Signs of life are crystal clear in the Cambridge market of metropolitan Boston’s life-sciences sector, as evidenced by a sizeable new lease secured by BioMed Realty Trust Inc. Aveo Pharmaceuticals Inc. just inked a lease for 126,000 square feet of laboratory and office space at BioMed’s 280,000-square-foot property at 650 E. Kendall St.

“We consider Cambridge to be the most vibrant life-science submarket in the world today,” Richard Howe, director of corporate communications for BioMed, told Commercial Property Executive. It appears that Aveo, which is in need of some additional elbowroom and a bit of fusion, feels the same way. According to an SEC filing, the company presently occupies approximately 88,200 square feet of subleased space in Cambridge, including its 55,200 square-foot headquarters at 75 Sidney St.  Aveo’s 12-year lease at 650 E. Kendall will allow the biopharmaceutical company to locate its home base and primary research operations under one roof within Cambridge’s Kendall Square biotechnology super-cluster.

Developed just a few years ago, the six-story research building at 650 E. Kendall is a state-of-the-art facility that has been certified LEED Gold by the U.S. Green Building Council. BioMed owns the property in a joint venture with Prudential Real Estate Investors.

With Aveo’s commitment, 650 E. Kendall is now 45 percent leased. Remaining space will likely be snapped up soon, as life sciences companies’ demand for premier accommodations in Cambridge continues to heat up. The vacancy rate in the market dropped 0.4 percent in the first quarter to 7.6 percent, according to a report by commercial real estate services firm Richards Barry Joyce & Partners.

“Cambridge remains BioMed Realty’s largest market, where we have now executed over 389,000 square feet of gross leasing within the past 18 months,” Howe noted. During 2011, the company shelled out a total of $398.2 million on the acquisition of 1 million square feet of laboratory and office space with an average occupancy rate of 85 percent and the option for 700,000 square feet of new development. In February, the REIT entered into an agreement to purchase Cambridge Place, a 287,000-square-foot campus, for $119 million.

Centre Medical Plaza in Chula Vista, Calif.

The co-sponsors of Griffin-American Healthcare REIT II Inc. purchased five medical-office buildings located in California, Arizona and Texas for an aggregate price of $52.5 million. With the purchase, American Healthcare Investors and Griffin Capital Corp. now hold 76 properties with a total purchased value of $715 million.

Danny Prosky, the REIT’s CEO, noted that all of the buildings “are either affiliated with a leading healthcare delivery system, or (are) located on the campus of a regional medical center or within an established medical corridor,” he said. The average occupancy across the 223,000 square feet of the properties is 97 percent.

In February, Prosky told Commercial Property Executive that the REIT would be aggressively expanding, looking for high-quality, income-generating properties. “Demand for healthcare services will only increase in the future,” Prosky said. “As Baby Boomers continue to turn 65 over the next 18 years, and along with the general aging of the population, we’re bullish on growth and demand for the sector.”

The medical-office sector remains a hot area for investors like the Griffin-American vehicle, according to a first-half 2012 report by Marcus & Millichap Real Estate Investment Services Inc. “A near shutdown in speculative medical-office development, coupled with rising space demand, will drive occupancy gains in 2012, though headwinds to rent growth will persist over the next several quarters,” the report noted.

Two of the five buildings are located on the same campus in Chula Vista, Calif., across 75,000 square feet. Each structure is 100 percent leased, and tenants include the Profil Institute and Children’s Primary Care. Two more buildings are located in Texas: One sits in Amarillo and the other is in Houston. The Amarillo asset is a single-story, 58,000-square-foot building that is fully leased by Amarillo Heart Group L.L.C. through May 2023 in a lease that allows for a 10-year extension and annual rent escalations of 4 percent. The Houston building is two stories and 30,000 square feet, and it is fully leased to Memorial Hermann Health System — the largest not-for-profit healthcare system in the state — through 2019. The final property, Tempe St. Luke’s Medical Office Building in Tempe, Ariz., is a 60,000-square-foot facility on the campus of Tempe St. Luke’s Hospital. It is 88.8 percent leased to nine tenants.

The Chula Vista buildings were acquired from an unaffiliated third party represented by Alex Mobin of Marcus & Millichap.  The Amarillo and Houston buildings were acquired from an unaffiliated third party represented by Cain Brothers.  The Tempe building was acquired from an unaffiliated third party represented by John Smelter of Marcus & Millichap.

The acquisitions were financed through the assumption of $17.3 million of existing debt, $25.6 million in borrowings under the REIT’s line of credit with Bank of America and the remaining using cash on hand.

Could Grubb & Ellis 2.0 be shaping up under the American Realty Capital umbrella? Since Grubb & Ellis Co. began its downward spiral toward bankruptcy late last year, ARC has snapped up a few major players from the real estate firm, and Thomas D’Arcy, former Grubb & Ellis CEO, is the latest and one of the biggest. He joins American Realty Capital Healthcare Trust Inc., ARC’s real estate investment offerings, as CEO of its advisor.

D’Arcy is a big fish, indeed; he’s been a prominent figure in commercial real estate for more than 25 years, having held leadership positions at Bayside Realty Partners and Equity Investment Group. He was at the helm of Grubb & Ellis as CEO for the last two-and-a-half years, a period during which the skies darkened for the 53-year-old firm. In 2010, D’Arcy spoke to Commercial Property Executive about his visions for the company, saying that one of his main goals was “to create as much opportunity for the employees of Grubb & Ellis as possible.” And in a rather unexpected way, he has.

As Grubb & Ellis crumbled–BGC Partners Inc. recently completed the U.S. Bankruptcy Court-approved acquisition of the company’s assets and commenced integrating it into Newmark Knight Frank to create Newmark Grubb Knight Frank–many top staff members began to seek employment elsewhere, and more than a few of them found a home at ARC.

Richard Arnitz, former CEO of Grubb & Ellis Capital Corp., then the dealer manager for Grubb & Ellis Healthcare REIT II, came aboard in January as executive director of its broker dealer subsidiary, Realty Capital Securities, tasked with managing the strategic sales initiatives for ARC Healthcare Trust and American Realty Capital Retail Centers of America. Lavea Thomas and Diana Kearney, both formerly of Grubb & Ellis Capital, joined ARC’s Realty Capital Securities team in December as director of national accounts and chief marketing officer, respectively.

There certainly appears to be a pattern here. “ARC has attempted to hire whomever they could that had some association with the Grubb & Ellis Healthcare REIT,” an industry source told CPE. Grubb & Ellis Healthcare is now Griffin-American Healthcare REIT II Inc., and is co-sponsored by American Healthcare Investors L.L.C. and Griffin Capital Corp. ARC was unsuccessful in its bid for the REIT. “Griffin-American is the leading non-traded healthcare REIT in the market; ARC Healthcare Trust is trying to compete with Griffin-American,” the source said.

D’Arcy has not commented on his new position or goals for ARC Healthcare, but as he shared with CPE in 2010, growing a business is a goal he’s met successfully in the past. “I’ve been the CEO and chairman of two NYSE-traded companies and I’ve built a company from less than $100 million to over a billion-two, and I’ve always done this by being focused on growth,” he said. “I always believe that as long as you’re growing and moving forward, good things are going to happen. You obviously have to do it prudently. You have to do it within your capital structure.”

ARC has not yet revealed an official start date for D’Arcy.

Jones Lang LaSalle Inc.’s job as program manager for the development of Parkview Health’s Parkview Regional Medical Center is done, now that construction of the 975,000-square-foot hospital in Fort Wayne, Ind., has reached completion. The big-ticket project came with an equally big price tag of $536 million.

“Across the whole team — he client, consultants, contractors, everyone — it’s been a very enjoyable project,” Gary Greene, program manager with JLL, told Commercial Property Executive. “It was a great collaborative effort, and I think it’s testimony to what people can do when they have a common purpose and interest to achieve something. It’s remarkable.”

JLL’s Project and Development Services team was charged with orchestrating the development of the 410-bed hospital from beginning to end. “We managed the whole implementation for them in terms of hiring and building the team, contracting, budgets, scheduling,” Greene said.

JLL oversaw a three-stage design process, working with the architect, contractors and other stakeholders. The firm solicited separate bid packages for tasks ranging from site work to interior work. Each step was taken with the goal of containing costs and remaining on schedule, while meeting the client’s expectations for the end result.

Of course, it’s a rare client that doesn’t want a development to deliver on time and on budget, and for Parkview Health, JLL took it a step further by wrapping up the project one month ahead of schedule and at a cost that was $11 million less than the budgeted total. And it was accomplished with no shortage of obstacles. There were permitting issues to contend with, as well as a change in management. “And we had a six-week labor strike at the beginning, too,” Greene said.

HKS Architects was onboard the project as designer and Weigand Construction and Pepper Construction took on the building responsibilities. The completed facility dovetails with the concept Parkview Health had in mind over 10 years ago when it began contemplating plans to address its aging flagship hospital, built more than a half-century ago, and growing demand for services in the area. “Their mothership has about 400 beds and it’s a large complex but a lot has changed since the ’50s and they decided back around the year 2000 that in light of how the market for healthcare was evolving in Fort Wayne, they need to have a presence in this new location to address not only the new market reality but also the fact that their existing facility was 50-plus years old,” he explained.

The new property serves not as a replacement, but as an upgraded addition to Park Health’s offerings in Fort Wayne; the healthcare provider will keep the doors of its older hospital open. When it comes to hospitals in the area, there is a gap between supply and demand, and activity at Parkview Regional serves as evidence. The hospital opened on a Saturday with 120 patients having been relocated from the original hospital, and by Tuesday, the census was at 93 percent. It has since reached 100 percent.

JLL’s securing of the contract to manage the development of Parkview Regional was quite a coup, as such gargantuan hospital projects do not come along every day. “Healthcare reform, and the issues it faces, keeps uncertainty a constant theme,” Shawn Janus, managing director of JLL’s healthcare development programs, notes in the firm’s recent update on the healthcare real estate market. “Very few systems, or developers, are prepared to go full bore with plans. The pipeline of new projects is more limited than when the economy was going gangbusters. The planning and financing processes take a great deal of time, so other than obvious requirements, the activity may be muted for some time.”

However, as Greene pointed out, the degree of development varies across the country. “In general, the healthcare segment is a very solid segment of the real estate market.” As per the study, the demand for medical office buildings is presently buoying the sector.

For Parkview Health, development work is not done. “We had two shell floors in the new hospital in anticipation of doing something in the future, but back in December leadership said, ‘You know, we’ve got to make a move on that now,’” Greene recounted. “So they gave us the green light to build out the shell space, which brings another 48 beds online, and we’re going to finish those by May. So the reality is, ‘We really need those beds.’”

Exterior insulation and finish systems, or EIFS, has long been applied to residential properties but is now catching on as an insulation solution in the commercial sector. The following case studies illustrate different applications that have produced energy cost reductions.

Resort

Initial indications are that the 184 unit owners at the historic Lido Beach Towers resort on Long Island are seeing substantial reductions in energy consumption after a $5 million installation of Sto Corp.’s StoTherm Premier NExT drainage IEFS product.

The 1929-vintage hotel, which was converted to condo ownership in 1981, had suffered from countless thermal and water leaks in its stucco-on-terracotta block walls. The homeowners board had aimed to tackle problems through various short-term (and costly) cosmetic Band-Aid-type repairs, recalled Sto building scientist John Edgar.

The board engaged Jordan Ruzz, principal of P.E. Consulting Engineers, who recommended the Sto system providing three-plus inches of insulation as well as a far more attractive new finish.

A sampling of energy consumption at units on four separate floors, during the hottest months of the first post-application summer, factored to an average reduction of 32.5 percent. Installing a modern solar array covering the resort’s entire rooftop would not come close to producing the amount of energy owners are saving due to the EIFS installation, Edgar noted.

Medical Center

After exploring means of reducing high cooling costs at its uninsulated Banner Desert Medical Center in the scorching Phoenix suburb of Mesa, decision-makers at the Banner Health system opted for a two-inch Dryvit Outsulation installation.

Sophisticated modeling determined the upgrade, expected to cost around $2.5 million, should reduce cooling costs by about 20 percent, noted L&W Supply’s Roger Barton, who is coordinating the installation. As coolers have traditionally run non-stop at the approximately 500,000-square-foot facility during the hot months, the expectation is that savings will cover the EIFS installation costs in five to seven years, Barton estimated.

Banner is gaining a considerable aesthetic benefit, as well, as the steel-stud-framed hospital constructed in various phases with different methodologies over 30-some years has a none-too-attractive stucco exterior. The metallic pink finish matches Banner’s adjacent children’s hospital and hence helps “unify branding,” Barton noted.

He added that it is a pretty quick and quiet process to install the system, which weighs barely one pound per square foot.

Office Headquarters

When the sustainability-minded brain trust at building products and services firm Tremco Inc. opted to pursue a comprehensive $5.5 million energy retrofit at its 1969-vintage, slate-skinned headquarters building, it logically looked to sister company Dryvit Systems’ EIFS offerings.

Thanks to the new exterior insulation (not to mention the sharp new cladding), as well as numerous other green-minded upgrades, the three-story, 46,000-square-foot headquarters is now something of a showcase for sustainable solutions that helps market the company’s capabilities, noted Craig Nelson of another sister company (and co-occupant of the building), WTI Services, who oversaw the retrofit.

Contributing to the property’s new LEED Gold certification, Dryvit’s Outsulation Plus MD drainage EIFS provided a continuous insulation that sealed up leaky thermal bridges. The overall retrofit resulted in an 84 percent reduction in natural gas consumption, along with a 43 percent cut in electricity consumption, Nelson specified.

And while the retrofit’s overall payback period will likely end up closer to 15 years, Nelson projects the EIFS installation will pay for itself in savings within the typical eight to 12 years.

The Tremco case study was part of a fuller discussion of EIFS, “New Life for EIFS Retrofits,” which appeared in the March 2012 issue of CPE.

A premier opportunity is headed for investors in the healthcare real estate sector. Ventas Inc. has announced plans to market 64 healthcare properties presently leased to Kindred Healthcare Inc.

The portfolio, generating $77 million of annual rent, consists of 54 skilled nursing centers and 10 long-term acute care hospitals operating under four separate master leases. And expiration dates are fast approaching.

Kindred will have to decide if it will avail itself of renewal options on 56 of the properties by April 30, 2012. The company recently indicated that it will sign a five-year lease renewal for 25 of the communities, including 19 nursing and rehab facilities and six LTAC hospitals.

Ventas, however, is not sweating bullets regarding tenancy. “The facilities are profitable at current rent levels and they would be attractive to a variety of healthcare providers if they do become available for re-leasing,” Debra A. Cafaro, chair and CEO of Ventas, noted during the REIT’s fourth-quarter earnings conference call earlier this month. “So, whether it’s with Kindred or with new Ventas tenants we feel confident about the expected outcome of the 2013 renewal process.”

And Ventas has every right to feel confident about finding a buyer or buyers for the assets, as the healthcare sector is a real estate investor favorite right now. “We expect the product sector to remain much in demand in 2012 as the broader economy continues to struggle to re-energize itself,” Mindy Berman, managing director, healthcare capital markets with commercial real estate services firm Jones Lang LaSalle, noted in a recent report. “The proven track record of healthcare real estate through downturns and the compelling demographics of the sector will keep propelling activity and pricing levels throughout 2012.”

Ventas, which has a diverse portfolio encompassing in excess of 1,300 assets in the U.S. and two Canadian provinces, is putting the properties up for sale in an effort to, as Cafaro noted in a prepared statement, improve the company’s diversification and broaden its tenant base.

The 500-room hotel listed as part of the Kelly Park Crossing site's investment opportunities.

Marcus & Millichap Real Estate Investment Services Inc. will be playing key roles as brokers and consultants on a $1 billion, 9.2 million square-foot development in Apopka, Fla, that is expected to include a regional mall, offices, a college campus, hospital, housing and a merchandise mart.

“The amount of development that would take place in the first five years could easily exceed $1 billion,” Paul Bouldin, senior associate in Marcus & Millichap’s Tampa offices, told Commercial Property Executive.

Bouldin, a 35-year veteran of the central Florida commercial real estate market, said Kelly Park Crossings took a major step forward this week when a $1.66 billion parkway that was crucial to the development was approved by the Orlando-Orange County Expressway Authority. The Wekiva Parkway extension will be the final part of a beltway around the metro Orlando area. The only interchange on the extension for about 14 miles will be the one planned for the Kelly Park Crossings development.

“This road creates a whole new corridor, a whole new economic dynamic for northwest Orange County,” Bouldin said, adding that it’s in an area where Orange, Seminole and Lake counties intersect.

One of Bouldin’s jobs will be to seek a joint venture partner and/or master developer to “take this to a new level and create a quality development,” he said. “My goal is to get two or three of the best of the best in front of the owners and talk about what makes sense to everybody and see if there’s a good fit to move forward.”

Jim Palmer, an attorney and one of the original investors, said the developers are moving ahead with Valencia College, a community college, to locate a campus at Kelly Park Crossings. Another big player at the site could be a group of Chinese businessmen that want to establish a $150 million, 4 million-square foot merchandise mart. Palmer said that proposal is tied to the expansion of the Panama Canal, which should be completed in about two years. The merchandise mart would serve as a distribution center for cargo coming through the canal that would be offloaded in Florida’s ports of Tampa, Miami and Jacksonville.

“Wholesalers from around the world will come in for exhibits and conferences to sell their products, which would be a huge boon to the regional and state economy,” Palmer added.

Bouldin said if the merchandise market is built there, the developers would likely move ahead with plans for a hotel and conference center before completing some other portions of the project, such as the approved 1,300 units of housing. On its web site, Marcus & Millichap has listed land for a 500-room hotel and conference center for $10 million in the complex. Other investment opportunities on the site are Palmer Industrial Landing containing about 241 acres for development of 3.67 million square feet of flex warehouse and distribution buildings for $147 million and Kelly Park Center, nearly 63 acres for development of a 13-building office park for about $54 million. Kelly Park Square at Kelly Park Crossings, the commercial and mixed-use component, is listed on the Marcus & Millichap site as an investment opportunity for about $129 million and would encompass approximately 124 acres.

Construction on the parkway is expected to begin in July and the section closest to the Kelly Park Road complex should be completed by late 2013 or early 2014. Development of portions of Kelly Park Crossings would be timed to coincide with the road opening, Bouldin said. When completed, the development is expected to provide more than 17,000 jobs.

15004 Innovation Drive in Rancho Bernando

Kilroy Realty Corp. has unloaded $147.5 million of property — in the form of two medical-office buildings — to LaSalle Investment Management. The two Class A buildings, which total 253,676 square feet, are located in San Diego. Holliday Fenoglio Fowler L.P. represented the seller.

The properties are located at 15004 Innovation Drive in Rancho Bernardo and 10243 Genetic Center Drive in San Diego. Completed in 2008, 15004 Innovation Drive is a six-story, 150,801-square-foot building that is fully leased to Scripps Health for 15 years. 10243 Genetic Center Drive, a three-story, 102,875-square-foot property, is fully leased to Sharp Healthcare for 20 years and offers the potential to expand by up to 48,300 square feet. Both lease terms include annual rent increases of three percent.

According to a recent report by Marcus & Millichap Real Estate Investment Services Inc., the medical-office market is poised to have a good 2012. Two trends — the growing economy in general and the 2.2 percent increase in healthcare employment specifically — continued to drive demand for the asset class through 2011. There is significant room for growth, as well, with the report noting that “at 11.5 percent, medical office vacancy has retreated 70 basis points from its late-2009 peak, though it remains almost 140 points above pre-recession levels.”

In a transaction that closed on Jan. 31, 2012, Kilroy had a very similar experience, selling three healthcare-related properties in San Diego for $146.1 million. One of the properties in that transaction, located at 15004 Innovation Drive, is also fully leased to Scripps.

Healthcare Trust of America Inc. expands its presence to 26 states with the acquisition of a 203,000-square-foot medical office building sited on a 200-acre medical campus 30 miles outside of Detroit in Novi, Mich. HTA plunked down just over $51.3 million in cash to purchase the five-year-old building from a group of independent physician investors.

Carrying the address of 26850 Providence Parkway, St. John Providence MOB is physically linked to the Providence Park Hospital, which is operated by the St. John Providence Health System. The tenant roster at the five-story building is near maximum capacity, with an occupancy level of 99 percent. Tenants include offices of Providence Park Hospital, offices of the physicians who developed the property and other medical practices.

HTA purchased the MOB in an off-market transaction, relying on what the REIT describes as its “strong healthcare industry relationships.” And such relationships are becoming increasingly valuable for any investor eager to snap up premier MOBs in the current climate. “The most price competitive healthcare investors — public REITs and institutional investors — were faced with a dearth of the highest quality product as on-campus medical office in core locations were rarely available from hospital sellers or the small number of investor owners,” a fourth-quarter report by commercial real estate services firm Jones Lang LaSalle Inc. noted.

HTA, which added 118,000 square feet to its portfolio with the acquisition of a two-building medical office complex in Phoenix late last year, is among the top investors in medical properties, having finished 2011 second in line behind Grubb & Ellis Healthcare REIT II and ahead of American Realty Capital Healthcare Trust. Together, the three REITs shelled out in excess of $500 million for property purchases last year, or roughly 30 percent of the total $1.8 billion in MOB acquisitions, as per the report.

With the acquisition of the former Miami Heart Institute, Lionheart Capital L.L.C. has just gotten its hands on a prime waterfront property in Miami. The real estate investment firm acquired the 700,000-square-foot facility from Mount Sinai Medical Center.

“The market response was exceptional because of the location; it really drew people in,” Ike Ojala, director with Holliday Fenoglio Fowler L.P., the real estate services firm that marketed the asset on behalf of the seller, told Commercial Property Executive.

Sited at 4701 N. Meridian Ave. in a residential neighborhood roughly one mile from the Mount Sinai Medical Center, the Miami Heart institute encompasses a seven-story hospital building and two parking structures. Features unique to the property are a waterfront dining facility and a 241-seat auditorium within a conference center.

“There was a good amount of interest from a variety of buyers,” Ojala noted. Obviously, the location is world-class. You’re on Miami beach with absolutely stunning views of the Ocean, Biscayne Bay and the Miami Skyline. And it’s in a very nice residential area.”

Investors from all walks — developers and redevelopers, seniors housing-type users and the usual suspects — had their eye on the Miami Heart Institute.

Financial terms of the transaction have not been publicly disclosed. While the property fetched a great deal of attention, when commercial real estate services firm Jones Lang LaSalle had marketed the asset during the economic downturn in 2009, there were apparently no takers. At that time, JLL had speculated that the facility would sell for somewhere in the neighborhood of $50 million, according to the firm’s press release announcing the property’s availability for purchase.

The Miami transaction is part of a larger trend, with hospitals and healthcare properties seeing increased transaction volume. “Hospital merger and acquisition activity will be a major theme in the healthcare industry in 2012,” Mindy Berman, managing director of healthcare capital markets at Jones Lang LaSalle Inc., said. “This activity involves not only hospital to hospital combinations with numerous permutations on the theme but also combinations with highly prized physician practice groups.  All of this M&A activity comes with a lot of real estate baggage.”