The Memorial Hermann Katy Medical Complex consists of two buildings totaling 108,066-square-feet. One facility is anchored by a Memorial Hermann Surgery Center and Memorial Hermann Rehabilitation Hospital. Memorial Hermann (Moody’s: A1| S&P: A+), which has 12 hospitals and more than 20,000 employees throughout the Houston area, is the largest health system in the market, based on its 3,557 licensed beds. The smaller of the two buildings is anchored by Medical Colleagues of Texas, a local physician group. Ownership of the assets were composed of over 25 physicians practicing in the buildings, local real estate investors, and the developer/property manager.
Prior to 2007, none of the tenants in the buildings had an affiliation with Memorial Hermann. The ambulatory surgery center and rehabilitation hospital businesses were created by local physicians due to a need in the marketplace. After establishing themselves and growing the practice, Memorial Hermann acquired the operations and assumed the lease liability. This created a credit enhancement of the tenancy and significantly increased the value of the building.
Before our team took the asset to market, the Memorial Hermann Surgery Center only had one-and-a-half years of lease term remaining. Our team advised ownership on negotiating a brand new ten year lease with the partners operating the surgery center: Memorial Hermann, the dominant health system in the market, and United Surgical Partners International, an ambulatory surgery center operating partner. It is estimated that this negotiation increased the Seller’s net proceeds upon sale by three to four million dollars.
Once the lease extension was agreed upon, our team presented the opportunity to the most active, aggressive, and qualified real estate investors. By our call-for-offers date, we had received 14 letters of intent to purchase the portfolio. The competition this activity created among both private and institutional capital forced the pool of buyers to get aggressive with their pricing. From the first to final round of offers, the highest bid increased by over three million dollars. The winning bidder was a publicly traded Real Estate Investment Trust (REIT) that closed on an all-cash basis within 60 days from the dually accepted offer.
Seller Profile: General Partnership between Developer and Practicing Physicians – Houston, TX
Buyer Profile: Publicly Traded Healthcare Real Estate Investment Trust (REIT) – Milwaukee, WI