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CapRocq Medical Office Buildings

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Tom Rystrom

on 26 June 2014

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Transcript of CapRocq Medical Office Buildings

Fort Worth, Texas
CapRocq | Medical Office Fund
Spending on Healthcare in America is projected to be
20% of GDP by 2021
Primary Care Physicians 208,800 Baseline Adjusted
Approximately 65 Million Elderly
Demand for Primary Care Physicians is expected rise dramatically
Aging Population
Population Growth
Affordable Care Act (ACA)
Health Information Technology for Economic and Clinical Health Act (HITECH)
Health Insurance Portability and Accountability Act (HIPAA)
Physician Quality Reporting Initiative (PQRI)
Patient Protection and Affordable Care Act (PPACA)
Primary Care Incentive Payment Program (PCIP)
The US Population is Projected to be
349,000,000
by 2025
That's
40,000,000
more people
over the 15 years 2010-2025
The Affordable Care Act (ACA) will expand Health Insurance coverage to 34-35 Million people in the United States
Source: Centers for Medicare & Medicaid Services , 2010
What does that mean for real estate?
Significant Government Involvement
Under PQRI and ACA
$27 Billion will be directed toward
the adoption of EMR technology
Professionals able to meet specific federal requirements for EMR are eligible to receive up to
$44,000
through the Medicare Electronic Health Records Incentive Program.
Shawn Janus
, head of the national healthcare practice for Chicago-based
Jones Lang LaSalle
estimates that health systems can save up to $10 million by outsourcing, which can, in turn, improve their bond rating and access to capital from the bond markets.
“Much as PNG and Microsoft did in the corporate world, hospitals are realizing that they are not real estate people,”
says Janus. “That brings an efficiency to managing their real estate.”
With reimbursement expected to decline significantly and investments in IT and other care coordination tools a priority for many organizations, hospitals and health systems must look carefully at all potential capital sources.

Monetizing properties that the hospital does not need to own and obtaining third-party capital for new development projects represents strategic capital formation opportunities that many organizations can pursue.
DEMAND
The
delinquency rate
for commercial mortgage-backed securities was 9.2% for the general office market in 2012, according to Marcus & Millichap, but only
3.3% for medical offices
.
Marcus & Millichap
, senior analyst
Thomas Hershey
estimated that nearly
45 million more square feet of medical office space
will be needed if
50% of the 46 million uninsured individuals
attain coverage through the health care system.
Urban Land Institute report indicates that
64 million square feet
of additional medical office space would be required during the next decade.
With reimbursement expected to decline significantly and investments in IT and other care coordination tools a priority for many organizations, hospitals and health systems must look carefully at all potential capital sources.Monetizing properties that the hospital does not need to own and obtaining third-party capital for new development projects represents strategic capital formation opportunities that many organizations can pursue.
Higher-Acuity Care moving out of hospitals to MOBs
Ancillary Facilities such as this MRI
Marcus & Millichap estimated that medical office vacancy had dipped to 11% in 2012, the lowest rate since 2008.
Marcus & Millichap estimated that medical office vacancy had dipped to 11% in 2012, the lowest rate since 2008.
Source: Annals of Family Medicine Vol.10 No.6 | November/December 2012
Stark Act
Hospital Systems are monetizing their Real Estate
How does CapRocq Medical capitalize on this opportunity?
Duke Realty
, Indianapolis based a large investor and builder of medical office buildings, believes a
top trend
will be
Hospitals selling medical office buildings
to
fund other needs
, such as accountable care organizations,
electronic health records systems
, and mergers and acquisitions of other hospitals and physician practices. They also might sell to minimize risk of
compliance violations
, such as attracting attention for
Stark
and anti-kickback law violations if, for example, they're deemed to be
undercharging physicians for rent.

Duke also cites a
top trend
of
higher-acuity care moving
out of the hospital and into the office setting.
Medical Office Buildings are a historically stable investment
Franklin McLarty
Ted Dickey, CFO

Thomas Rystrom, CEO
SUMMARY

Case Study – Atrium

Hunt Portfolio

Center Point I & II
Columbia, South Carolina
SUMMARY

Summary

Case Study – Huntsville

Simmons Building
Little Rock, Arkansas
37,337 square foot office building

Dewitt Smith
Kevin Huchingson, COO
Source: Centers for Medicare & Medicaid Services , 2010
Stephen LaFrance
Management Team
Chair of the Fay W. Boozman College of Public Health’s Department of Health Policy and Management at the University of Arkansas for Medical Sciences (UAMS).

John "Mick" Tilford, Ph.D.
Advisory Position
Faber Centre
Charleston, South Carolina
Halifax Media is headquartered in Daytona Beach, Florida. The company’s investment group includes Stephens Capital Partners LLC, Jaars Media, and Redding Investments
Florida & North Carolina
151,955 Square Feet in 2 Office Buildings
95,625 Square Foot Office Building
We believe this market is underserved with economic growth potential despite the recession. Our target market is 100,000 to 2 million population MSAs, also described as 2nd & 3rd Tier Markets.
The Heartland
Summary of Terms
Target Capitalization
Up to $150 Million
CapRocq Medical Office Fund
Huntsville, Alabama
CapRocq Automotive and W.P. Carey (NYSE: WPC)
formed a strategic partnership to help auto dealers monetize their real estate, providing a reliable source of long term financing.
Investment Mandate
Primarily Healthcare space in the the Heartland
Target Distribution Rate
5 - 7%
Term
5 - 10 Year Holding Period
Projected IRR
8 - 12%
Leverage
Maximum 60% of Total Purchase Price of the Fund
Asset Management Fee
1.5%
Preferred Return
8%
Additionally, the report estimated that in order to accommodate those in the
55+ age group
, by the end of 2013, an additional
25 million square feet of space is needed.
162,405 Square Feet
Five Building Portfolio
Northwest Arkansas
CDFP Capital Management, LLC
IRR: 37.4%
The Atrium Building
Columbia, South Carolina
108,235 Square Foot Office Building
20 Year Sale/Leaseback
This fund has completed approximately $100,000,000 in initial investments.

The average IRR for properties sold is 17%.
A
medical office building located in Johnson, Arkansas
at 5501 Willow Creek Drive with a purchase price of $8.5 million. The building is 38,030 square feet on 2.89 acres.
Northwest Arkansas Hospital, LLC occupies 90% of the building
with approximately 8.5 years remaining
(12/31/2021)
on a NNN lease. The monthly rental obligation will escalate by 3% each year.





Willow Creek Medical Office Building
The market,
Fayetteville-Springdale-Rogers
, AR Metropolitan Statistical Area, was the
9th fastest growing MSA in the United States with its population increasing by 33.5%
in the 10 years between 2000-2010 (Source: US Census Bureau). The Census Bureau also projects the MSA
continues to be growing rapidly
(9th) since 2010.
Full transcript