An exterior view of the the Center Pointe project in Atlanta’s Pill Hill area. The conventional wisdom may be that it is too difficult and expensive to convert a typical office tower into a medical office building. But at least one project is proving to be the exception to that rule.
Ketan Sanghvi, executive director, business development, Southeast, for Duke Realty, explores the adaptive reuse of office towers into a medical office building in part three of this three-part online exclusive series.
Center Pointe’s new owner believed that the capital improvements, coupled with the Pill Hill location, made it ideal for healthcare-related tenants. But would hospitals and physician practices agree?
Fortunately, the answer has been a resounding “yes.” By focusing on leasing and relationships established with key healthcare providers in the immediate area, the owner has been able to retain desired tenants and recruit new ones. Center Pointe is now home to some of Atlanta’s premier medical practices and hospitals. Some of the largest medical practices in the complex include Reproductive Biology Associates, Georgia Cancer, OB/GYN of Atlanta, and Georgia Eye Partners. Saint Joseph’s Hospital also operates an imaging and urgent care center in the facility.
A CT scanner to be installed on the sixth floor of the building was too big to fit in any of the building’s elevators, so part of a precast panel and storefront glass had to be removed from the exterior to bring the scanner through the window.
Adding to the medical atmosphere at the property, Northside Hospital occupies 65,508 square feet of nonmedical office space devoted to administrative offices.
Some tenants were so enthusiastic about the Center Pointe project that they wanted to become owners as well. Those desires were accommodated. Tenants own almost 16% of the property; a Duke Realty affiliate owns the rest.
Formalized programs such as Complete Customer Satisfaction and Tenant Outreach Program have been employed to ensure that tenant relationships remain strong.
“Management maintains an open door and is always available for open and frank discussions related to the building, and does a great job of keeping us informed of building-related announcements,” says LaVay Sheldon, director of operations, The Kellen Company, a professional services firm that leases space in the complex.
“The Center Pointe team understands that this is a customer-oriented business. We trust that the avenues of communication will remain open as we come to terms with being a nonmedical company in what more and more feels like a medical environment.”
The owner is gradually consolidating Center Pointe’s medical space on designated floors. As nonmedical tenants on those floors come to the end of their leases, they are being repositioned into the nonmedical areas of the complex. As a result of these efforts, Center Pointe has remained attractive to nonmedical tenants while becoming an increasingly attractive address for Atlanta healthcare providers. The first 120,000 square feet of medical office space in the complex is now 100% leased, and the property is about 94% leased overall. To satisfy additional demand, the owner recently obtained city approval to add about 50 more parking spaces, which will allow up to 55,000 square feet of additional space to be used for medical offices.
|A view of the restroom renovations within Center Pointe.|
A zoning modification was required in order to alter the site to accommodate more parking. Knowing that any form of rezoning can raise concerns from the owners of nearby properties, the Duke Realty team proactively engaged its neighbors in the process to share the long-term vision for the campus and to understand their concerns. Meetings occurred with Johnson Ferry Park Townhomes—the upscale residential neighborhood with its main entrance across from Center Pointe—along with the Sandy Springs Coalition of Neighborhoods, the local city council representative, and staff members from the local municipality.
The result? The various stakeholders reached a consensus and gave their support to the long-term plans for Center Pointe. That included a framework for how future development could occur on the site, as well as entitlement for conversion of the 55,000 additional square feet to medical office use from general office use.
The new owners were also able to put a positive spin on what had been a headache for the property. Center Pointe was the last medical office property in the Pill Hill area that offered free parking. While a nice amenity, the problem was that patients and visitors to other nearby medical facilities were parking at Center Pointe to avoid paying for parking elsewhere. With occupancy steadily on the rise, the owners realized that controlled access would be needed to ensure adequate parking for tenants and visitors. Paid, access-controlled parking was implemented in July 2010, eliminating the trespassing problem while creating an additional revenue stream.
|Paid, access-controlled parking was implemented at the Center Pointe MOB in July 2010.|
Never say never Today, about three years after the acquisition, the effort to reposition Center Pointe for medical office use appears to have paid off. Tenants, patients, and visitors have another convenient, modern option for healthcare services in the Pill Hill area, and Center Pointe has become a more valuable real estate asset for its owners. Increased occupancies coupled with the higher lease rates commanded by medical office space have resulted in steady increases in the property’s overall net operating income. And while few properties were unaffected by the recession, and there was some need to offer lease concessions, rental rates have held steady at Center Pointe.
“No real estate opportunity is ever a sure thing, and a medical office conversion can be even more of a long shot,” acknowledges Deeni Taylor, an executive vice president with Duke Realty. “But if the acquisition and capital improvement costs are reasonable, and the location is exceptional, sometimes it pays to ignore the conventional wisdom.”
Clearly, the prospect of retrofitting a mainstream office building for medical use is not for the faint of heart. But when the right opportunity presents itself, a medical office conversion can be successful for everyone involved. To read the Part 1 of this series, go here . To read Part 2, go here.
Ketan Sanghvi is Executive Director, Business Development, Southeast, for Duke Realty. The company’s healthcare experts offer 20 years of experience specializing in the development of medical office buildings, ambulatory surgery centers, and other outpatient facilities. Ketan can be reached at Ketan.Sanghvi@dukerealty.com.