The medical real estate market in the Cape Fear region is experiencing a healthy dose of activity.

Investors have been buying medical offices and facilities at a brisk pace this summer, while other companies have been planning or building new structures.

In July, Charlotte-based MedSouth Healthcare Properties added Coastal Carolina Eye Clinic, 1120 Medical Center Drive, to its portfolio of properties in the Wilmington area in a sale-leaseback transaction worth about $1.9 million. In July last year, the company bought seven medical office buildings – six in Wilmington and one in Leland – for $9.5 million from a group of local doctors.

“MedSouth specializes in structuring win/win solutions with practice groups, which unlocks the full amount of equity that is frozen within their real estate,” said Benjamin E. Bivens, co-founder and a principal of MedSouth, in an email. “Leasebacks and acquisitions in general are very attractive right now because of the low interest rate environment for investors, which allows more value to be realized on both sides of the table.”

He said among investors like MedSouth, the buzz lately has been that it’s not a matter of if interest rates will change but when.

“We know rates will go up eventually, and when they do, commercial real estate values tend to go down to balance the yield lost to higher rates – so now is a really good time to consider a sale-leaseback,” Bivens said.

The fact that this summer in particular has been busy in the area of acquisitions could be coincidental but could also have something to do with some lenders, though not all, reaching their cap on lending allocations by the middle of the third quarter to early in the fourth quarter of the year, he said.

“That makes investors move to get deals done prior to the lenders shutting off the spigot,” Bivens said.

In another example this summer, Tennessee-based Montecito Medical Real Estate purchased two OrthoWilmington buildings in Wilmington for a more than $25 million transaction and have a third property, an office in Shallotte that will be about 15,000 square feet when construction is finished, under contract. Mark Johnson and Janet Rose of Coldwell Banker Commercial SunCoast represented OrthoWilmington in the transaction with Montecito, as well as Coastal Carolina Eye Specialists in the transaction with MedSouth.

Montecito Medial Real Estate CEO Chip Conk said in general his company’s purchases can enable doctors to put capital back into their practices and hospitals. Montecito Medical specializes in acquiring medical office properties valued from $10 million to $150 million.

“There’s lots of ways that they can get a better return on their investment than the real estate. We align with them, we do long-term leases, and it’s worked really well for a lot of them,” Conk said. 

Bivens said another trend investors are seeing is that hospitals are purchasing practice groups at a fast clip, and they can run into regulatory issues if a practice group they just purchased also happens to own the real estate.

“Those issues involve the Stark Law,” Bivens said, referring to a federal law that governs physician self-referral for Medicare and Medicaid patients. “For simplicity’s sake, the Stark Law may not look favorably on a scenario where a doctor group owns their own real estate and are also landlords to the hospital they are employed by. MedSouth is able to alleviate that problem by offering to structure a lease with the hospital-owned practice and purchase the property thereafter.

“When MedSouth acquires the property a true third-party owner of record is created between landlord and tenant, which allows the hospital to avoid potential Stark Law violations.”

With successful transactions under their belts, outside investors like Montecito and MedSouth are continuing to eye local properties for further portfolio growth.

“Our outlook moving forward is very positive for the area. We’ve been looking at several deals now within the market and are committed to
the greater Wilmington market area and eastern Carolina in general,” Bivens said.

Conk of Montecito expressed a similar sentiment, saying his firm looks “forward to having a very steady investment and would like to acquire more in the area over the next several years. That’s typically what we do – we got to a market, and we’ll get to know the providers and get to know the market and hopefully there will be some follow-up acquisition.”
 

NEW DEVELOPMENT

In addition to investors scoping out properties in the Wilmington area, health care providers are expanding their offerings as the population continues to grow and as companies identify areas where residents want closer services.

Among the new medical facilities under construction in the Cape Fear region is a 26,000-square-foot medical complex that Dosher Memorial Hospital will occupy more than half of near St. James Plantation in Brunswick County, one of the fastest-growing counties in the state.

Of the $7.9 million cost, according to a Greater Wilmington Business Journal story in July, $6 million was financed through a partnership between St. James Plantation and Summit Healthcare Group, a private developer. Dosher has put nearly $2 million into upfitting the facility for the specific services it wants to offer there and will lease its space in the complex from the partnership,
Dosher officials said.

“It’s always been a model out there for organizations. It works best for us because we’re the only independent critical access hospital in North Carolina,” said Tom Siemers, president and CEO of Dosher. “That means we’re not part of a large system, so all the financing and everything resides only with our organization. And for us, this was a good methodology to make sure the project’s a reality.”

Siemers said the new facility not only responds to growth in the area but also allows Dosher to serve the west end of Oak Island. 

Features and services of the new center will include a family medicine practice staffed by board-certified family medicine physicians Kristos Vaughan and Leigh Vaughan, who are relocating from Dosher Medical-Long Beach Road, cardiac rehabilitation, which is relocating from the hospital and will nearly double in size, satellite physical therapy and occupational therapy services, X-ray services, an indoor walking track for cardiac rehab and physical therapy patients, a cardiology physician practice and an office for rotating physicians in other specialties. 
 

A GROWING MARKET

Two other projects under construction in the area include a Novant Health facility in Brunswick and a Wilmington Health project in the Pender County community of Hampstead. 

For Novant Health, a family medicine clinic is set to be the first building in an expected 50-acre health and wellness medical campus, part of the planned mixed-use development of Pine Forest Plantation at Midway Road and N.C. 211 in Brunswick. 

Austin Koon of Davis Moore Capital, a principal member of the group developing Pine Forest Plantation, said the Novant Health primary care facility should be operational by late 2017. A groundbreaking ceremony for clinic was held in June.

Developers envision the Novant building to represent the first of many medical service providers for the campus, which will be part of a more than 2,000-acre community that will include a mix of housing types along with a commercial component. 

The reception at a Southport hotel that followed the groundbreaking ceremony for Pine Forest Plantation had an unexpectedly large turnout, developers said. One of the development team members, Gene Vaughan, told the group that Pine Forest Plantation packages are being diligently planned and assembled alongside the timeline of construction that will define unique housing and care options for the future residents, including affordable entry fees, accessible housing options and an à la carte method of payment for in-home care services, according to a Pine Forest Plantation news release. 

“With health and wellness a focal point, the development will feature advanced options and quality care services to future residents from the design of the neighborhoods and housing, to specific needs-based healthcare options” in an effort to extend the independent living of its residents, the news release said.

One of Cape Fear Commercial’s newest build-to-suit projects is a 15,000-square-foot Wilmington Health facility, underway by McKinley Building Corp. at the intersection of Ravenswood Road and U.S. 17 in Hampstead. The medical office building, which is slated for completion by February, is being developed by GHK Cape Fear Development LLC, part of CFC, and Wilmington Health has signed a long-term lease.

The facility will offer multiple services to the community, a CFC news release said, including pediatrics, internal medicine, family medicine and OG/GYN.

Two existing Wilmington Health offices in Hampstead, the family medicine practice of Michelle Jones and the OB/GYN practice of Greg Woodfill, will be moving into the new building when it’s finished. Jones and Woodfill are longtime Hampstead residents, said Alysa Bostick, marketing director for Wilmington Health.

“The Hampstead community has been so welcoming to us, and we have enjoyed the practices that we’ve grown in that area and enjoyed severing the patients in that area, so we’re particularly excited to bring them a new state-of-the-art facility to grow our presence there and have more services available to them,” Bostick said recently.

Vin Wells, a partner in CFC and GHK Cape Fear Development, brokered the lease deal for an undisclosed amount between Wilmington Health and Oak Ridge Properties at Olde Point LLC, which owns the land and will own the new building.

“As the population continues to increase along the U.S. Highway 17 corridor, a new health care facility is a necessary addition to the growing community,” Wells said.

The Hampstead office is not the only recent office announcement for Wilmington Health. This fall, Wilmington Health at Monkey Junction is expected to move to 5211 South College Road in Wilmington, the former home of a Golden Corral restaurant, according to Wilmington Health’s website.

“The much larger facility will be home to Primary Care for all ages and includes Pediatrics, Family Medicine, and Internal Medicine, as well as a Convenient Care Clinic for after hours and walk-in acute care services,” the website states.

Business Journal correspondent Jenny Callison contributed to this report.