Hands-On Approach, Trust Help Colliers Sell Delaware Medical Building

by | 31 July 2020

Houston team used knowledge of physicians, legal and financial expertise and relationship-building ability to help physician group successfully sell premier Eden Hill Medical Center in Dover, DE.

It’s not easy selling a large healthcare property, even if it has everything going for it.

In addition to requiring knowledge and technical experience, it requires intangible human characteristics that you don’t often find, such as the ability to build trust and long-lasting relationships. Ask the lead Colliers healthcare team in Houston – Bob Parsley and Walker Ryan. They understand.

Mr. Parsley, Co-Chairman and Principal, and Mr. Ryan, Principal, both have many years of commercial real estate experience, 36 and 17 years respectively, including substantial experience spearheading the sale of medical office buildings (MOBs) of all sizes. Mr. Parsley has also served as an attorney, and Mr. Ryan’s background includes working as a financial analyst.

The team first heard about the potential sale of the first-class Eden Hill Medical Center in Dover, DE through a personal friendship.

“I had developed a close personal relationship with one of the physician owners/tenants of the building, Dr. Tom Barnett,” said Mr. Parsley. “When his physician group first called us in 2012, we met with them and discussed different approaches to the sale.”

The Class A, 140,205-square-foot Eden Hill Medical Center is ideally located less than a mile from Bayhealth Kent General Hospital, part of the leading healthcare system in the region. The MOB is 94% leased by a diverse mix of tenants, some of them affiliated with Bayhealth, as well as a successful ambulatory surgery center. In addition, its located on a 23-acre site that will provide future development opportunities.

Mr. Parsley noted that despite the positive aspects of the property, the 20+-member physician group –Eden Hill Medical Center LLC – decided to initially hold off on the sale.

“The medical building was a relatively new development on a large tract of land that hadn’t been developed as much as the physician group wanted,” explained Mr. Ryan. “Also, a number of the physician owners were brand new and the majority of them weren’t comfortable with a quick disposition. The building was well-occupied with good tenants and good patient traffic but many of the leases were expiring with not a lot of term left. They ultimately understood that it was a good decision to delay the sale.”

The physician group stayed in touch with the Colliers team and then contacted them again in early 2018 to ask for their help to plan and prepare for a possible sale.

“We dealt with several lease extension issues to create value before going to market,” explained Mr. Ryan. “We reviewed, renewed and repositioned many of the leases into 10-year leases, some with guarantees. Then we felt that the buyers would understand the value of the property and we could come up with a price that everyone agreed with. The building was running well, especially the surgery center. Most of the tenants agreed to renew, which convinced the other tenants decide to do so as well.”

By the end of 2018, the physician group made a firm commitment to sell the MOB and selected the Colliers team as well as two other competing firms to pitch their services.

“The physician partners liked our background and abilities,” said Mr. Parsley. “We also provided information about Colliers in general, including our reach in the market, which was a positive. Once they settled on Walker and me, it came down to the work we had already done for them and our hands-on approach.”

The Colliers team developed a comprehensive marketing package and had planned to widely market the property to potential buyers. However, two or three reputable parties inquired about the propertyand Colliers agreed to handle the transaction on an off-market basis.

After conducting extensive due diligence on the potential buyers, the team selected Capital Security Advisors, a Boston-based investment management and advisory firm focused on infrastructure and real estate.

“We liked their approach and that they understood the nuances of the deal,” said Mr. Parsley.

Capital Security agreed in principle with the seller to purchase the property but they needed a joint venture (JV) partner that had capital and healthcare real estate experience. They introduced the sellers and Colliers team to MedProperties Realty Advisors, a national healthcare real estate private equity firm headquartered in Dallas, TX. Colliers interviewed MedProperties principals and liked how they wanted to structure the transaction. The JV partners also selected another partner: Physicians Realty Trust, a Milwaukee, WI-based self-managed healthcare real estate investment trust.

The sales process included many challenges, according to Mr. Ryan.

He noted that the team also had to have the property plat refiled to reflect the large site acreage. This included breaking out the MOB with a separate tax identification and creating a Reciprocal Easement Agreement that will govern all of the parcels in the 23-acre master plan.

After months of negotiations and legal and tax work, the team closed on the property in October 2019.

Mr. Ryan noted, “The physician partners were extremely happy with the results and with achieving liquidity. They also were excited about the buyer and with how they’re dealing with them on a daily basis. Most importantly, they received a price that was significantly more than they initially expected.”

“Several things helped the sale succeed, including how we structured the deal which helped the buyer understand the value of the property,” said Mr. Parsley. “Also, it’s probably because I have two brothers who are doctors that I understand the doctor mentality. Doctors have their own profession, and most of them aren’t real estate experts so they need to rely on us.”

He continued, “On all fronts – with the lead physician/owner, the other owners and tenants – it was our hard work, focus and hands-on approach that helped the deal succeed. It was my relationship with Dr. Barnett that got the process started, but it was also a result of the trust that Dr. Barnett had in Walker. The results were all positive.”

“Selling is not as simple as putting something on the market,” he added. “It’s building a relationship with the seller and dealing with the concerns of the buyer. They all got comfortable that the information we provided was factual and accurate. We have a lot of good competitors out there. But in the deals we work with, the physician owners become our friends and clients for life.”