Akron’s medical real estate garners national attention from buyers, brokers

The Akron area’s strong health care industry is attracting some national attention, and more appears to be on the way, as national investors target medical real estate in and around the city.

Fairfield Asset Advisors, a Denver-based real estate advisory firm that works with the owners of medical facilities and buyer/investors across the U.S., says it has found fertile ground for its work in town and has completed a string of sales it brokered around Akron.

“Akron, Ohio, as you’ve seen, has certainly been good for us,” said Ben Whitney, senior analyst for Fairfield and its point person for its work in the area. “We closed a $13 million deal for ophthalmics and an $8 million deal for orthopedics.”

Over the summer, Fairfield sold four ophthalmology centers with a total of 32,700 square feet of space — at 4099 Embassy Parkway in Fairlawn, 4277 Allen Road in Stow, 4441 Hudson Drive in Stow and 2013 state Route 59 in Kent.

Whitney said his firm doesn’t disclose the names of the buyers and sellers it works with. But the addresses of the properties sold show three of the locations house Northeast Ohio Eye Surgeons and the fourth, on Hudson Drive, is listed as the site of Saint Clare Eye Surgery and Laser Center.

Then, in September, Fairfield sold two orthopedics facilities with a total of 26,500 square feet of space for a combined price of $8 million, Whitney said. Those comprised a 22,000-square-foot facility at 2007 state Route 59 in Kent, listed as the address for the Crystal Clinic Orthopaedic Center; and at 72 Fifth St. SE in Barberton, also a Crystal Clinic location.

None of the sellers responded to inquiries about the sales, but the medical practices in the locations won’t be affected; they’ll simply become tenants of a new landlord, Whitney said. The quality of the tenants and their leases are what make the properties valuable in the first place, and the leases are the chief assets attracting investors, he noted.

The buyers of the properties were both out of state, with Flagler Investments of Florida listed in Summit County records as the buyer of the ophthalmology sites, and Kansas-based Crown MedRealty Partners purchasing the orthopedic sites.

Flagler representatives could not be reached, but Crown MedRealty managing partner Brian Beggs said his firm was attracted to the properties housing the Crystal Clinic operations because he sees them as a strong tenant within an attractive specialty practice.

“For us, it’s kind of a combination of a couple of things. Either it’s a long-term lease with a health system, the Cleveland Clinic or someone like that, or it’s a long-term lease with a leading specialty clinic — and the Crystal Clinic is known for being that,” Beggs said.

Crown MedRealty did its first deal in Ohio about five years ago, when it purchased Mercy Hospital in Massillon, which is now owned by the Cleveland Clinic and is a Crown MedRealty tenant, Beggs said.

Beggs says he’d like to buy more medical real estate in the Akron area, in part because it’s more efficient to manage multiple properties in or around a single location.

“We sure are,” Beggs said, when asked if he was looking for more medical property here. “We do look nationally, but our playbook is, once we acquire in an area, we continue to look for more assets in that area, because it lets us operate more properties efficiently. … I think we’ll be more active there.”

Crown MedRealty owns about 1.5 million square feet of medical real estate in 43 states, representing investments totaling $650 million, according to Beggs. “We own 12 deals in Ohio now, so it’s getting up there among our bigger states,” he said.

But there is increasing demand for medical real estate generally, in Akron, across Ohio and across the country, Beggs and others said — with many other investors favoring it for the same reasons as his firm.

Medical real estate tenants are “sticky,” Beggs said. They have established patient bases close to their offices, they’re often located in purpose-built facilities, and they don’t like to move.

Medical tenants’ customers almost always pay their bills, too — often through governmental entities or insurance companies, Beggs said. Add to that the fact that medical services are in demand no matter what the rest of the economy is doing, and you have the recipe for a reliable base of tenants, he added.

“People get sick everywhere, people break bones everywhere, and people have babies everywhere,” Beggs said.

That said, both Beggs and Whitney said Akron punches above its weight, with a particularly strong health care industry — and both said they intend to do more deals in the Akron area.

But buyers are facing increasing competition for medical real estate, which has become highly favored among investors for some of the very reasons Beggs suggests, says Peter Volas, senior director of real estate for the Cleveland Clinic.

“You have investors seeking investment opportunities, and health care has always been that one industry that is kind of safe, from an economic standpoint,” Volas said.

But as prices rise, the returns available to those investors are being squeezed, he said, noting that he’s now seeing “unheard-of” low capitalization rates of below 4% in markets such as New York City and San Francisco.

At the same time, health care continues to become a larger and larger portion of the nation’s gross domestic product, while hospitals and practice groups continue to consolidate and be rolled up into larger groups, which can lead to more real estate sales.

“When they buy the business (medical practice), they have to deal with the real estate,” Volas said, and some investors choose to sell it.

Some practice groups, and to a lesser extent hospitals, see their real estate as something that can be monetized via sale/lease-back arrangements, Volas and Whitney both said.

“You have all this momentum, and then you get people competing for properties,” Volas said. “They’re getting very aggressive with purchase prices.”

While the Clinic has no plans to sell any of its current facilities and prefers to own its real estate, Volas said the trend of others selling their real estate and investors seeking to buy it is likely to continue.

“I don’t think it’s going to slow down,” Volas said. “And I don’t think markets matter — whether it’s Akron/Canton, Cleveland or Indianapolis.”

Whitney said he knows plenty of eager buyers around the country, in addition to Crown MedRealty, who will be interested in more health care real estate around Akron or Northeast Ohio generally, if he can find properties to sell to them.

“Akron is in our top 100 MSAs now,” Whitney said. “So it’s certainly someplace where we’re looking to do more. … It’s a hot market.”