The eight-building, 460,052-sf portfolio acquired from Advocate Health Care last month for $59.6 million now accounts for 10% of the value of the REIT's assets, says chairman and chief executive officer Richard May, while making up 7.8% of the portfolio's square footage.

"Our goal is to grow this business line to 20% in the next five years or so," adds May in the REIT's third-quarter conference call.

Having been swamped with 1.2 million sf of space rolling over in 2002, another 19% of Great Lakes REIT's portfolio--1.12 million sf—is up for renewal in 2003. Meanwhile, only 4% of the medical office portfolio expires in 2003, followed by 9% in 2004 and 17% in 2005.

However, leasing stability maintained by locations next to hospitals is not the only attraction. The Advocate portfolio was acquired at a 10.1% going-in capitalization rate, May says. By comparison, the REIT's most recent purchases of more typical suburban office assets, including 1111 E. Touhy Ave. in Des Plaines and 387 Shuman Blvd. in Naperville, were acquired at 11% capitalization rates, he notes.

"On the higher profile properties that are actively shopped, the cap rates are trending under 10%," says Windrose Realty Trust president and chief operating officer Frederick Farrar, whose newly-minted Indianapolis-based medical property REIT hopes to close on another $45 million in deals this quarter or early next year.

Instant Insights /

REIT Finds Rx in Medical Office Properties

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