Northside Indy Medical Offices OFFERING MEMORANDUM

Transcription

1 Northside Indy Medical Offices OFFERING MEMORANDUM 1

2 NON-ENDORSEMENT AND DISCLAIMER NOTICE NON-ENDORSEMENT S Marcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any corporation s logo or name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or subsidiaries, or any agent, product, service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information about this listing to prospective customers. ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY. PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS. DISCLAIMER THIS IS A BROKER PRICE OPINION OR COMPARATIVE MARKET ANALYSIS OF VALUE AND SHOULD NOT BE CONSIDERED AN APPRAISAL. This information has been secured from sources we believe to be reliable, but we make no representations or warranties, express or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc Marcus & Millichap. All rights reserved. 2

3 NORTHSIDE INDY MEDICAL OFFICES Multi-Tenant Medical Offices PRESENTED BY JOSEPH DISALVO First Vice President Investments Indianapolis, Indiana Office (317) Cell (317) License IN: RB ALEX NULF Associate Indianapolis, Indiana Office (317) Cell (574) License IN: RB TYLER SHIRLEY Director of Operations Indianapolis, Indiana Office (317) Cell (765) EVAN DAVIES Financial Analyst Indianapolis, Indiana Office (317) Cell (317) O F F I C E S N A T I O N W I D E AND T H R O U G H O U T C A N A D A 3

4 Northside Indy Medical Offices 2010 & 2020 W 86 th Street Indianapolis, IN

5 NORTHSIDE INDY MEDICAL OFFICES M U L T I T E N A N T M E D I C A L O F F I C E S TABLE OF CONTENTS 07PROPERTY ANALYSIS SECTION 1 Executive Summary Investment Overview Photos Property Details 27 MARKET OVERVIEW SECTION 5 Market Overview Economy Demographics 21 FINACIAL ANALYSIS SECTION 2 Operating Statement Tenant Summary Sales / Lease Comparables PRESENTED BY 5

6 This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc Marcus & Millichap ACT ID Z

7 PROPERTY ANALYSIS NORTHSIDE INDY MEDICAL OFFICES N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S

8 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S OFFERING HIGHLIGHTS NORTHSIDE INDY MEDICAL OFFICES MULTI-TENANT MEDICAL OFFICES 2010 & 2020 W 86 th Street, Indianapolis, IN OFFERING PRICE $5,695,000 VITAL DATA CAP RATE 8.50% Price $5,695,000 Cap Rate 8.50% Price/SF $ Rentable Building Area 46,534 SF Occupancy 91.81% Net Operating Income $484,240 Assumable Financing Available Call Agent for Details

9 Northside Indy Medical Offices Multi-Tenant Medical Offices N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S

10 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S PROPERTY OVERVIEW The DiSalvo Group of Marcus & Millichap is pleased to present to the market as the exclusive investment agent, the Northside Indy Medical Office Portfolio - a two-building, Class B, Medical Office Portfolio located at 2010 and 2020 West 86th Street in Indianapolis, Indiana. The Northside Indy Medical Offices are strategically located directly across West 86th Street from the main St. Vincent Indianapolis Hospital Campus, one of the most trafficked hospitals in Indianapolis that features 788 staffed beds and sees over 30,000 patients per year. St. Vincent is part of the Ascension Health network, which is the largest non-profit health system in the United States. St. Vincent Hospital occupies over 14,000 square feet of the Subject Property, an overwhelming majority, of the nearly 19,000 square feet in the 2010 building. The Subject Property is also located just two miles from Interstate 465 and is situated directly in a major office and retail corridor, surrounded by many national, regional and local businesses and amenities. The Northside Indy Medical Offices is a portfolio that is comprised of two, HD2 (Healthcare District-zoned) medical office buildings. The 2010 Building is a nearly 19,000 square foot, two-story that was built in 1976, and the 2020 Building is a roughly 27,000 square foot, three-story building that was built in Both properties have undergone recent renovations including parking lot repairs, elevator renovation, painting and various other projects that have helped to improve the visual appeal of the property. The opportunity for the Investor is to acquire two Class B medical office buildings situated directly across the street from one of the largest and most established hospitals in Indianapolis with strong in-place cash flow and attractive, non-recourse assumable debt offering minimal risk for the Investor and strong returns for medical office assets with this strong of a location and tenant mix. PROPERTY OVERVIEW Two-Building, Class B Medical Office Portfolio Located directly across West 86th Street from the main St. Vincent Hospital Campus in Indianapolis a 788-Bed full service hospital Highly visible buildings along West 86th Street one of the most heavily trafficked thoroughfares in Indianapolis Only two miles from Interstate 465 and surrounded by such amenities as banks, restaurants, shopping, grocery, and hotels

11 Northside Indy Medical Offices Multi-Tenant Medical Offices N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S

12 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S PROPERTY DETAILS The DiSalvo Group of Marcus & Millichap, as an exclusive advisor, is pleased to present to the market the Northside Indy Medical Office, a two-building, Class B, Medical Office Portfolio in Indianapolis, Indiana. The Northside Indy Medical Offices are strategically located directly across the street from the main St. Vincent Hospital Campus, one of the most trafficked hospitals in Indianapolis and home to the Peyton Manning Children's Hospital. St. Vincent is part of the Ascension Health network, which is the largest non-profit health system in the United States. The hospital occupies over 14,000 square feet, an overwhelming majority, of the nearly 19,000 square feet in the 2010 building. The Subject Property is also located just two miles from Interstate 465 and is situated directly in a major Office and Retail Corridor, surrounded by many National, Regional and Local businesses. Northside Indy Medical Offices Property Address 2010 & 2020 W 86 th Street Topography Flat Number of Units 22 Highway Access Interstate 465 Number of Buildings 2 Foundation Concrete Slab Number of Stories 2010 Bldg. Two (2) 2020 Bldg. Three (3) Framing Steel Frame Year Built 1972/1998 Exterior Brick Lot Size 3.06 Acres / 133,293 sf Parking Surface Asphalt Type of Ownership Fee Simple Roof Flat Roof w/ EPDM Covering Parking 90 Free Surface Spaces / 3.00/1,000 Parking Ratio HVAC Roof-Mounted Utilities: Water Citizens Energy Group Elevators Two (2) - One (1) Per Bldg. Utilities: Electric Indiana Power & Lighting Life Safety Smoke Detectors and Fire Alarms 10

13 Northside Indy Medical Offices Multi-Tenant Medical Offices N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S

14 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S 2010 Building 10

15 2020 Building N O R T H S I D E I N D Y M E D I C A L O F F I C E S // P R O P E R T Y A N A L Y S I S

16 Regional Map

17 Local Map

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20 Northside Indy Medical Offices This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc Marcus & Millichap ACT ID Z

21 FINANCIAL ANALYSIS NORTHSIDE INDY MEDICAL OFFICES N O R T H S I D E I N D Y M E D I C A L O F F I C E S // F I N A N C I A L A N A L Y S I S

22 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // F I N A N C I A L A N A L Y S I S OPERATING STATEMENT

23 TENANT SUMMARY N O R T H S I D E I N D Y M E D I C A L O F F I C E S // F I N A N C I A L A N A L Y S I S

24 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // F I N A N C I A L A N A L Y S I S TENANT SUMMARY

25 Lease Rollover (By Year) GLA (By Tenant) N O R T H S I D E I N D Y M E D I C A L O F F I C E S // F I N A N C I A L A N A L Y S I S

26 Northside Indy Medical Offices This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc Marcus & Millichap ACT ID Z

27 MARKET OVERVIEW NORTHSIDE INDY MEDICAL OFFICES N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W

28 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W INDIANAPOLIS OVERVIEW The Indianapolis metro is situated in central Indiana and consists of 11 counties: Marion, Johnson, Hamilton, Boone, Hendricks, Morgan, Hancock, Shelby, Brown, Putnam and Madison. The metro lacks formidable development barriers, except for the several rivers and creeks that traverse the region. Marion County is home to Indianapolis, the capital city, which contains a population of approximately 856,000 people. Carmel in Hamilton County is the second most populous with nearly 90,000 residents. A large portion of the surrounding counties is rural, offering builders ample land for residential and commercial development. Population growth is primarily concentrated to the northern suburbs and west of the city. METRO HIGHLIGHTS PREMIER DISTRUBUTION HUB Around 50 percent of the U.S. population lies within a one-day drive of Indianapolis, making it a center for the transportation of goods. MAJOR HEALTH SCIENCES CENTER Eli Lilly & Co., Roche Diagnostics Corp. and Covance Inc. maintain operations in the region, among other major health-related employers. LOW COST OF DOING BUSINESS Indianapolis costs are far below national averages, attracting businesses and residents to the area.

29 ECONOMY Indianapolis underwent an economic renaissance during the past two decades, diversifying from a manufacturing-based economy into a variety of other employment sectors. The metro is one of the key health-sciences centers in the nation, anchored by several pharmaceutical and life-sciences companies. The metro is accessible to a large portion of the nation in one day by ground or air, making the region a burgeoning logistics and distribution hub. Annual GMP tops the national level, a trend that is set to persist over the next five years. MAJOR AREA EMPLOYERS Eli Lilly & Co Indiana University Health Rolls-Royce Corp. Community Health Marsh Supermarkets Kroger IUPUI FedEx Roche Diagnostics Finish Line * Forecast SHARE OF 2016 TOTAL EMPLOYMENT 9% MANUFACTURING 15% PROFESSIONAL AND BUSINESS SERVICES 13% 10% 6% GOVERNMENT LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES 22% TRADE, TRANSPORTATION AND UTILITIES 5% CONSTRUCTION + 15% EDUCATION AND HEALTH SERVICES 2% INFORMATION 4% OTHER SERVICES

30 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W DEMOGRAPHICS The metro is expected to add nearly 110,000 people through 2021, which will result in the formation of nearly 40,000 households, generating demand for housing. A median home price below the national level has produced a homeownership rate of 66 percent, which is above the national rate of 64 percent. Roughly 31 percent of people age 25 and older hold bachelor s degrees; among those residents, 11 percent also have earned a graduate or professional degree Population by Age 7% 0-4 YEARS 2016 POPULATION: 2M Growth *: 5.3% 21% 5-19 YEARS 2016 HOUSEHOLDS: 774K Growth *: 5.6% 7% YEARS 28% YEARS 2016 MEDIAN AGE: 36.2 U.S. Median: 37.7 QUALITY OF LIFE Indianapolis offers residents many big-city amenities in an affordable, small-town atmosphere. The city is home to several high-profile auto races, including Indianapolis 500 and Brickyard 400. Races are hosted at the Indianapolis Motor Speedway and the Lucas Oil Raceway at Indianapolis. The metro has two major league sports teams: the Indianapolis Colts (NFL) and the Indiana Pacers (NBA). The area also has a vibrant cultural and arts scene, with more than 200 art galleries and dealers, the Indianapolis Symphony Orchestra and a variety museums, including the Eiteljorg Museum of American Indians and Western Art. Additionally, the Children s Museum of Indianapolis is one of the largest children s museums in the world. 26% YEARS 12% 65+ YEARS 2016 MEDIAN HOUSEHOLD INCOME: $53,700 U.S. Median: $54,500 * Forecast Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody s Analytics; U.S. Census Bureau the SPORTS EDUCATION ARTS & ENTERTAINMENT

31 INDIANAPOLIS METRO AREA TECH SECTOR EXPANSION CHANGING INDIANAPOLIS MARKET Success of large tech firms provides foundation for the burgeoning industry. More than 114,000 people are employed in the technology sector in Indiana and the expansion of the industry is centered in the Indianapolis metro. The success of firms including Salesforce and Interactive Intelligence is garnering the attention of other tech businesses that are considering expanding into the market. Salesforce recently moved into 220,000 square feet in the building now known as Salesforce Tower. The firm also has plans to add 800 employees and train 500 apprentices over the next five years. Another growing tech company, Knowledge Services, is planning to build a new headquarters in Fishers. The firm will complete the facility in 2018 and add 400 positions to the more than 1,100 employees already working in the state. Office buildings adjusting to attract new tech companies. Lower rent expenses and a skilled labor force make the region a more affordable alternative to many coastal markets and operators are changing to accommodate these businesses. Some operators are modernizing office buildings with open floor plans for collaborative workspace and adding amenities that attract tech and creative companies. Others are turning space into shared offices to draw startups. Office 2017 Outlook 1.3 million sq. ft. will be completed 10 basis point decrease in vacancy 1.1% increase in asking rents Construction: Deliveries reach an eight-year high during 2017, doubling last year s 590,000 square feet. Construction is dispersed throughout the market Vacancy: More than 1 million square feet of net absorption will decrease vacancy to 12.3 percent. Vacancy also declined 10 basis points last year. Rents: The average asking rent climbs 1.1 percent to $18.14 per square foot in 2017 following a 2.5 percent hike last year. Investment Trends * Trailing 12 months through 1Q17 Sources: CoStar Group, Inc.; Real Capital Analytics Interest in office assets will remain strong in 2017, limited only by the availability of quality listings. Lower entry costs and higher cap rates than are available in many markets will draw a wide range of investors to the metro. Properties that can be refurbished with open floor plates, natural lighting and amenities to attract tech, creative and startup companies will draw buyers to downtown Indianapolis and the Broad Ripple neighborhood. Investors will also follow tech companies northward into Hamilton County, where cities such as Fishers are actively recruiting these firms. The sale of medical office properties rose in the last four quarters as more properties were listed. During this time, assets priced appropriately received multiple offers at an average price of $184 per square foot. Cap rates begin in the 6 percent range, with both local and out-of-state buyers active throughout the market.

32 INDIANAPOLIS METRO AREA YEAR OVER YEAR EMPLOYMENT CONSTRUCTION VACANCY RENTS increase in total 1.8% employment Y-O-Y Metrowide, employers added 18,500 workers to staffs year over year in March, including 2,100 office-using positions. Overall gains were led by growth in the education and health services sector. A slowdown in hiring can be partially contributed to a lack of available workers. The unemployment rate has remained below 4 percent for three consecutive quarters. 516,900 square feet completed Y-O-Y Developers delivered 200,700 square feet in the first quarter of 2017, raising the 12-month total to 516,900 square feet. One year earlier, 805,200 square feet was completed metrowide. The largest building to open so far this year is Cummins 164,000-square-foot distribution headquarters in the redeveloping Market East district in the city of Indianapolis. 70 basis point decrease in vacancy Y-O-Y The absorption of more than 1 million square feet over the last four quarters reduced the vacancy rate to 11.7 percent in March. One year earlier, vacancy ticked up 30 basis points. Demand for office space in the core has cut vacancy 140 basis points to 8.9 percent in the Downtown submarket year over year in the first quarter. increase in the 2.9% average asking rent Y-O-Y Tightening vacancy is pushing rents higher, with the average asking rent advancing 2.9 percent to $17.87 per square foot in March. During the previous 12 months, rents declined 1.3 percent. Rents soared 10.4 percent to $13.46 per square foot in the Far South Counties submarket in the last four quarters. Rents here remain the lowest among submarkets. * Forecast

33 INDIANAPOLIS METRO AREA Demographic Highlights * **1Q FORECAST JOB GROWTH Metro 1.7% U.S. Average 1.4% 2017 OFFICE- USING JOB GROWTH Metro 1.4% Sales Trends U.S. Average 2.2% * POPULATION AGE Metro 21% U.S. Average 21% POPULATION OF AGE 25+ * PERCENT WITH BACHELOR DEGREE+ Metro 31% U.S. Average 29% **SQ. FT. PER OFFICE WORKER Metro 301 U.S. Average 210 **OFFICE SQUARE FOOTAGE Investors Broaden Search Area, Moving Farther From Metro Core 37% Urban U.S. Average 32% 63% Suburban U.S. Average 68% Transaction velocity remained relatively steady over the last four quarters with both local and out-of-state investors active. Sales activity increased in Hamilton, Hendricks and Johnson counties during this time. Class B and Class C properties were most often targeted at an average price of $94 and $82 per square foot, respectively, year over year in March. Outlook: Local buyers may find value-add opportunities in small office properties in growing cities such as Westfield or Zionsville. Submarket Trends Lowest Vacancy Rates 1Q17 Submarket Vacancy Rate Y-O-Y BasisPoint Change Asking Rent Y-O-Y % Change Far South Counties 3.8% -260 $ % Hancock County 5.0% -580 $ % East County 5.4% -110 $ % South County 7.0% -380 $ % Downtown 8.9% -140 $ % Far West Counties 10.8% 150 $ % West County 11.0% -180 $ % North County 14.7% 400 $ % Northeast County 15.5% -160 $ % Northwest County 15.5% -70 $ % Overall Metro 11.7% -70 $ % ** Trailing 12 months through 1Q17 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

34 INDIANAPOLIS METRO AREA N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W Capital Markets Monetary policy in transition. Despite the Fed raising its benchmark short-term rate three times in seven months and signaling another rise before the end of the year, long-term rates have remained stable. The yield on the 10-year U.S. Treasury bond remained in the low- to mid-2 percent range throughout the second quarter of The Federal Reserve wants to normalize monetary policy and, in addition to rate hikes, will start paring its balance sheet. While short- and long-term rates do not always move in tandem, both actions by the Fed have the potential to lift long-term rates. Sound economy a balancing act for Fed. With unemployment at the lowest level since 2007 at 4.3 percent, the Federal Reserve will remain vigilant regarding the possible rapid increase in inflation if wage growth takes off. Additionally, business confidence sits close to its all-time high. Businesses finally have the confidence to expand their footprint after years of tepid growth following the Great Recession. Office properties stand to gain significantly from this expansion with increased hiring adding to occupancy, plus expanding economic growth. The Fed, however, must now balance economic growth and job creation against wage growth and inflationary pressures. Underwriting discipline persists; ample debt capital remains. Overall, leverage on acquisition loans has continued to reflect disciplined underwriting, with LTVs typically ranging from 60 percent to 75 percent for most office properties. At the end of 2016, the combination of higher rates, conservative lender underwriting and fiscal policy uncertainty encouraged some investor caution that slowed deal flow, a trend that has extended into A potential easing of regulations on financial institutions, though, could liberate additional lending capacity and higher interest rates may also encourage additional lenders to participate. * Forecast Sources: CoStar Group, Inc.; Real Capital Analytics

35 NORTHSIDE INDY MEDICAL OFFICES MEDICAL OFFICE RESEARCH SECOND HALF 2017 Investors Maintain Confidence in Medical Office Market Despite Uncertain Healthcare Law Changes Changes to healthcare law uncertain, but strong demographic trends persist. Healthcare reform has been a major topic of the new administration, and while efforts to repeal and replace the Affordable Care Act have thus far been unsuccessful, many legislators continue to press for change. This ongoing uncertainty about healthcare will likely persist for an extended period but positive, demographic factors continue to support a growing medical office market. Baby boomers are aging and requiring more services every day, and a quick-paced lifestyle drives demand for retail clinics and telehealth services. By 2030, the 65 and older population will rise by more than 20 million individuals, accounting for over 20 percent of the United States total population. The aging population places additional pressure on medical providers as demand for services rises. Millennials are seeking healthcare options primarily in retail clinics, urgent care centers, and freestanding emergency rooms. Rural, underserved populations are gaining better medical care as they become more familiar with the use of telehealth services. * Forecast Healthcare providers continue their push into communities by taking space in outpatient medical office buildings that are coming online outside of traditional hospital campuses. Micro hospitals are also an emerging trend, and more of these small-scale inpatient facilities will pop up in underserved populations in the years to come. 35

36 NORTHSIDE INDY MEDICAL OFFICES N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W MEDICAL OFFICE RESEARCH Large portfolio deals make waves in medical office investment activity. Proposed changes to healthcare legislation have not thwarted investment in medical office space. Investment activity remains healthy as investors target the segment for its strong demographic factors, prompting significant portfolio deals in recent months. Investors choosing to sell now are met with a high degree of interest, and the majority of deals taking place involve multiple properties. Smaller private buyers and new entrants to medical office investing are searching for value-add deals as competition for stabilized properties is intense. Private equity funds are partnering with medical office investors to build portfolios. This opens the door for smaller groups to gain numerous properties at a lower borrowing cost than finding capital sources for each individual transaction. Demand for both on- and off-campus medical office buildings remains strong despite the uncertain state of the healthcare law. Investors remain interested in stabilized assets located in growing markets with healthy economies. Stabilized on-campus medical office properties in prime markets are trading at cap rates in the 5.5 percent to 6.0 percent range, while comparable off-campus deals are fetching initial returns approximately 50 basis points higher. Assets in need of repositioning or located in secondary or tertiary locations can trade up to 200 basis points higher. ** YTD through 2Q17 SECOND HALF

37 MEDICAL OFFICE RESEARCH SECOND HALF 2017 Changes to the care delivery model are driving trends in medical office development. Medical providers have been moving healthcare services closer to patients for several years now, prompting numerous developments away from traditional hospital campuses. Freestanding ambulatory care centers, stand-alone emergency departments, and large multi-tenant medical office buildings are creating new medical hubs in convenient locations to patients. Technological advances and a more patient-centered approach to healthcare are impacting the design of medical office spaces. Large file rooms have become obsolete as technology replaces paper, and flexible floor plates allow practices to maximize space needs. On- and off-campus construction is occurring as providers update or add on to existing facilities, new campuses are built in underserved areas, and outpatient buildings rise in communities. Medical office developers completed nearly 4.5 million square feet of space during the first two quarters of the year. The Midwest and Southeast regions led deliveries, with 850,000 square feet and 820,000 square feet coming online in each market, respectively. * West South Central 37

38 N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W MEDICAL OFFICE RESEARCH Vacancy constricts in the majority of regions as providers expand in new buildings. Though completions remain stable, deliveries are below pre-recession levels. Demand for newly constructed buildings is strong, however, as absorption has been concentrated in assets delivered since Providers are expanding or moving practices into these buildings in search of modern amenities and up-to-date technology features. The majority of space demand is funneling into newly built properties, and vacancy in buildings constructed since 2000 has plunged 630 basis points since peaking in Properties built in the 1970s boast the highest vacancy among vintages in the country, reaching 10.1 percent in the second quarter after falling 50 basis points. Vacancy continues to compress in the majority of regions across the country as deliveries remain below peak levels achieved before the recession. The nationwide average declined 40 basis points over the last year to 7.9 percent. Both the Central Plains and Pacific Northwest regions boast vacancy below 5.5 percent, the lowest in the country. SECOND HALF

39 MEDICAL OFFICE RESEARCH SECOND HALF 2017 Large medical providers controlling a large share of leasing activity as private practices merge. Major medical providers are in the driver s seat of many lease negotiations due to consolidation in the healthcare industry. This trend will persist as hospitals move services away from traditional campuses and private practices are merged into larger networks. As a result, rent growth has been rising at a slow and steady pace despite tightening vacancy. Medical office rent for properties built since 2010 are pushing near $30 per square foot as newer amenities and up-to-date technology command premium prices. Vacancy in 1990s assets fell below 10 percent for the first time since 2009 in the second quarter. As a result of steady declines in the rate over the past few years, rent growth advanced more than 5 percent, the strongest pace among vintages during the last four quarters. The national average rent increased at its strongest annual pace since early 2015 in the second quarter, advancing 1.2 percent to $23.00 per square foot. Nine markets boast rents above $30 per square foot: San Francisco, San Diego, Los Angeles, Orange County, San Jose, New York, Seattle-Tacoma, Miami and Austin. Average rent in these areas ranges from $30.68 per square foot to $44.24 per square foot. 39

40 MEDICAL OFFICE RESEARCH Marcus & Millichap Medical Office Building Regions SECOND HALF Medical Office Building Forecast Trailing 12 Months Through 2Q million Square feet Construction: Deliveries fall below the previous five-year average as 8.5 million square feet of medical office space is added to inventory in The Midwest and Southern regions will lead deliveries this year. Nearly 9 million square feet of space was completed in Basis point decrease Vacancy: Absorption remains strong this year, pushing down the overall vacancy rate to 7.6 percent in The rate will stay tightest in the Pacific Northwest, Central Plains and California regions. Last year, medical office vacancy retreated 80 basis points. 0.8% increase Asking Rent: West Coast regions continue to boast the highest rents, with several markets remaining well above $30 per square foot this year. The average rent ticks up modestly this year to $23.03 per square foot nationally. Rent increased 0.7 percent last year. 40

41 NORTHSIDE INDY MEDICAL OFFICES MEDICAL OFFICE RESEARCH SECOND HALF 2017 Capital Markets Monetary policy in transition. Despite the Fed raising its benchmark short-term rate three times in seven months and signaling another rise before the end of the year, long-term rates have remained stable. The yield on the 10-year U.S. Treasury bond remained in the low- to mid-2 percent range throughout the second quarter of The Federal Reserve wants to normalize monetary policy and, in addition to rate hikes, will likely start paring its balance sheet. Sound economy a balancing act for Fed. With unemployment hovering in the low-4 percent range, the lowest level since 2007, the Federal Reserve will remain vigilant regarding a possible rapid increase in inflation if wage growth takes off. Additionally, business confidence and job openings are near all-time highs. Businesses finally have the assurance to expand their footprints after years of tepid growth following the Great Recession. The Fed, however, must now balance economic growth and job creation against wage growth and inflationary pressures. National banks are the most active lenders in the medical office segment, with leverage for assets ranging up to 75 percent. Community and regional banks offer more flexible and creative financing options for local borrowers or familiar assets. Life insurance companies, meanwhile, remain an option for investors seeking longer terms and flexible options, preferring to lend on high-quality, trophy medical office assets. 41

42 NORTHSIDE INDY MEDICAL OFFICES N O R T H S I D E I N D Y M E D I C A L O F F I C E S // M A R K E T O V E R V I E W MEDICAL OFFICE RESEARCH 2017 Marcus & Millichap Transactions SECOND HALF 2017 Property Name City, State Sq. Ft. Sales Price $/Sq. Ft. Sugar Land MOB Portfolio Sugar Land, TX 146,651 $58,000,000 $395 Albuquerque Medical Building Albuquerque, NM 80,000 $35,836,000 $448 Vince & Associates Overland Park, KS 49,285 $16,700,000 $339 Agoura Hills Medical Plaza Agoura Hills, CA 51,775 $13,800,000 $267 Bald Mountain Medical Complex Lake Orion, MI 55,591 $13,700,000 $246 Muhlenberg Medical Center Powderly, KY 56,500 $10,650,000 $188 Calaveras Park Professional Center Milpitas, CA 21,008 $9,350,000 $445 Miramonte Medical-Dental Building Mountain View, CA 10,920 $8,200,000 $751 Shoreline Station Medical Half Moon Bay, CA 15,335 $8,150,000 $531 Brookside Medical Center Battle Creek, MI 54,242 $7,300,000 $135 Bay Area Physicians Surgery Center Riverview, FL 18,708 $7,200,000 $385 Multi-Tenant Medical Office Building Camarillo, CA 40,338 $7,150,000 $177 Orchard View Medical Complex Washington, MI 45,207 $6,900,000 $153 Multi-Tenant Medical Office Building Simi Valley, CA 24,417 $6,500,000 $266 Panther Creek Medical Plaza The Woodlands, TX 18,448 $5,500,000 $298 HealthONE Rose Surgery Center/Cherry Creek Eye Denver, CO 18,395 $4,750,000 $258 Griffin Gate Medical Center Hopkinsville, KY 26,829 $4,561,687 $170 Fresenius Anchored MOB Opportunity Hobart, IN 16,707 $4,000,000 $239 Haddon Hill Medical Center Cherry Hill, NJ 29,500 $3,900,000 $132 Collegeville Park Medical Office Building Collegeville, PA 14,904 $3,875,000 $260 Sources: Marcus & Millichap Research Services, MNet 42

43 PROPERTY NAME Created on December 2017 POPULATION 1 Miles 3 Miles 5 Miles 2022 Projection Total Population 15,309 68, , Estimate Total Population 15,346 66, , Census Total Population 14,637 62, , Census Total Population 13,387 59, ,998 Current Daytime Population 2017 Estimate 22, , ,108 HOUSEHOLDS 1 Miles 3 Miles 5 Miles 2022 Projection Total Households 7,573 29,101 70, Estimate Total Households 7,535 28,195 67,352 Average (Mean) Household Size Census Total Households 7,240 26,790 62, Census Total Households 6,504 25,663 57,167 HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles 2017 Estimate $200,000 or More 3.05% 7.29% 9.28% $150,000 - $199, % 4.47% 6.06% $100,000 - $149, % 12.48% 14.97% $75,000 - $99, % 12.17% 11.97% $50,000 - $74, % 16.62% 16.59% $35,000 - $49, % 13.80% 12.96% $25,000 - $34, % 10.58% 9.61% $15,000 - $24, % 11.30% 9.31% Under $15, % 11.62% 10.20% Average Household Income $63,253 $87,038 $99,277 Median Household Income $43,005 $53,621 $61,721 Per Capita Income $31,453 $36,960 $42,666 MARKETING TEAM POPULATION PROFILE 1 Miles 3 Miles 5 Miles Population By Age 2017 Estimate Total Population 15,346 66, ,183 Under % 25.81% 25.18% 20 to 34 Years 30.76% 22.99% 21.68% 35 to 49 Years 16.83% 18.22% 19.36% 50 to 59 Years 11.34% 13.22% 13.93% 60 to 64 Years 5.56% 6.06% 6.15% 65 to 69 Years 4.16% 4.43% 4.49% 70 to 74 Years 2.87% 2.98% 2.89% Age % 6.33% 6.32% Median Age Population by Gender 2017 Estimate Total Population 15,346 66, ,183 Male Population 45.49% 46.94% 47.29% Female Population 54.51% 53.06% 52.71% AVERAGE HEALTH CARE EXPENDITURE 1 Miles 3 Miles 5 Miles 2017 Estimate Total Expenditure Percent of Total 12.30% 12.39% 11.38% Health Care Insurance $2,580 $3,045 $3,226 Percent of Total 66.71% 66.51% 66.44% Medical Services $799 $958 $1,023 Percent of Total 20.66% 20.93% 21.06% Medical Supplies $122 $144 $154 Percent of Total 3.16% 3.15% 3.16% Percentage Change Health Care Insurance 17.66% 17.07% 16.66% Medical Services 18.42% 17.62% 17.54% Medical Supplies 24.27% 23.00% 22.54% Source: 2016 Experian

44 Population In 2016, the population in your selected geography is 157,183. The population has changed by 18.18% since It is estimated that the population in your area will be 164, five years from now, which represents a change of 4.35% from the current year. The current population is 47.29% male and 52.71% female. The median age of the population in your area is 37.32, compare this to the US average which is The population density in your area is 1, people per square mile. Race and Ethnicity The current year racial makeup of your selected area is as follows: 62.45% White, 24.23% Black, 0.02% Native American and 5.43% Asian/Pacific Islander. Compare these to US averages which are: 70.42% White, 12.85% Black, 0.19% Native American and 5.53% Asian/Pacific Islander. People of Hispanic origin are counted independently of race. People of Hispanic origin make up 8.51% of the current year population in your selected area. Compare this to the US average of 17.88%. Households There are currently 67,352 households in your selected geography. The number of households has changed by 17.82% since It is estimated that the number of households in your area will be 70,772 five years from now, which represents a change of 5.08% from the current year. The average household size in your area is 2.31 persons. Housing The median housing value in your area was $186,334 in 2016, compare this to the US average of $193,953. In 2000, there were 35,465 owner occupied housing units in your area and there were 21,702 renter occupied housing units in your area. The median rent at the time was $587. Income In 2016, the median household income for your selected geography is $61,721, compare this to the US average which is currently $56,286. The median household income for your area has changed by 15.92% since It is estimated that the median household income in your area will be $71,143 five years from now, which represents a change of 15.27% from the current year. Employment In 2016, there are 153,505 employees in your selected area, this is also known as the daytime population. The 2000 Census revealed that 75.92% of employees are employed in white-collar occupations in this geography, and 23.93% are employed in blue-collar occupations. In 2016, unemployment in this area is 3.84%. In 2000, the average time traveled to work was minutes. The current year per capita income in your area is $42,666, compare this to the US average, which is $30,982. The current year average household income in your area is $99,277, compare this to the US average which is $81,217. Source: 2016 Experian

45 P R E S E N T E D B Y Joseph DiSalvo First Vice President Investments Director - National Office and Industrial Properties Group Indianapolis Office Tel: (317) Fax: (317) joseph.disalvo@marcusmillichap.com License: IN RB Alexander Nulf Associate Member - National Office and Industrial Properties Group Indianapolis Office Tel: (317) Fax: (317) alexander.nulf@marcusmillichap.com License: IN RB