In the Know: What are some of Southwest Florida's biggest building deals of the first half of 2020?
Despite the emergence of COVID-19, deals came in all sizes in the first half of 2020.
Many of the contracts seem to illustrate where we're going as a community as we work our way through the challenges of the coronavirus crisis.
The medical industry played a role in a lot of the transactions.
"Health care just remains extremely strong," said LandQwest's Adam Palmer, recent president of Florida's Certified Commercial Investment Member chapter. "There’s incredible amount of demand, particularly from out of area institutional investors, that are just dumping an incredible amount of capital.
He gets agreement on health care's impact on the region from Justin Thibaut, president of LSI Companies real estate brokers.
"Our office market is seeing occupancy hold steady," Thibaut said. "We've started to see a resurgence of new office space in our market, especially medical office."
A pair of developments Thibaut named started coming together prior to this year including the massive Arthrex expansion costing more than $100 million at Immokalee Road and U.S. 41 in Collier County; and the $50 million Neogenomics headquarters that you've probably spotted under construction along I-75, about a half-mile north of Alico Road in Lee County.
And for the first half of this year, the biggest commercial building pacts in each Collier and Lee also centered on the health care industry, Palmer said.
"No. 1 sale was Millennium Physician Group, about $11 million, down in Naples. Just under 38,000 square feet of operational medical space," Palmer said.
The $11.1 purchase of 833 4th Ave N., just off U.S. 41 and a half-block from NCH Baker Hospital, took place Feb. 17, he said.
Millennium, only in existence for a dozen years, also had one of the largest lease arrangements in Southwest Florida of 2020, with an additional 10,000 square feet at 2675 Winkler Ave. in Fort Myers, he said. Its footprint continues to grow in the region.
"They already had close to 18,000 square feet of existing administrative space in there, so their back center needs have consistently grown,” Palmer said.
Lee County's biggest
Palmer said Lee County's biggest commercial structure buy occurred June 29 in Fort Myers, a $7 million pop on the 0.93 acres at 2565 Cleveland Ave., another MOB hit, the industry lingo for Medical Office Building.
“Healthcare properties continue to attract strong investor interest, and we anticipate them to be well-positioned to perform in a post-COVID environment,” said JLL Capital Markets' John Krzyminski, who helped orchestrate the sale.
Since its 2012 construction, the current 8,991-square-foot building there has served as the home of the Center for Specialized Surgery, which has been on a 10-year May 2018 lease, with five, five-year-options, LoopNet listing records show.
For those trying to visualize the spot, it's directly across Cleveland from Lions Park, which back in the day had the tallest slide in the region and probably the most dangerous, too, and shares an intersection with the perfectly situated Lee Memorial to treat kids who fell from that thing. And directly to the center's south is where the legendary Biff-Burger would slather on the barbecue sauce for more than two decades through 1980, and today is Tropical Hardware.
The "surgery center – this is an interesting one," Palmer said. "It closed for close to $800 a square foot.”
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Just two years ago, it had sold for $6 million or what had been considered an astounding $667 a square foot for Florida, according to Mark Alexander, who has specialized in brokering medical properties for 30 years and has been involved in deals in that area.
His records show a $345,000 purchase for what was then a vacant structure in 2005. Zillow has later sales of $400,000 in April 2010 and $625,000 in December 2010. The tax assessment value has doubled to $2.1 million the past five years.
Big spender from out of town
The new owner is one of the out of towners Palmer said had been on a buying spree.
“IRA Capital spent over $270 million (in) 75 days with all similar kinds of assets,” said Palmer, who gave a virtual presentation at the recent Midyear Market Update for the Florida CCIM Chapter Southwest District.
In that short period, the Southern California-based private equity firm made 14 healthcare acquisitions from coast to coast, IRA Capital partner Amer Kasm said.
The Fort Myers investment made sense because of several factors involving Lee Health including location and that the nearby hospital serves as the only Level ll trauma center between Miami and Sarasota, Kasm said.
The center, with three operating rooms, is run by Regent Surgical Health in partnership with eight doctors from Orthopedic Specialists of Southwest Florida, whose offices are located adjacent to the building, according to Sophia Doan of IRA's corporate communications.
Lee Health acquired a majority interest in the surgery center partnership in 2019, solidifying IRA's confidence in its expenditure, Kasm said.
The thinking going into this process is reflected in another of Southwest Florida's biggest, the $5.88 million purchase of the Fort Myers Alico Center at 10070 Daniels Interstate Court, at I-75 and Daniels Road.
"What I find interesting about this property is that money went hard right in the thickness of the close down, the shutdown. And so with the pandemic and all the businesses stopped, you had a buyer (that) decided to let their money go hard and proceed with this transaction. What I found interesting about that was really some of the logical approach that went into it," Palmer said. "This was still one of the nicer buildings in Fort Myers, (with) 100% occupancy. (But) one of the things that I think really drove the transaction was the due diligence that went into the tenant leases. If you started looking at some of the tenants, like life insurance and agriculture and technology, there was a sense that those industries were somewhat insulated from what was going on in the pandemic."
As we moved into the second half of 2020, medical continues in the thick of it in Naples.
Stevens Construction is completing a 21,400-square-foot new MOB for Dr. Jonathan Frantz of Frantz EyeCare at 2500 Goodlette-Frank Road and starting on a second project, company president Mark Stevens said this past week.
"We are currently under construction on the second floor for his first Naples surgery center, Suncoast Surgery Center," Stevens said. "The AHCA-licensed facility will be complete in fall." (For the uninitiated like me, AHCA stands for the Florida Agency for Health Care Administration.)
Venture No. 2 for Stevens: Adding a 27,773-square-foot three-story addition to Korunda Pain Management, 4513 Executive Drive. Yeah, that address doesn't mean a dang thing to me either. It's less than a mile east of I-75, off Immokalee Road and Valewood Drive, where the beauteous blue bird logo adorns the stylish Quail Creek sign.
And it looks like another MOB is coming to 3480 Pine Ridge Road, LandQwest's Courtney Saksefski said last week.
HEL-MAR Corp., owners of the Kraft Center and neighboring land, expanded its real estate holdings with the $950,000 acquisition of the adjacent 1.66-acre outparcel.
"The common ownership of all three Kraft Center properties intend to build a speculative medical building for tenancy," Palmer said.
What are the hot trends?
► “One of the things that I am seeing as a popular new trend that I think some people should keep an eye on is kind of more of a communal approach. I’m seeing several employers that are out there looking for new space not wanting to do space planning (for exclusively) assigned offices. But that they’re going to have some communal offices so that when people are working from home they do have some offices to come into when they need to have a meeting, hold a conference, etc.," Palmer said. "As an example, if somebody used to have 10 private offices, now the majority of those people are going to work from home, maybe they’re looking at a space that now has six or seven private offices that aren’t assigned to anybody.”
► While some are scaling back, others are going in a different direction because of social distancing.
"If you have 50 team members that are in 3 by 2 cubicles, you have to triple your space in order to get those cubicles separated by 6 feet apart. For the longest time, the average square foot per employee metric has been drastically dropping," Palmer said. Now "that’s increasing rapidly. If the pandemic has resulted in any certainty for change I would say that it may be the death of that small cubicle. I think you can expect that much differently in the space plans for the future.”
► Thibaut, who gave a digital program with his dad at their company's annual Market Trends last week, agrees "the office sector is (in the) reacting" phase.
"How quickly trends have changed. We expected more and more shared work spaces to become a staple in the office environment," Thibaut said. "The typical office concept that we're all used to was a variety of touch points and clustering which many are now wary of. We started to see introduction of new adapting ideas like foot-operated elevators. The problem is the strain on operational costs of not only implementing measures like this but also disinfecting and increasing cleaning measures. Is office going away? I think not. But it's certainly shifting."
Based at the Naples Daily News, Columnist Phil Fernandez (firstname.lastname@example.org) writes In the Know as part of the USA TODAY NETWORK. Support Democracy and subscribe to a newspaper.