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In Q1 2019, Altera purchased two medical office buildings on the campus of HCA Houston Healthcare Northwest from a private investor at very substantial discounts to replacement cost. The buildings are unique in that they are on campus but also fee simple with no use or deed restrictions. HCA purchased Northwest Medical Center Hospital in August 2017 and subsequently invested over $40 million of new capital into the ~450 bed hospital.
The buildings were under 30% leased at the time of purchase and in dire need of capital improvements to the building system, roof, foundations, and elevators. Subsequent to acquisition, Altera has completed substantial capital improvements and is actively executing its aggressive lease up plan as part of the projected 5-year hold for this investment.
Altera acquired this on-campus medical office building in a short sale transaction from Capital One NA in Q4 2018 at a very substantial discount to replacement cost. Capital One approached us based on our deep historical relationship. The prior owner had completed substantially all required capital improvements. The asset was the last asset remaining in a dysfunctional partnership, where the partners were unwilling to fund tenant improvement and leasing commissions.
Altera is currently executing its aggressive leasing and asset management strategy. Since acquisition, Altera has increased the occupancy from 58% to almost 70% and more than doubled projected net operating income.
In Q4 2019, Altera acquired the sheriff’s deed from Bank of China (BOC) related to a 75,000 SF medical office building located 2 blocks from the St. Barnabas Medical Center in West Orange. This acquisition was related to a foreclosure action by the BOC that was under appeal, resulting in an acquisition price substantially below replacement cost in an infill location.
Altera intends to take the building largely back to shell condition, replace all mechanical and electrical systems, and replace the skin of the building and windows. The net result will be a Class A medical office building offering the only block of space in excess of 25,000 SF in an infill market that has historically seen large medical users, including St. Barnabas, lease large blocks of space in close proximity to the hospital.
In Q3 2018, Altera acquired the American Red Cross (ARC) Dallas headquarters building and approximately 8.8 acres from ARC in the heart of the largest and oldest medical district near Dallas’ central business district. ARC wanted to maintain its blood storage operation on the site as a planned reduction of the existing structure on a long-term leaseback provision.
Altera envisioned a redevelopment of the site to accommodate alternative uses that would serve this 24/7 medical district. Altera has sold portions of the redeveloped site to a hotel developer for a H2M Suites, 7-11, and Panera.
In Q2 2020, Altera acquired this medical office building located in the Memorial neighborhood of Houston. The building requires some deferred maintenance, but more importantly, the marketing will be repositioned. Tenancy includes Houston’s top plastic surgery practice’s surgery center and other top-notch physicians who serve this prestigious neighborhood.
The building is located next to City Centre in a high density Houston overlay district. Altera has the ability to construct a second phase/building of approximately 55,000 SF if desired; underwriting excludes the second phase from consideration.
