8.04.08 GlobeSt.com

UpClose with Noyack Medical’s CJ Follini
By Ian Ritter

While some companies are pulling back, New York City-based Noyack Medical Partners LLC is doing just the opposite. The medical-office owner of five assets in the Northeast and Midwest is actively looking to buy more. Additionally, Noyack is in a joint venture to develop a $250-million facility that will be home to medical offices and senior housing. CJ Follini, Noyack’s managing member, recently spoke with GlobeSt.com about his firm and its niche in this interesting sector of the commercial real estate world.

GlobeSt.com: Is it a better market for acquisitions during this downturn?

Follini: There’s been a lot of opportunity. We’ve been focused on medical office since I put together the strategy in 2001. Right after the crash and the dot-com silliness, we decided to focus on a relatively stable, cash-producing real estate asset class. After doing the analysis of many different asset classes, such as storage and student housing, all of which are good, I chose medical office. I put together a little strategy, and we’ve followed it ever since. In many of the recent years, with all of the free money, there were a lot of casual players in the marketplace who may not have been medical office property businesses. They’ll come in, get a 95% loan-to-value, offer an unrealistic purchase price, and get that property. Many of those, expectedly, are coming back to the market because those were improper purchase prices. We follow a very-disciplined approach, and unfortunately, in the era of free money, we weren’t as lucky as some. Now the market has come back to sanity, and we are at the forefront. Right now we’re getting a contract for a $45-million building in Pittsburgh. We are going to contract on a $13-million office condominium in Manhattan. There are many more deals that are being transacted with realistic value, 25% or 30% equity, property pricing, and those kinds of things.

GlobeSt.com: Are the sellers mainly private owners?

Follini: It’s across the board. It’s bisected. We see a bunch of portfolios from the very high end, either hospital groups or private healthcare organizations that are selling medical office en masse, because of the spotlight on it. Then there’s the rest of the market, which is fragmented owners who may own a variety of real estate, one of which might be medical office, and they’re just trying to edit. Then there’s the hospital that needs to monetize the real estate in order to improve its balance sheet and prefer professional landlords that do it better than they. The hospitals are always there; that’s a steady that doesn’t fluctuate.

GlobeSt.com: How would you compare your business to other sectors right now?

Follini: It’s the hottest asset class. Hotels had that mantel for a while. Medical office has clearly knocked it off its perch. I’m not trying to pretend I came up with this concept. I was introduced to this field by Pacific Medical, which I consider the leaders in the industry. In the seven years since I met them, it has gone from a small group of focused players to a core-plus holding in institutional money.

GlobeSt.com: Are you less impacted by the economy then, say, retail because of lower consumer spending?

Follini: The reasons for being in medical office are the very reasons that it makes sense now. It’s stable cash flow in that the tenancy has a nearly 100% renewal rate. They are fairly insensitive…they really can’t move. They are also economically insensitive in that doctors are getting their bills paid. In turn, they pay their bills. It’s as simple as that.

GlobeSt.com: Does the aging population help you at all?

Follini: It is, but the aging population is just moving on inexorably. But I don’t think from one year to the next we’re saying, ‘Oh my God! The doctors are doing better because the population is aging. Essentially, the healthcare system is such that doctors here will always be paid well. And their facilities need to be a certain quality and build-out that is tailored to their needs.

GlobeSt.com: Have you considered buying non-medical offices and renovating them into those types of properties?

Follini: We are transitioning from being a cash-flow buyer of stabilized assets to a developer. We are now moving to ground-up development and the repositioning of existing assets.

GlobeSt.com: How easy is to add mixed-use components to these types of projects?

Follini: Medical offices are our main core competency, So we’ll JV existed living and own and manage medical offices. The key to this space is the focus. You have to be disciplined and focused, which is why, while there was a lot of helter-skelter buying, we stayed disciplined to do that. And those who are going to succeed stay there. But you’re going to see a lot of senior care-biotech campuses. And intergenerational interaction is a common trend for senior living, so you’ll see active-adult campuses near college campuses.

GlobeSt.com: Are any regions particularly hot right now in your space of real estate?

Follini: The West and the South have traditionally been the best areas. The handful of companies when I started were all in Florida, California and Arizona. The Northeast is still underserved in terms of healthcare development.