The OSF HealthCare medical office building is a 55,416-square-foot medical office development in Rockford, Illinois that was completed in 2007 as a build-to-suit for Rockford Cardiovascular Associates (RCA). OSF HealthCare System master leased 100 percent of the facility on a long-term, single-tenant triple-net lease after they acquired RCA in April of 2009. This credit-enhancement provided by the new lease with the dominant healthcare system in the market immediately increased the value of the real estate.
OSF Healthcare, owned and operated by The Third Sisters of the Third Order of St. Francis, is an integrated health system with nine acute care facilities and two colleges of nursing. OSF also has a physician organization, employing about 640 physicians in various specialties and more than 317 advanced practitioners, who are part of the OSF Medical Group. The property is strategically located across the street from the OSF Saint Anthony Medical Campus, a 254-bed tertiary care facility on a 100-acre campus on the east side of Rockford. Patients from a 10-country radius frequently visit this facility for an array of medical services, including Level I Trauma Center, Illinois Neurological Institute, Center for Cancer Care, cardiovascular services, surgical service, and many more.
An existing client of ours, a local developer in the Rockford, Illinois market, was presented with the opportunity to acquire the OSF HealthCare medical office building for what he believed to be a great price. He recognized that the property was undervalued due to the prior ownership’s reluctance to hire an experienced healthcare real estate brokerage firm to properly market the offering. To provide himself some reassurance, he asked our team to produce a pricing analysis based on what we could sell the property for if we implemented a strategic and controlled marketing campaign. When our team evaluates an asset for a client we are taking into account the financial strength of the tenant(s), lease term remaining, contractual rental increases, location, building quality, recent comparable sales and trends in the marketplace. An appropriate cap rate range which we foresee the asset trading for in the market is also provided.
During the initial valuation of this asset, we paid particular attention to the master lease guaranteed by OSF HealthCare system, the close proximity to prominent healthcare facilities, and lease structure that provided for minimal landlord expense responsibilities. In order to capitalize on the opportunity, our client moved forward with acquiring the OSF HealthCare medical office building from the previous owners and then subsequently hired our team to market his the property to a broader buyer pool of qualified healthcare investors. Our marketing process created a unique bidding environment for qualified buyers to submit their best possible offers without exposing our client’s position, undermining his leverage. The property ultimately sold to a Chicago-based, joint venture fund targeting healthcare real estate. The final value paid by the ultimate purchaser was $15,700,000, which was $1.2 million above what our client had paid for the asset.
Seller Profile: Developer, Private Investor – Rockford, IL
Buyer Profile: Private Capital, Joint Ventured Fund Targeting Healthcare Real Estate – Chicago, IL
Lender Profile: National Commercial Bank – Chicago, IL