First Choice ER Bankruptcy and Net Lease Investments

First Choice ER Bankruptcy and Net Lease Investments

 

2014: Adeptus, holding Company for First Choice ER, Goes Public: -Dallas Business Journal Link-

• CRE Buyers line up to purchase single-tenant, net-leased buildings leased to First Choice ER because the tenant is “publicly traded”. 

 

 

·         2015-16

• My research always left me scratching my head.
• Base rental rates were $50-$60/sf +NNN; which was often double the local market base rent.
• I was told by zealous sales agents that I wasn’t factoring in the strength of a publicly traded tenant.
• I posed the question of what would happen IF the tenant filed bankruptcy, or went out of business since the base rent was SO much higher than market.
• I was constantly told that ERs weren’t going away…
• They were ridiculously profitable,
• The $60/sf base rent included LARGE, specialized tenant improvement (TI) funds paid by Landlord, that were amortized back into payments as rent.
• Typically, the Developer rolled the TI payments into the base rent, and then sold the Property to a single-tenant, net-leased Investor, who paid a price based on a cap rate reversion whose foundation was the inflated Net Operating Income (NOI).
• I sensed problems on horizon…
• 2017:
• Adeptus prepares to file for bankruptcy. -newslink-
• Adeptus publicly traded stock has gone from $122 per share to $.90 per share.
• You read that right.
• Medical Properties Trust seeks to acquire Adeptus assets/leases in bankruptcy.
• Update: Medical Properties Trust Agrees to Bankruptcy Restructuring of Adeptus Health, Adeptus Cuts Losses
• Leases are being assumed, restructured, and some sites are going have lease payments revised to a 9.2% cap rate.
• For those Investors who bought at sub-5% cap rates---trouble looms.

ACTION ITEM:

Make Sure you evaluate your acquisitions to see if they make sense in light of market, or sub-market rents.

 

About Jim Young, CCIM

Army Veteran, and graduate of the United States Military Academy at West Point. My career has spanned the last 19 years operating companies & partnerships focused on real estate & finance. After serving as a tank officer, I moved to Austin. Recent assignments have included Buyer Representation of apartment complexes, and multifamily development sites near downtown Austin's East Riverside Drive area.  I currently serve as the 2017 Central Texas Chapter President,  Certified Commercial Investment Members (CCIM).

In brokerage, I have focused on acquisition and disposition assets such as retail centers, multifamily, and land development sites for both. I have represented International and local Investors, as well as Business Owners on sale-leaseback transactions, and build to suits. Since 2010, provided representation on over $192M of CRE transactions. I have national credit tenant experience with: Starbucks, Einstein's Bagel, Verizon, AT&T Wireless, and more. Additional areas of expertise include: Multi-Family (apartment) acquisition & disposition; and land for multifamily, mixed-use and retail development. Prior to commercial brokerage, I was Founding Partner in a real estate investment company which placed in the Top 25 of Austin Business' Journal from 2003-2007, and successfully ran a private fund which provided high yield construction funding to solar power installers, secured by energy rebates, and tax credits as collateral on apartment projects.  As a Principal, I have participated in the development, construction and sale of over 100+ projects that I was a Partner, or personally guaranteed the Debt.  I have recently competed projects such as purchasing a bank building from the FDIC, and other retail sites.

 

Jim Young, CCIM & Broker

512-565-7509

@jimyoungcre