Buyer Pays $160 Million For 10 Medical Office Buildings

The health care arm of MB Real Estate paid $160 million for 10 Chicago-area medical office buildings, a sector growing because of Obamacare and the aging of the baby boom generation.

The buildings were acquired in two deals. The first was $29.5 million for a 112,600-square-foot building in Skokie, according to Cook County property records. The second purchase was $131 million for a nine-building portfolio, said Peter Westmeyer, president and managing principal of MB Real Estate Healthcare Group.

Illinois Bone & Joint Institute, a network of orthopedic specialists including more than 90 doctors in 20 Chicago-area locations, occupies more than half the space in the nine-building portfolio. That was the deal’s main draw, Westmeyer said.

“We try to partner with premier health care providers like that,” he said. “Then there is hospital tenants in a number of the buildings.”

The nine buildings are 95 percent occupied, he said. Other tenants include Advocate Health Care, Resurrection Health Care, Metro Infectious Disease Consultants, NorthShore University HealthSystem and Pain Specialists of Greater Chicago.

That same desire for high retention rates and creditworthy tenants drew MB Real Estate to the Skokie deal, Westmeyer said. The building, 9933, 9955, 9977 Woods Drive, is 70 percent occupied by NorthShore University HealthSystem.

RELIABLE INVESTMENTS

Medical office buildings have become very reliable among real estate investments, said Kevin Tyler, a health care analyst at Green Street Advisors, a Newport Beach, Calif.-based real estate research firm. And they tend to be less vulnerable to swings in the economy than other property types.

“Doctors in general tend to be a little stickier than other real estate tenants because they have a patient population that knows where their business is and is used to coming to their location on a regular basis,” Tyler said. “You get a very stable operation . . . and as a landlord, you can drive constant revenue increases.”

The Affordable Care Act also has boosted demand for office space, Tyler said. The law has increased the insured population, and a push toward more outpatient procedures has put an emphasis on satellite locations and outpatient facilities.

Couple that with the aging baby boomers, and you have “a very hot market,” Tyler said.

“For medical and health care providers, the spaces they typically occupy they typically don’t leave, they’re in there for a long time,” said Gino Lollio, associate vice-president in Marcus & Millichap’s Healthcare Real Estate Group, which brokered the larger sale. “You couple that with operational performance and one can understand why investing in the real estate that they occupy is a strong investment for landlord because there’s a good chance that they’re going to perform well and occupy that space for a long time.”

A partnership comprising multiple Illinois Bone & Joint Institute physicians and a local developer owned the nine-building portfolio. Lollio represented the sellers in the sale with John Smelter, senior director of Marcus & Millichap’s Healthcare Real Estate Group, and Associate Vice President Scott Niedergang.

Michael Bennett, managing director at Chicago-based real estate firm HFF, represented the seller of the Skokie building, Chicago-based Development Resources. An executive from Development Resources did not return calls.

The nine-building portfolio in the $131 million sale is made up of:

• 7055 High Grove Ave., Burr Ridge
• 2923 N. California, Chicago
• 900 Rand Road, Des Plaines
• 2350 Ravine Way, Glenview
• 2401 Ravine Way, Glenview
• 6540 North Lincoln, Lincolnwood
• 8930 Waukegan Road, Morton Grove
• 9000 Waukegan Road, Morton Grove
• 521 Green Bay Road, Wilmette

By Chicago Real Estate Daily

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