Medical real estate keeping developers, investors busy

Medical office buildings are getting plenty of attention in Indianapolis lately, and not just as destinations for patients, doctors and pharmaceutical sales reps.

The sector is in the middle of a huge real estate shuffle.

Last month, Indianapolis-based Duke Realty Corp. announced it was selling its medical office building business—6.6 million square feet of space spread across 71 buildings—to Arizona-based Healthcare Trust of America for $2.8 billion. The move will allow Duke to focus on its industrial properties and pay off more than $1 billion in debt.

Now, another Indianapolis-based developer, Cornerstone Cos. Inc., is beefing up its portfolio of medical office buildings.

The company recently acquired three health care properties totaling 82,000 square feet for $22.6 million, and said they will be the latest assets in its Medical Office Building Fund II. That fund now has $55 million worth of assets.

The company is about to start a third such fund for investors, also focused on medical office buildings.

Medical office buildings have traditionally been viewed as one of the most attractive sectors for real estate investors, due to their stable tenants and long leases.

Central Indiana has at least 265 medical office buildings, with a total of 9.5 million square feet of space, according to a report last year from Colliers International’s Healthcare Practice Group in Indianapolis.

In Indianapolis, demand for space is so strong that vacancy rates are falling, many buildings are fully leased and rents are climbing.

Cornerstone, headquartered at 8902 N. Meridian St., said its latest acquisition involves properties in Indiana, Colorado and Kentucky:

•    Indiana University Health Clinic in Mooresville, a 12,000-square-foot multispecialty clinic;

•    Medical Centre in Lone Tree, Colorado, a 15,000-square-foot ambulatory surgery center, imaging center and orthopedic clinic;

•    The Muhlenberg Medical Center in Powderly, Kentucky, a 56,000-square-foot multispecialty clinic providing urgent care, primary care, obstetrics and gynecology and other services.

All three properties are fully occupied by single tenants with leases that don't expire for an average of 13 years. They will be added to three new medical properties under development in Illinois and Texas to make up Cornerstone’s Medical Office Building Fund II.

The six properties are all in line with Cornerstone’s focus on smaller medical office buildings and ambulatory surgery centers in suburban and rural markets, the company said.

Cornerstone, established in 1985, specializes in health care real estate. It has developed more than 60 medical facilities and manages more than 4 million square feet of medical office space.