Princeton, N.J.–AvalonBay Communities Inc. has inked a deal to buy the University Medical Center at Princeton from the nonprofit Princeton HealthCare System (PHCS), as well as nine houses that the health-care organization owns nearby. PHCS is building a replacement hospital that’s scheduled to open in Plainsboro in 2012, making the current facility superfluous.
The University Medical Center at Princeton is a 308-bed acute care hospital located on 9.8 acres. The borough of Princeton has already rezoned the location to residential, with a maximum of 280 residential units and nearly 80,000 square feet of retail space.
Reportedly, there was considerable competition among developers for the site, which is in the heart of a thickly populated and affluent place. As of 2010, according to the U.S. Census Bureau, Mercer County, N.J., ranked 80th among the highest-income counties in the United States.
Thus far Arlington, Va.-based AvalonBay hasn’t unveiled specific plans for the residential and retail redevelopment of the property, but it does anticipate demand for apartment properties in the coming years. During the REIT’s most recent conference call in late July, Timothy Naughton, AvalonBay’s president and a member of its investment and finance committee, said that the company is “continuing to replenish and build [its] shadow pipeline, as we added another $200 million in development rights in the second quarter, and have another $500 million in due diligence.”
Moreover, such development will be worth it. “The average projected yield for the development portfolio continued to improve in the second quarter and now stands at just over 7 percent,” he said. “Although we expect it to normalize in the high 6 percent range … with the cap rates in the 5 percent range, the development portfolio is expected to generate significant NAV growth over the next few years.”