 | |
| Medical Center District |
Area Analysis
South downtown Houston is
populated by the St. Joseph Medical Campus and various residential
properties. Downtown Houston as a whole
is at the heart of the business community with a workforce of over 140,00
people and 11 of Houston’s 26 Fortune 500 companies. The Texas Medical Center is located in the
center of Downtown which boasts the largest medical center in the world, with
one of the highest densities of clinical facilities for patient care, basic
science, and translation research.
Hospitals included within a three mile radius of the property include
Memorial Herman, Texas Heart Institute, Texas Children’s Hospital, M.D.
Anderson Cancer center, the Woman’s Hospital of Texas.
Property Characteristics
Price
|
$5,328,000
|
Price per Sq. Ft.
|
$191.93
|
Net Operating Income
|
$351,164
|
Size
|
27,760 Sq. Ft.
|
Occupancy
|
100%
|
Acres
|
1.81 Acres
|
Parking
|
78 surface spaces
|
Year Built
|
1994
|
Market
|
South Main/Medical Center
|
Area Climate
 |
| Precipitation and temperature levels |
Current tenants
The property has been
leased to MD Anderson Cancer Center and is being used as a medical laboratory
facility. They have occupied the
building since 1994, and recently extended their lease through 2017. The reason the Cancer Center has been such a
long term tenants is because biotech companies often are required to invest
high amounts of capital into technology that is expensive to move
locations. Also the average rent rates
for class B medical office property is $21.90 in Houston, while we are only
charging roughly $18.24 for a prime location facility. The fact that the current tenants have
invested capital into the property, and our very competitive rental rates, it
is very unlikely that they will not sign a long term lease extension following
the end of the 2017 lease.  | |
| Property location relative to Houston's major hospitals |
Property Location
The property is located in
Houston, TX and is strategically placed within three miles of the Texas Medical
Center, which is the largest medical district in the world. The growth of the biomedical sector coupled
with the properties close proximity to the Medical Center provides companies
with a great opportunity to be within the hotbed of new biomedical
research. Conveniently located within
300 yards of a major interstate on the Southside of downtown Houston, it allows
for easy access and exceptional visibility. Close proximity to Reliant stadium
and convention center, the astrodome, and the Metro Rail System allows for an easily
identifiable location and an alternate, eco-friendly mode of
transportation.
Demographics
Demographics
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| Population Density of Houston |
 |
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| Quality of life statistics - Click to enlarge |
Economics
Overview
 | |
| Downtown Houston |
The economy of Houston is primarily
based on the energy sector, but other areas of business are emerging as
contributing portions of its economy.
The greater Houston area’s Gross Metropolitan Product has risen 5.4% in
the past year alone, making it one of the fastest growing economies since the
recession. Houston is a major corporate
center; in 2006 Forbes magazine was quoted as saying Houston is within the
category of “Best Places for Business and Careers”, additionally only New
York City has more Fortune 500
headquarters within its city limits. With
the energy sector being such a dominant portion of Houston business, it has
allowed the city to experience steady growth even in times when the overall
economy has struggled.
Houston’s Emerging Medical Market
Houston’s medical office market
is expected to benefit from both sort- and long-term regional growth
trends. Medical office occupancy
increased to 86.9%, 140 basis points about the previous quarter, marking the
sixth consecutive quarter of absorption gains.
Rental rates on Class B medical properties currently average $29.18,
which is a 1.3% increase from the previous year. Overall, Houston’s medical office market and
economy remain among the strongest in the U.S., with projections to end the
year with positive job growth.
LARGEST HOUSTON AREA BIOTECH FIRMS*
| |
ADViSYS, Inc.
|
National Space Biomedical Research Institute (NSBRI)
|
Agennix, Inc.
|
Opexa Therapeutics
|
Amphioxus Cell Technologies, Inc.
|
Ophidia Products, Inc.
|
Center for Cell and Gene Therapy
|
Perkin Elmer Corp.
|
Chrysalis BioTechnology, Inc.
|
Power3 Medical Products, Inc.
|
Encap, Inc. & Institute For Research
|
Repros Therapeutics Inc.
|
Institute of Biosciences and Technology
|
Synergos, Inc.
|
Laboratory Corporation of America
|
Synthegen, LLC
|
Lexicon Pharmaceuticals
|
Texas Institute for Genomic Medicine
|
Nanospectra Biosciences, Inc.
|
Vestas Technology R & D Americas, Inc.
|
* Selected by employee count but listed alphabetically
Source: Greater Houston Partnership Database, 2010
| |
Target Market
 |
| Above: Texas Medical Center - Downtown |
The biomedical science and
engineering sector has been the fastest growing among all of Houston’s areas of
business the past two years, and its long term forecast are promising. With the property being located within three
miles of the Texas Medical Center it provides a great location for biomedical
companies to lease. M.D. Anderson has been
a long term tenant of the property and occupies 100% of the building, which
make the investment significantly less risky.
Even if they were to not renew a lease at the end of 2017 the growth of
the market, current building layout, and ideal location of the property will
all ensure that a vacancy will not last long.
Comparable Properties
Houston averages
Seven total sales of medical
related buildings were recorded in the first half of 2011 they averaged $200
per square foot with a 9% capitalization rate. We
are paying just under $192 per square foot for the property with a 7.30% cap
rate, which shows that we are paying a price less than the average sales price,
for a property in prime location within the largest medical districts in the
world. Additionally, the cap rate is much
lower suggesting a less risky, high quality asset.
Medical Research Center
The first comparable is a surgical
research center for sale located just outside of downtown in southwest
Houston. This property shows what a
building in the same industry would sell for, as you can see our target
property offers a better price per square foot and provides a better location
for our target market.
Comparable Property Target Property
Price
|
$9,000,000
|
Price
|
$5,328,000
|
Building Class
|
B
|
Building Class
|
B
|
Price per Sq. Ft.
|
$247.31
|
Price per Sq. Ft.
|
$191.93
|
Size
|
36,391 SF
|
Size
|
27,760 Sq. Ft.
|
Occupancy
|
100%
|
Occupancy
|
100%
|
Acres
|
2.60 Acres
|
Acres
|
1.81 Acres
|
Year Built
|
1994
|
Year Built
|
1994
|
Medical office building
The next comparable is an
existing medical office building with 90% of its space leased and is currently
owned and operated by doctors who want to sell the building but continue to
operate their practice, which is a very similar investment opportunity. As you can see the fact that our property is
located in a prime location for our target market and its single long term
tenancy requires a higher selling price.
However, our property’s much lower cap rate speaks for the low risk of
the investment.
Price
|
$2,500,000
|
Price
|
$5,328,000
|
Price per Sq. Ft.
|
$92.63
|
Price per Sq. Ft.
|
$191.93
|
Building Class
|
B
|
Building Class
|
B
|
Cap Rate
|
9.50%
|
Cap Rate
|
7.30%
|
Size
|
26,998 Sq. Ft.
|
Size
|
27,760 Sq. Ft.
|
Occupancy
|
97%
|
Occupancy
|
100%
|
Acres
|
1.46 Acres
|
Acres
|
1.81 Acres
|
Year Built
|
1998
|
Year Built
|
1994
|
Single Tenant Office/lab space
The final comparable is very
similar property in southwest Houston, it is configured for a single tenant and
was built just one year before the target property, and is fronted by a major
Houston Highway (Sam Houston Tollway).
Again, you can see that we are paying over $67 more per square foot due
to the fact that occupancy of the target property is at 100% with a long term
ternate, which ensures a steady reliable cash flow.
Comparable Property Target Property
Price
|
$3,100,000
|
Price
|
$5,328,000
|
Price per Sq. Ft.
|
$123.02
|
Price per Sq. Ft.
|
$191.93
|
Size
|
25,200 Sq. Ft.
|
Size
|
27,760 Sq. Ft.
|
Occupancy
|
Vacant/owner-use
|
Occupancy
|
100%
|
Acres
|
2.63 Acres
|
Acres
|
1.81 Acres
|
Year Built
|
1993
|
Year Built
|
1994
|
Medical Property Supply and Demand
 |
During 2011 only 190,179 SF of
new medical space was added and an additional 195,476 SF is currently under
construction at the year end mark these low figures will relieve the pressure
in filling the existing vacant lease space.
This relatively small amount of new development activity has helped
prevent major upheavals in current occupancy levels. Many reports show that the biomedical sector
of Houston’s economy is growing at an increasing rate, so demand for space is
increasing much faster than new space required to hold these business, these
reasons make an investment in a medical related space a very attractive
investment opportunity.
Competition
As stated in the supply and
demand analysis new construction for medical related facilities is limited,
especially relative to the overgrowth of the sector of business. On average occupancy rates have increased
over the past two years and currently sit at 85.5% for Houston Medical related
properties. With the low amount of new office development the only area of
concern would be existing properties that are available for lease or sale. There is currently quite a bit of office
space for lease, and the rates are as follows.
Property
|
Sq.
Ft. Available
|
Lease
Price Per Sq. Ft.
|
Building
Class
|
Target Property
|
27,760
|
$18.24
|
B
|
1550 LaConcha
|
24,216
|
$16.00
|
C
|
Fannin South
|
70,345 in 7 spaces
|
$21.00
|
B
|
Greenpark II
|
1,872 – 2,835
|
$28.00
|
A
|
As you can tell that although
there is supply available in the area, the current owners have offered a very
competitive lease rate for the location and quality of the building. Although there is ample supply of lease space
in the area the competition for buying office space is limited, there are only
two properties for sale in the medical district, which limits market entrance
of other competitors. Although the
overall competition for leasing space is high, the fact that the Texas Medical
Center is the largest in the world coupled with the fast growing biomedical
sector of Houston’s economy ensures that demand for office space will continue
to increase.
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