In September of 2015, we entered into our seventh joint venture with Centum Health Properties. We acquired this 62,000 square foot, four-story building for $50 per square foot, which has twenty-two suites that range from approximately 697 to 17,715 square feet. At the closing of the Property, nine of the suites, comprising approximately 25.94% of the Building, were leased to medical office tenants on short and long term leases, which would enable us to increase rents after the remodel is complete.
The building was acquired for $3,150,000 with initial investor equity of $3,100,000. The investor equity was paired with an investor preferred loan of $1,600,000. The Preferred Loan is in first position before any equity distribution and has a coupon rate of 8% paid quarterly. Post closing, we also secured a line of credit with a local bank to support the additional capital needs as new tenants and lease renewals are secured. The average annual cash-on-cash return to the Equity Investors over the initial five years is projected at 11.34% with an Investor IRR, using a 5-year scenario, of just over 19.85%.
The initial strategy was take advantage of a recovering market after updating the building systems and refreshing the exterior and interior finishes. We were confident that the property would benefit from Banner Health’s recommitment to the area with their new residency program building costing roughly $400M and consisting of a 16 story, 650,000 square foot patient tower and emergency room. The Property is strategically located on the north side of McDowell Road, which is directly across the street from Banner Health’s flagship hospital that has direct association with the University. This shift in the market should allow for lease rates to be increased over the coming years.