Investor interest keeps Cornerstone busy in medical office building market

In the world of commercial real estate, medical office buildings might rank low for glitz and curb appeal. They don’t exactly grab you the way a downtown skyscraper or a four-star hotel would.

But investors seem to like medical office buildings just fine, attracted by stable, long-term medical tenants with lots of cash flow and decent returns.

And Cornerstone Cos. Inc. of Indianapolis is on a tear to scoop up as many medical office buildings as it can. The property company, which specializes in health care real estate, is buying another 87,000 square feet of clinics and surgery centers in Indiana, Kentucky, Tennessee and Ohio, worth about $24 million.

Cornerstone said this month it acquired the properties through its Medical Office Building Fund IV, a private-equity fund focused solely on medical real estate. Over the past three years, Cornerstone has established four such funds that invest in medical office buildings.

The latest batch of acquisitions comes just three months after Cornerstone bought 300,000 square feet of commercial office space on the northeast side of Indianapolis—including the headquarters of Community Health Network at Shadeland Station Office Park. And in July, Cornerstone developed and built a new medical office building in Carmel for Goodman Campbell Brain and Spine, an independent neurosurgery practice.

Overall, Cornerstone has invested more than $84 million to acquire health care properties in recent years, making it one of the most aggressive buyers in the sector.

“Health care real estate investments continue to be a bright spot among all investment classes,” the company said.

Central Indiana has at least 265 medical office buildings, with a total of 9.5 million square feet of space, according to a report in 2016 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, based at 8902 N. Meridian St., has developed more than 100 medical facilities, and manages nearly 5 million square feet of medical office space.

Its newest assets include:

  • Nova Med Surgery Center in New Albany, a 22,796-square-foot ambulatory surgery center and ophthalmology clinic;
  • Trinity Health Endoscopy Center in Steubenville, Ohio, an 8,605-square-foot-clinic operated by Trinity West Hospital;
  • Owensburg Dermatology Associates Clinic in Owensburg, Kentucky, a 17,641-square-foot clinic operated by a large dermatology practice based near Louisville;
  • Heart and Vascular Center of West Tennessee Clinics in Jackson, Tennessee, two clinics totaling 28,598 square feet, both leased to a large cardiovascular practice;
  • A new ophthalmic ambulatory surgery center in Elizabethtown, Kentucky, 9,650 square feet, to be complete in 2020, and already fully leased to EyeCare Partners Kentucky.

Cornerstone said its Medical Office Building Funds II and III “are poised to deliver returns of 8.3% and 9.6% this year. Its Medical Office Building Fund 1 was sold last year and delivered a three-year return of nearly 17% to investors.

And Cornerstone isn’t slowing down. It says it plans to launch a fifth fund before the end of the year.

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