New Jersey healthcare investment team capitalizes on opportunities to quickly sell its clients’ medical office buildings and other healthcare properties, sometimes even sparking “bidding wars.”
Commercial real estate brokers often face a wide variety of scenarios in their ongoing quest to sell their clients’ properties. That’s definitely the case with Colliers’ New Jersey healthcare services and investment team. But thanks to the team’s experience, relationships and specialized analytical tools, they have been able to successfully execute for their clients, month after month. Healthcare real estate expert Kim Kretowicz, Managing Director of the New Jersey office, began working at Colliers this past January. She noted, “I joined Colliers to be part of a stronger healthcare platform and research analytics team that other firms don’t have,” explains Ms. Kretowicz. “This better serves my healthcare clients’ real estate needs.” Ms. Kretowicz has worked with a wide variety of clients on their investment sales during her 28-year career, most notably a group of private investor partners doing business as the Gordon Group and Beacon Medical Realty Advisors LLC. She has worked with Beacon for nearly 16 years. “I’ve worked very hard for this group and always put their interests first, so they’ve remained loyal and they trust me,” Ms. Kretowicz notes.
Despite Tertiary Market, Hackettstown MOB Sale Results in Bidding War
One recent project Ms. Kretowicz and her team managed was the marketing of the Hackettstown Medical Arts Building, a 44,582-square-foot, Class A medical office building (MOB) in Hackettstown, NJ. Located in the outskirts of the New York metro area, Hackettstown is in the kind of tertiary geographic market investors sometimes overlook. However, on the positive side, the MOB was 100 % occupied, with Atlantic Health System practices occupying 40 % of the building and providing diverse, complementary healthcare services. Another positive is that the MOB faces very little competition.
To market the property, Ms. Kretowicz and her team relied on their expertise, relationships and analytical tools – targeting national healthcare real estate investment trusts (REITs) and national private investors, focusing on the building’s 40 % occupancy by Atlantic Health System and using the proprietary Colliers Healthcare Provider Data & Analytics Platform to demonstrate the stability of the location and the healthcare tenancy.
Victor Angeline III, a Principal with Beacon Medical Realty Advisors, notes, “Kim is always open to our initial proposal as to what we want in a transaction. Then she does her homework and is really honest with us about the pros, cons and hurdles. She offers suggestions, such as extending the leases or improving the facility to make sure we get the value we want.” Ms. Kretowicz adds, “As soon as we brought this property to market, there was a lot of interest, especially from a buyer pool of private New York investors.”
The results? The Colliers team received four offers and had to manage a four-offer bidding war. In the end, it selected a New Jersey private investor because it had the greatest surety in the buyer, which had a successful history of closing with the seller, minimizing the risk of retrading. The transaction closed in August.
Newton MOB Listing Repositioned for Successful, Quick Sale
Another assignment was the 35,752-square-foot, Class A Norman Silbert Medical Arts Building in Newton, NJ, which is also in a tertiary market. The MOB had been marketed by a previous brokerage firm, but remained unsold. The firm finally entered into a contract with a potential buyer, but then the deal fell through. Ms. Kretowicz and her team focused on the positive aspects of the property, which is ideally located adjacent to Atlantic Health System’s Newton Medical Center. The Medical Arts Building is also modern, with recently renovated common areas and a covered patient entrance. Its 100% occupied by tenants that have been housed in the building since its inception in 2006 and that have staggered rent expirations.
Colliers repositioned the property in the marketplace with tenant lease extensions and a rebranding program. In addition, it contacted previously interested parties – including national healthcare REITs and private investors – and explained the lease extensions and repositioning, “Kim told us what we needed to do to successfully sell the Newton property,” Mr. Angeline says. “She’s a realist in terms of how she looks at things, and my private investment group is really experienced in determining cost, value, rent and other issues. This combination works well.” Ms. Kretowicz’s team generated three offers in the first month after the repositioning and target marketing campaign, and selected a buyer that had initially been interested in retail properties.
“I underscored the mitigated risk with this property compared to retail to the potential buyer,” says Ms. Kretowicz. “The property offered positive similarities to retail with the triple net lease but it also offered stability with its location across from an Atlantic Health System Hospital and the good tenant history of renewal. Medical tenants are less likely to relocate than retail or traditional office tenants due to patient loyalty and the significant cost of medical tenant improvements.” She added, “I’ve been contacted by more and more retail-oriented investors who are realizing the benefits of acquiring healthcare real estate.”
‘Trophy’ Princeton MOB Sells Quickly to Retail-Oriented Investor
Ms. Kretowicz also sold the 40,000-square-foot, Class A Forrestal Professional Center I in Princeton, NJ. The MOB, which Mr. Angeline refers to as a “trophy property,” was built in 2014 and in excellent condition and relatively new at the time of sale. It also was 100 % leased, located in a thriving, affluent area and conveniently located across from Penn Medicine Princeton Medical Center. However, the 14 tenants leasing the property had an average lease term of only four years remaining. The possibility that some of those tenants would not renew their leases initially resulted in a projected cap rate of about 6.75 %. That exceeded the national average for MOBs at the time and signified a greater level of risk, which could have negatively affected the price investors would be willing to pay for the property. Plus, the property had to be marketed as an “off-market” opportunity because the client wanted to keep the sale private.
Ms. Kretowicz used a proprietary industry contact list developed over many years to target national healthcare REITs and private investors, including New York City investors looking to benefit from New Jersey’s lower cap rates. The campaign resulted in a bidding war between two national healthcare REITs and a New York City 1031 investor that was looking for a retail property, specifically a Red Lobster restaurant. Ms. Kretowicz spent a great deal of time educating the New York City buyer about triple net leases and the attractiveness of the medical office sector. She also reviewed the property’s many benefits, including the net operating income and the fact that the land was owned by Princeton University.
Her efforts paid off and the would-be retail investor eventually prevailed. The property sold quickly in 45 days with a strong 6 % cap rate and a sale price of $363 per square foot, which was the highest price paid for medical property in New Jersey up until that time. Ms. Kretowicz notes, “And the New York City buyer also still ended up buying a Red Lobster.”
What’s the Colliers Difference?
In addition to her many years of focused healthcare real estate experience, strong client and investor relationships, and now access to the Colliers Healthcare Provider Data & Analytics Platform, Ms. Kretowicz also attributes her success in selling her clients’ medical properties to a number of additional factors. One such factor is Colliers’ professional marketing materials. Brochures for each property are comprehensive and include a property description; positive messages on all aspects of the property; detailed market, location, tenant and financial analyses; lease abstracts; local and regional maps; interior and exterior images; and sometimes descriptions of nearby comparable medical properties.
Mr. Angeline of Beacon Medical Realty Advisors who, as noted above has worked with Ms. Kretowicz for many years, says he always contacts her first before any other firm because of her honesty and knowledge. “Kim really knows the marketplace and she and Colliers study the marketplace thoroughly and give us data and market information that other brokers don’t have,” he says. “She also has great contacts in the market, including with investors that are moving their money from retail and other sectors to the safer healthcare environment.” He adds, “She’s also honest with us and we’re honest with her. She’ll tell us when she knows something won’t sell and why. Not many brokers would do that.”
Ms. Kretowicz says that her team’s efforts have also succeeded because of Colliers’ platform and research department. “The Colliers research department does a great job of demonstrating the need for medical properties in a given market. In addition, Colliers works with its healthcare platform around the world, which lends credibility, especially with national REITs.” Mr. Angeline concludes, “Kim has realistic expectations and is open to making adjustments so sellers can meet their goals and obtain value, including a good income stream and security. That’s why we refer clients and acquaintances to her and we’ve done more deals with her than anyone else.”