Harbor Group International has provided a $90 million senior mezzanine loan to New York-based commercial real estate developer Extell Development for the construction of a Manhattan medical office building at 1520 First Avenue.
New York real estate manager Rexmark and Los Angeles-based Pacific Western Bank also contributed to the loan financing, which totaled $425 million. InterVest Capital Partners was the advisory firm in the transaction.
Richard Litton, president at HGI, said the deal addresses the increasing need for high quality medical space, a problem seen across the US, but especially in cities with a high concentration of residents.
“To support this demand, we are pleased to finance the development of a specialized office space designed to accommodate the unique needs of medical tenants and their patients,” Litton said.
The deal highlights the outlook for this niche sector – which sits somewhere between healthcare and the broader, struggling office sector – as positive.
According to a Colliers Q3 2022 report on healthcare real estate, medical office “continues to go from strength to strength.”
“Despite economic concerns and industry challenges, the medical office property sector [has been] setting record highs for asking rents, sales volume, and pricing over the past four quarters,” reads the report’s overview. “Demand is outpacing supply, vacancy remains tight, and capitalization (cap) rates have remained relatively stable.
As a result, development activity is gaining momentum, reflecting confidence in the sector.” Colliers also underscores the sector’s ability to weather economic storms with medical care being something many people find hard to forego. Investor demand was strong at $17.2 billion in the four quarters ending with Q2 2022, the report shows, the highest on record.
1520 First Avenue
1520 First Avenue is a mixed-use medical office and retail space in the Upper East Side’s medical corridor.
When construction is complete, anticipated for 2025, the property will offer nearly 400,000 rentable square feet of medical space, nearly half of which is pre-leased to the Hospital for Special Surgery, a musculoskeletal health and surgery center as well as ground floor and lower-level retail space.
The property is in the heart of the Upper East Side’s medical corridor, near several transit options, including bus stops and a subway line, offering both tenants and patients good connectivity and accessibility.