CHICAGO-In 2002, a historic commercial real estate transaction took place that, in a way, signified the coming of age of the medical office building sector. In what was considered one of the first large hospital-driven MOB monetizations in the country, Chicago-based Advocate Health Care sold eight buildings totaling 460,000 square feet to the former Great Lakes REIT. The price was $60 million, or about $130 per square foot.
Eleven years later, seven of the eight buildings in the original Advocate portfolio are for sale. And once again, the portfolio could have a significant impact on the MOB market as the offering comes at the time of a reported shortfall of desirable, for-sale medical facilities.
The seven-building package is considered attractive and big enough to meet the demands of larger buyers, such as institutional investors that typically do not attempt to acquire single properties or smaller portfolios priced at less than, perhaps, $40 million. The MOBs are all located on Advocate hospital campuses and have a total of 408,734 square feet of space. About 48% of the space is occupied by the Oak Brook, IL-based Advocate system, which operates 10 hospitals, 3,000 beds and has outpatient facilities spread throughout the greater Chicago area.
A potential or suggested price has not been listed, and speculating on such a figure would not be accurate because of presumptions that would need to be made on current and future rents, according to CBRE‘s Healthcare Capital Markets Group, which is representing the unnamed seller in marketing the portfolio. CBRE’s efforts are being led by the co-leaders of the company’s national healthcare team, Chris Bodnar and Lee Asher, as well as William Novelli Jr. of CBRE’s Chicago Investment Properties group.
In 2004, Great Lakes started selling certain properties prior to being acquired by Chicago-based Transwestern Investment Co. LLC. According to news reports at the time, the real estate investment trust sold its Advocate MOBs to Chicago-based LaSalle Investment Management Inc. for a reported $69 million.
The portfolio, which is 88% occupied, is being offered at a time when CBRE’s Healthcare Capital Markets CBRE reports that recently surveyed investors have allocated more than $7.7 billion toward acquiring MOBs in 2013 – no doubt a record amount. With all of that capital having a hard time finding medical properties, CBRE’s Bodnar says demand is high for the Advocate buildings. More than 80 confidentiality agreements were submitted before the early March deadline.
“Many of the institutional investors are trying to strategically build hospital partnerships with dominant providers around the country,” Bodnar adds. “At the same time, they are also trying to build their property management portfolio and this … gives them the opportunity to pick up over 400,000 square feet to manage.”
John Mugford is the Editor of Healthcare Real Estate Insights, the nation’s first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.