HHealthcare is consistently one of

the fastest growing sectors of the economy. The growth can, in part, be attributed to improvement of patient care, advanced surgical procedures, and the introduction of state-of-the-art medical equipment. While these factors are apparent, little attention has been given to the cost/benefit of the healthcare systems’ real estate portfolio. Continued growth in outpatient

delivery of healthcare and the need for capital by providers, drives real estate development. Over the last 10 years the healthcare industry has witnessed the evolution of third-party real estate transactions from developers, joint ventures, and publicly traded real estate investment trusts (REITs). Despite the increases in interest rates, the interest in healthcare real estate has remained strong and the number of private

investors/developers and pension funds is growing along with interest in this product.

Two opportunities for investing are medical office buildings (MOBs) and Ambulatory Surgical Centers (ASCs), with “MOBs” continuing to become a more mainstream real estate investment class. Buildings termed MOBs include: On-campus buildings that lease space

to private practicing physicians who are on the hospital’s medical staff and have primary or subspecialties. These buildings often include hospital outpatient diagnostic facilities.

•

(Continued on page 2)

Future Medical Space Needs By William Wiebe, CCIM, CRE, SIOR Reprinted from the Fall 2007 edition of Professional Report magazine with permission of the Society of Industrial and Office Realtors.

1-2, 5Future Medical Space Needs

3-4, 6-7 Current Listings

7 IRS to Examine 1031

8 Bits and Pieces

COMMERCIALREAL ESTATE REPORT

BILL GLADSTONE, CCIM, SIORJanuary/February 2008

Phone: 717.761.5070

www.BillGladstone.com

wgladstone@naicir.com

LEASED - 471 JPLWICK DRIVE, uHARRISBURG

The 10,000+ square feet will be the location for Sofa Selections new warehouse.

From the Sales Desk

t LEASED - 28TH AND PAXTON STREET, HARRISBURGThis is the location of the new Turkey Hill Minit Market. construction of the new AutoZone has begun on the adjacent lot.

Off-campus buildings that ease space to any physician or related healthcare provider that services patients independently or within a managed care program. The building may also provide space for outpatient diagnotic and treatment work that either complements or competes with services provided at nearby hospitals has remained strong and the number of private investors/developers This facility can be owned by ahospital or an independent investment group. Abuilding developed specifically for a physician multispecialty group

Nationally the lack of medical office buildings for sale and demand from institutional capital has resulted in an increase in sales from $600 million in 2000 to more than $4 billion in 2007. In addition to supply and demand, positive trends in the health care delivery system have fueled the interest in medical related real estate.Healthcare real estate has become a mainstream product for REITs and is viewed in the same context as traditional office and retail product. The following factors are positively affecting the MOB investment market:

Hospital utilization continues to grow at a strong pace despite recent slowdown in admissions rates,

Population growth and aging will drive utilization over the long-term,

Population growth and aging will

•

•

•

•

•

drive needs, driving continued MOB development,

Current facilities are becoming obsolet driving new development,

Health system real estate development has led to growth in medical office development,

Hospital capital constraints will continue to drive third-party ownership.

Aging Population = Increased Healthcare

Spending increased costs and the growth in healthcare expenditures along with projected growth of the aging population are underlying elements that fuel the growth in this real estate sector. The hospital market is projected to continue to grow at a rate outpacing the economy into the foreseeable future. In fact, statistics show that:

Hospital spending is growing at a rate of 6.3 percent annually.

One-third of national health spending goes to hospitals.

National hospital expenditures have grown from $552 billion in 2004 to a projected $704 billion in 2008.

As the industry continues to grow, there will be a growing need for:

On-campus medical office buildings (MOBs),

Imaging and surgery facilities, Long-termandacute carefacilities, Joint ventures with physicians

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•

•

•

•

•

•••

Because of current and future needs, the amount of dollars spent on hospital construction is on the rise and due to market dynamics this figure will continue to rise as the population ages and demand increases.

Ambulatory Surgical CentersBased on the demand for increased

hospital services, outpatient care suburban-based Ambulatory Surgery Centers (ASCs) have flourished. These surgical centers include freestanding ambulatory surgery centers and physician office-based facilities both which provide traditional acute care.

Between 1981 and 2005, the percentage of outpatient surgeries (physician offices, freestanding Note: Cap rates represent a 12-month rolling average. Source: Real Capital Analytics as of Q1 ’07. Based on independent reports of properties and portfolios $5 million and greater. Shattuck Hammond Partners facilities, and ASCs) grew. Prior to 1981, almost all surgeries were performed in hospitals. Since the late ’90s, physician office-based surgery centers have increased to 15,000 across the country. And freestanding ambulatory centers have grown from 2,425 in 1996 to 5,197 in 2006. Hospitals with a specialty in surgery increased by more than 100 in 2006 and will continue their growth spurt. Demand is not the only factor supporting this growth. Other factors include:

2

Future Medical Space Needs (Continued from page 1)

(Continued on page 5)

Source: Marcus & Millichap Research Services, U.S. Census Bureau

Construction Spending by Segment

Construction Spending By Segment

2000 2001 2002 2003 2004 2005 2006

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Mill

ions

Acute Care Hospitals Specialty Hospitals Rehab Hospitals Outpatient & MOB

Source: Modern Healthcare

$-

Medical Office Building Transaction VolumeHas Increased, Cap Rates Have Decreased

$2,681

2001 2002 2003 2004 2005 2006 1st Quarter2007

$751$944

$1,575

$2,942

$3,747

$949

$

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10.0%

9.0%

Volu

me

(mill

ions

)

Cap

Rates

Volume Cap Rate

Population Growth by Age Group

2001-2005 2006-2010

Age 0-4 Age 5-19 Age 20-24 Age 25-44 Age 45-54 Age 55+

-1%

0%

1%

2%

3%

3Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A

Commercial Real Estate Services, Worldwide.

CIR717.761.5070 l www.naicir.com

p LEASE – 425 N. 21ST ST., CAMP HILL38,303 total SF office space available. Building has high visibility and easy access from Route 15. Abundant, free on-site parking. Full-floor suites available with generous build-out allowances.

p SALE – JONESTOWN ROAD, HARRISBURG5,337 SF building on 0.82 acres with an office/showroom and shop/warehouse space. Neighbors include major retailers in the Paxton Towne Centre and Colonial Commons.

p SALE – 6290 ALLENTOWN BLVD., HARRISBURG 2.14 acre mid-block commercial lot behind Sheetz convenience store. The property is located near a high traffic area at a signalized intersection; over 20,000 cars daily.

p SALE – 597 SALEM ROAD, ETTERS17,050 SF in two warehouse/ industrial buildings. Great location along I-83 with direct access and great exposure. 100% leased with two strong tenants; $88,000 NOI; 8.4% cap rate.

p SALE – HARRISBURG PIKE (ROUTE), CARLISLE3,863 SF building on 0.61 acres available. Good visibility; convenient to I-81 and PA Turnpike (I-76). Zoned Commercial Highway.

p SALE – CARLISLE PIKE, (ROUTE 11), MECHANICSBURG2,870 SF commercial building with an office/showroom and shop/warehouse space. Well-situated site on Route 11; over 30,000 cars daily. Convenient to the I-81 interchange at Route 114. Surrounded by major retail uses; zoned Commercial Highway.

p CONTACT US TODAY:The Bill Gladstone Group of NAI CIRPhone: (717) 761-5070Web site: www.BillGladstone.com

pSALE - WESTPORT BUSINESS CENTER, MECHANICSBURG6.92 acres for office development in a prominent location off Route 15 on Rossmoyne Road. Convenient to full interchange of Route 15 and PA Turnpike (I-76).

NEW LISTINGS

p LEASE – 415 MARKET ST., HARRISBURG 8,187 SF of first floor retail space available inside the Harrisburg Transportation Center; divisible 792-7,395 SF. Could also be converted into office space.

p SALE – 2401 N. 4TH ST., HARRISBURG9,934 SF church with partial second floor and fully finished basement. Nestled in nice, quiet residential neighborhood; limited parking.

p SALE – 4349 LINGLESTOWN ROAD, HARRISBURG3,462 SF two-story commercial building available. Partial basement and 13 on-site parking spaces. Highly visible with easy access.

p SALE – 4647 JONESTOWN ROAD, HARRISBURG4,460± SF commercial building available. High visibility from Route 22. Leases with national and regional tenants running until 2010 with options to renew. 7.6% cap rate.

p SALE – 816 BELVEDERE ST., CARLISLE5,000± SF medical building. 100% leased with upcoming lease expirations; upside potential with below market rents.

p SALE – 1889 OLD STATE ROAD, DAUPHINEight units available on 10.74 acres; Le Ellen Motel just off Route 22-322 North. Excellent visibility and great access from heavily traveled highway.

p SALE – 4076 CARLISLE PIKE, CAMP HILL18,000± SF multi-tenant office building available on a 1.57 acre lot with creek views along rear of property. Space available for occupancy on 1st and 2nd floor. 8.9% cap rate.

4 Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of

price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A

Commercial Real Estate Services, Worldwide.

CIR717.761.5070 l www.naicir.com

p SALE – 1222-1224 N. THIRD ST., HARRISBURG21,736 SF historic six-story building; great redevelopment opportunity. First floor aimed at retail/commercial uses with top 5 floors as residential apartments/condos.

www.billgladstone.com/commercial COMMERCIAL LISTINGS

INVESTMENT LISTINGSwww.billgladstone.com/investment

5

Future Medical Space Needs (Continued from page 2)

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Expanded coverage of outpatient services by medicare,

ASCs have become increasingly common as integrated components of MOB development, and

ASCs have improved significantly to become surgical hospital developments.

The Future

In the future, with the trend of outpatient surgery being performed at hospital/physician joint ventures, I see hospitals continuing their gain in cardiac and neurosurgery but losing surgical in-house patients to various other surgical specialties. Experts predict that of outpatient surgeries performed, Orthopedics will lead the way at 26 percent, Urology at 16 percent, Neurosurgery at 14 percent,

•

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Cardiac Surgery at 12 percent and General Surgery at nine percent. This ensures the trend for more and more hospital/physician joint ventures.

The demographics for the continued growth of medical office buildings and ambulatory surgical centers are here to stay.

Author's InformationWilliam E. Wiebe, CCIM, CRE, SIOR,

Cincinnati, Ohio, has worked with hospital systems and physician groups in their strategic planning for 15 years. In addition, he partners with developers to build, as well as own, “On- Campus and Suburban-Based” Medical Office Buildings and Surgical Centers. Bill has held his SIOR designation for 10 years.

Characteristics of the Medical Office Building

Location • Urban • Suburban • Rural Hospital Affiliation

• Profit or not-for-profit• Academic institution• Faith-based institution• Community hospital

Ancillary Services• Imaging• Lab • Pharmacy• Other

Tenant Mix• Specialists• Primary care• Retail• Parking

Parking• Physician• Employee• Patient

Ambulatory Surgical CentersAlthough ASCs share many of the characteristics of the MOBs. they set themselves apart, in part, by the extent of patient services provided, such as the follow-ing specialty surgical procedures:

• Orthopedic • Gynecological • Gastroenterological • Ophthalmologic

Do you like this publication?

p LEASE/SALE – 10105 JONESTOWN ROAD, GRANTVILLE5,216 SF freestanding building located near Penn National. Ideal for medical/professional office use; commercial uses are permitted. Approximately 45 on-site parking spaces.

p LEASE – 3552 OLD GETTSYBURG ROAD, CAMP HILLBeautifully renovated building with high visibility and quick connections to Routes 15 and 581. 2,700 SF on 1st floor; can be subdivided.

p LEASE – 900 CENTURY DRIVE, MECHANICSBURGTwo-story building with professional finishes and good window lines. 1,584 SF suite in shell condition on 1st floor. Easy access to Route 15 and PA Turnpike.

p LEASE – 101 N. SECOND ST., HARRISBURG6,279 RSF per floor; 2nd and 3rd floors available in the 2nd quarter of 2008. Office space located in the CBD with all downtown amenities.

p LEASE – 1320 LINGLESTOWN, ROAD, HARRISBURG7,920-15,840 SF available; 1 or 2 floors contiguous. Class A office space available for lease 2nd quarter '08. Beautiful window lines and landscaped areas. Professional lobby and work areas.

p LEASE – 750 EAST PARK DRIVE, HARRISBURG25,945 SF of B+ office space available on 3 floors; subdividable from 1,729-13,277 SF. Beautiful wrap-around window lines. Parking in excess of 5 spaces per 1,000 SF.

p LEASE – 651 EAST PARK DRIVE, HARRISBURGClass A+ office space along Harrisburg’s East Shore Beltway. Three suites; 2,138-8,262 SF (subdividable). Easy access to all major highways for East and West Shores. Great window lines, beautiful views. 100± parking spaces in common.

6 Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A

Commercial Real Estate Services, Worldwide.

CIR717.761.5070 l www.naicir.com

p LEASE – 2505 N. FRONT ST., HARRISBURGEntire 2nd floor available: 4,500 SF. 10 perimeter offices, reception, conference room, 2 executive offices and lunch room. Good window lines with view of Susquehanna River.

www.billgladstone.com/office OFFICE LISTINGS

COMPANY LUXURYUPPER

UPSCALEUPSCALE MIDMARKET

TOTALPROJECTS

Marriott 11 43 407 204 665

Intercontinental 8 0 151 830 989

Hilton 1 55 266 372 694

Starwood 17 64 89 0 170

IIRS to Examine 1031

If you or a client has used a Section 1031 tax-deferred exchange recently, hold on to your documentation, as the Internal Revenue Service is stepping up reviews of such transactions, according to a Wall Street Journal report. Urged by a recent Treasury report to do a better job of explaining 1031 rules, the IRS also is revising its reporting forms, publications, and other communications and will conduct an in-deph study of reporting and compliance issues regarding like kind exchanges. Part of the reason for the attention is the explosion of tax-deferred exchanges in the past decade In 2004, taxpayers filed more than 338,500 forms for like-kind exchanges, more than double the number in 1998, representing almost $74 billion in deferred taxes.

Top 5 Self-Directed IRA InvestmentsInvestment propertyRental propertyForeclosures and pre-foreclosuresTax liens and deedsRaw land

(Source: Guidant Financial)

•••••

7Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A

Commercial Real Estate Services, Worldwide.

CIR717.761.5070 l www.naicir.com

"Market Trends" © CCIM Institute Reprinted with permission from Commercial Investment Real Estate. volume XXVII, no.1,pgs.6-8

LOCATION ACRES ZONING TYPE

2425 N. Market St., Elizabethtown, Mt. Joy Twp. 0.79 Conservation Residential Lease/SaleBent Creek Blvd., Mechanicsburg, Silver Spring Twp. 4.43 (2 lots) Community Commercial LeaseSt. Johns Road, Camp Hill, Lower Allen Twp. 3.05 Commercial/Office SaleRt. 22 & Rt. 39, Harrisburg, W. Hanover Twp. 7.70 (6 lots) Commercial Highway/Office SaleRt. 743 (Hershey Road), Elizabethtown, Lancaster County 5.20 Commercial SaleWildwood Park Dr., Harrisburg, Dauphin County 2.5± Commercial (good restaurant site) Sale7700 Derry St., Harrisburg, Swatara Twp. 15.51 (8 lots) Commercial SaleClaster Blvd., Dauphin, Dauphin Borough 0.79 To be Commercial Sale

www.billgladstone.com/land LAND LISTINGS

GEOGRAPHIC REGION AVERAGE CAP RATE (%)

YEAR CHANGE (IN BASIS POINTS)

MEDIAN SALESPRICE (PSF)

West 6.9 -30 $82

Southeast 7.3 +40 $83

Northeast 7.5 -40 $96

South Central 7.6 -30 $49

North Central 8.7 +10 $57

Source: Marcus & Millichap

Self-Storage Investment Snapshot

Hospitality Project Pipeline

Source: Lodging Econometrics

Bits & PiecesPRESORTED STANDARD

U.S. POSTAGE PAIDHarrisburg, PAPermit No. 783

BILL GLADSTONE, CCIM, SIOR

NAI CIRP.O. Box 8910Camp Hill, PA 17001-8910PHONE: 717.761.5070FAX: 717.975.0752wgladstone@naicir.comwww.naicir.comwww.BillGladstone.com

LeasedTurkey Hill Minit Markets, on lot B at 28th and Paxton Streets, is now open. Bill Weisser, Turkey Hill’s Real Estate Representative, worked well with Swatara Township’s Dick Bazdar, Director of Code Enforcement/Zoning Officer, and Paul Cornell, Township Manager. With Dauphin County’s cooperation as the landowner, this deal moved along nicely. Skip Memmi, Deputy Executive Director for Dauphin County Economic Development, was extremely proactive in working with Turkey Hill, while also structuring the best deal possible for the County. Additionally, all three Dauphin County Commissioners; Commissioners Haste, Hartwick and DeFrancesco, were only content with a deal that would bring an annual market annuity for a long period of time. The new business, which sits on a previously vacant piece of land, will now bring a revenue stream to both the County and the Township. It was a nice job by all, and it was a pleasure working with everyone.

Construction of the new AutoZone has now begun next to the Turkey Hill (above); the deal was finalized this past month. Again, Paul Cornell and Richard Bazdar took part, ensuring that both the County and AutoZone were aware of any land development issues. Richard Groff, Real Estate Zone Manager for the Central U.S. for AutoZone, was actively involved, working with Skip Memmi and the Department of Community and Economic Development for Dauphin County to pull this transaction together. The Dauphin County Commissioners finalized the transaction. In a deal that was somewhat problematic, it was beneficial to work with people of such a high caliber. AutoZone will now have a well-positioned store within the market and the County’s residents will have a new business that pays real estate taxes on a formerly vacant parcel of land. It was a great example of cooperation from various astute business people and a win-win situation all around. Again, gentlemen, it was a pleasure working with you.

Don Spitler, owner of Sofa Selections, has now secured larger warehouse space for both of his retail operations currently on the East and West Shores. Don was very diligent in his search, wanting to secure the perfect location. The building he selected was 471 JPLWick Drive, home of JPL Productions, Inc. With 10,000+ square feet, the space matched Don’s requirement. Dave Wilson, CEO for JPL, handled his company’s end of the deal. Dave was very receptive to Don’s specific needs, which made the deal come together rather quickly. It was a pleasure working with you; it seems this is an ideal long-term location.

Graystone Bank is on the move again. In addition to the first and third floors of 112 Market Street, the building owned by Dauphin County IDA, the bank now occupies the fifth floor. Its growth has been phenomenal under the management of President Andrew Samuel and Vice President Janak Amin. Working hard for the IDA, Skip Memmi was extremely proactive in

his approach to secure and maintain this long-term tenant. Skip ensured that Brad Forman, Chairman of IDA, was very aware of the circumstances; many times we relied on Brad’s judgment to proceed forward. Bruce Foreman, Solicitor for IDA, was also very active throughout the process. The outcome was another floor leased to Graystone on a long-term basis, which works well for both parties. Everyone who put this deal together participated eagerly and assertively, proving to be a very dedicated group of people. I wish you all the best in your future at 112 Market Street.

ASI, a technology company owned by Howard Minnich, has leased 4,800 square feet at the Capital West Business Center. Howard, represented by his realtor Greg Folk of Century 21 Pisconeri, started his company from the Murata Business Center in Carlisle (an incubator building). He was able to push the sales to a level where he could move into non-incubator space in the Westport Business Park on Rossmoyne Drive in Lower Allen Township. The Capital West partners were represented by Jeff Grubb, who led the negotiations. Once business terms were established, the attorney for the partners, Jim Ulsh, with Mette Evans and Woodside, worked with Howard’s attorney Kent Patterson to quickly negotiate the legal language in the lease. Jeff was very understanding of Howard’s timeframe and accommodated his schedule whenever possible. It is a pleasure having you in the Center, Howard. I know Jeff and the other partners welcome you and wish you the best. It was a pleasure working with all of you on this deal.

Source Point, LLC a Human Resource company based out of York, has opened a new location at 3552 Old Gettysburg Road in Camp Hill, leasing 2,208 SF from Gibson-Thomas Engineering company. Source Point was represented by Rock Commercial Real Estate, while Rich Hilboky of Gibson-Thomas handled the transaction for the engineering partnership. Great job Rich, it was a pleasure working with you.

The Mutual Fund Store (TMFS) leased 1,760 SF at the new Patton Place neighborhood center on Linglestown Road. This is the first store in Central PA for TMFS, but it is expanding rapidly; Harrisburg is now the 53rd market TMFS will serve. Brian Quill represented the company from its corporate location in Liberty, MO, while Chad Stine of Coldwell Banker worked for the landlord, Brian Evans, owner of Evans Engineering, Inc. Listen for TMFS’s radio program to air weekly at 10:00 am on WHP 580 AM. Both Brians and Chad - thanks for your cooperation and willingness to get this transaction closed.

Nick Loxas has leased 1,500 SF at the Plaza 5000 on Linglestown Road to the Harrisburg Institute of Tae Kwon Do, Inc. The Harrisburg Institute was represented by its owner, Joe Fox, and his wife Thelma. The synergy amongst all participants of this deal was unbelievable; it was truly rewarding to meet and work with all parties. Best wishes, I hope our paths will cross again in the future.

The Bill Gladstone Group of NAI CIR assisted in the following transactions: