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OAK BROOK, IL-Great Lakes REIT has been shut out in attempts to increase the size of its medical office holdings, which has been the bright spot in a suburban portfolio that continues to see declining occupancy. While the REIT was 30% ahead of its leasing goal in the first quarter, the new deals were at rates 14% less than the previous leases, the company reports.

“It’s the most square footage we’ve leased since the fourth quarter of 2000,” says chairman and CEO Richard A. May. “Although it’s too early to call this a trend, we’ll take all the leases we can get.”

The new deals averaged five years in length, and were at an average net rate of $11.21 per sf, company officials report.

The 458,150-sf medical office portfolio acquired from Advocate Health Care for $59.6 million is 99.4% occupied, while Great Lakes REIT’s entire portfolio primarily in the Chicago, Milwaukee and Detroit suburbs began the month with an occupancy rate of 80.9%. Although he had no closings to show for it, the first quarter was a busy one for chief investment officer Raymond M. Braun, who has been shopping some of the REIT’s assets while targeting medical office properties for acquisition.

“The buildings that we’ve focused on are buildings that are attached to hospitals that house physicians. Demand for this product type is very strong.” Braun says. “We’ve had an opportunity to bid on several other portfolios but have taken a pass on a couple of them due to locational issues or concerns about the strength of the adjacent hospital.”

Advocate Health Care is rated AA by Standard & Poor’s, Braun notes. “We want to continue to grow this business with the best credit possible and continue to scour the marketplace for additional deals,” he adds.

Meanwhile, the REIT used its four-building, 1.23-million-sf Columbus, OH area portfolio as collateral for a three-year $29.2-million revolving credit line at LIBOR plus 1.45 points. The proceeds will be used for acquisitions, working capital and capital improvements, says president and chief operating officer Patrick R. Hunt.

Also, the REIT is eschewing share buybacks despite the common stock yielding 11.76% at its $14.50 share price to end the week. Great Lakes REIT had fallen to $12.76 per share in mid-March.

“The math comes out stronger on the acquisition side even with the low stock price,” May says.

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