Amid Changes, Furloughs at Grubb, Healthcare REIT Picks up $112M Portfolio

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Amid the process of furloughing a small percentage of its workforce, Grubb & Ellis is still seeing one of its vehicles -- Grubb & Ellis Healthcare REIT II -- purchase an eight-property medical-office portfolio for $112 million.

December 1, 2011
By Nicholas Ziegler, News Editor

Amid the process of furloughing a small percentage of its workforce – with more cuts to come in the next few weeks – Grubb & Ellis Co. is seeing at least one part of its investment arm make some positive moves. Grubb & Ellis Healthcare REIT II Inc., a non-traded REIT with a board of directors independent from Grubb, has purchased an eight-property medical-office portfolio for $112 million.

The offices, built between 1996 and 2008, are located in Arizona, California, Florida, Georgia, South Carolina, Texas and Washington, and together total approximately 451,000 square feet. The REIT’s president & COO, Danny Prosky, saw an opportunity in the hot medical-office market, noting that his firm is “aggressively acquiring quality, income-generating healthcare properties throughout the country and expects to own a portfolio of 73 buildings valued at nearly $710 million … in the next few months.”

And the next few months will bring many changes for the REIT, Commercial Property Executive has learned. An industry source familiar with the workings of the deal told CPE that, in addition to the 24 corporate-office Grubb workers furloughed before Thanksgiving, the same fate will await some in satellite offices in the coming weeks. The source noted that, since Grubb & Ellis’ attempt to find a buyer is still in the works – the firm is 30 days through a review process with NYC-based C-III Capital Partners and Colony Capital L.L.C. – things are far from certain at this point.

What is certain, however, is that Grubb & Ellis Healthcare REIT II will become Griffin-American Healthcare REIT II as of Jan. 8, 2011. At that time, the REIT’s sponsorship will be transferred to an arrangement with American Healthcare Investors L.L.C. and Griffin Capital Corp.

A report by services firm Marcus & Millichap Real Estate Investment Services Inc. expects that demand for medical-office properties will remain strong over the long term, noting that “at 11.5 percent, medical-office vacancy has retreated 70 basis points from its late-2009 peak, though it remains 140 basis points above pre-recession levels.” Fortunately, demand will stay poised for strong growth, with the 65-year-old-plus segment of population forecast to expand by 36 percent, or 15 million individuals, over the next 10 years.

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