Two investors in healthcare properties have paid almost $71 million for a medical center west of Chicago in a deal that demonstrates how single-tenant properties with long-term leases can be relatively immune to broader real estate market challenges.
Remedy Medical Properties and Kayne Anderson Real Estate this week announced their acquisition of the Rush Oak Brook Medical Center at 2011 York Road in Oak Brook, Illinois.
The sale price was $70.7 million earlier this month, according to DuPage County property records.
The deal by Chicago-based Remedy and the real estate arm of Los Angeles-based Kayne Anderson comes amid an overall slowdown in property sales throughout the country driven by several interest-rate increases.
Yet, deals for medical properties or other buildings with single-tenant occupancy often are viewed as a low-risk hedge against times of economic instability. Tenants typically have triple-net leases that require them to pay for expenses such as a maintenance, gas, electricity and property taxes.
Because they’re specialized and expensively built out, medical facilities also are viewed by investors as being at low risk of losing their tenant.
“Conversely, the medical office tenant knows that to reconfigure for another use can be prohibitively expensive,” said Rhea Stephen, CoStar's senior director of market analytics for the Chicago market. “Both parties know the cards of the other player. It's why deals like these are considered sure things.”
In another recent deal, Sila Realty Trust paid almost $60 million for a building in Burr Ridge, Illinois, that is fully leased to Loyola University Medical Center.
Hospital systems and other sellers can shift to rent-paying tenants to pay down debt and fund future expansion.
The seller in Oak Brook, Rush University System for Health, developed and opened the three-story facility in 2018. The sale allowed Chicago-based Rush to pay off a $41 million construction loan taken out in January 2017, according to property records.
“Rush remains firmly committed to delivering primary and specialty care at our Oak Brook location,” a spokesman said in an email to CoStar News. “The building sale enables Rush to place even more focus on strengthening the experience for our patients at this location as we continue to bring the highest quality care available to the western suburbs — including our new cancer center in Lisle, which opens in late 2024.”
The property is 99% leased to Rush and Midwest Orthopaedics at Rush, a division of OrthoMidwest, according to the buyers.
Their lease runs until 2035, the Rush spokesman said.
The Rush Oak Brook Medical Center is home to various medical practices, including orthopedics, physical therapy, neurosurgery, dermatology and primary care, the buyers said in a statement. The facility has a high-volume, multispecialty surgery center.
Remedy now owns more than 2.5 million square feet of medical space in its home market. It has almost 30 million square feet nationally, the firm said.
“As a Chicago-based company, we are thrilled to acquire this trophy building in our home market,” Remedy Chief Investment Officer Joe Magliochetti said in the statement.
Kayne Anderson Real Estate manages more than $14.5 billion in assets under management, with properties also including senior and student housing, traditional apartments and self-storage.
“Surgery center procedure volumes at Oak Brook have outpaced Rush's original expectations, and outpatient orthopedic surgical volume is expected to increase sharply over the next decade,” Antonio Minchella, senior managing director on the medical office team at Kayne Anderson Real Estate, said in the statement. “The Certificate of Need creates a high barrier to entry for competitors and further ensures the long-term profitability of this facility.”