Wednesday, May 20, 2015

Center City Medical Office Sells for $161M

by Steve Lubetkin,

833 Chestnut Street sold for $160.75 million. It's a 12-story, 705,061 square foot medical office building across from Thomas Jefferson University Hospital in Center City Philadelphia.

The seller was Digital Realty Trust.  HCP, a publicly traded healthcare REIT, purchased the asset.

Originally built in 1928 as an addition to the original Gimbel Brothers retail department store complex, 833 Chestnut was substantially renovated and is currently 92 percent leased.  The property’s major tenants include Thomas Jefferson Hospital, JUP, Thomas Jefferson University, Nemours Children’s Clinic, the US Government and Ballinger Company.  The total GLA includes approximately 60 percent clinical use, which continues to grow year-over-year.

In addition to Thomson, the HFF investment sales team representing the seller was comprised locally of senior managing directors Andrew Scandalios and José Cruz, and nationally by managing directors Michael Bennett and Philip Mahler who are team leaders of the medical office building group within HFF’s national healthcare practice.

“833 Chestnut is an excellent example of the synergies that exist between HFF offices.  Our local team realized it was more than just a general office deal; we enlisted the help of our healthcare group, put the best team on the field, collaborated keeping the client’s best interests in mind, and ultimately secured significant proceeds over and above for what a general office might have traded,” says Scandalios.

“We marketed this asset to all of the typical office buyers in the northeast but the demand for medical office simply priced those groups out of the market,” says Thomson.

“We had significant interest from all the ‘usual suspects’ in the medical office building space, as well as private equity, pension fund advisors, and even some foreign capital.  The size of the property can really move the needle for some of these groups.  Pricing was aggressive, and this transaction is a testament to how accretive the current MOB market is for sellers,” says Bennett.

“TJUH and its affiliates has significantly increased its presence in 833 Chestnut over the last seven years and now is the anchor tenant in the building, leasing over 50 percent of the net rentable area,” says Mahler. “This significant hospital-related tenancy created an opportunity for a medical office investor to develop a strategic relationship with TJUH which tremendously increased competition for this asset.”

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