health Hospital of Allentown, an orthopedics-focused specialty hospital at 1503 North Cedar Crest Blvd. The price was $22.7 million.

The priciest “pure” MOB involved in the deal is the 511 VNA Road facility in East Stroudsburg, about 42 miles northeast of Allentown. The price for the 30,622 square foot MOB was $14.45 million, or $472 PSF, according to Revista data.