Swedish Shopping 600,000-SF Medical Office Portfolio

SEATTLE-Swedish Medical Center is selling its well-leased, 600,000-sf medical office portfolio here to a specialty investor with which it envisions a long and mutually beneficial relationship. The owner-operator of three large area hospitals says proceeds from the five-building sale could exceed $100 million, money it will use to develop clinical programs, acquire new medical technology, replace older buildings and equipment, and follow through with its newly initiated expansion to the Eastside of Lake Washington.Swedish CFO Ron Sperling tells GlobeSt.com the disposition will include the buildings themselves but not the dirt, which the buyer would control under a long-term land lease. The New York advisory firm Shattuck Hammond Partners, which has been working with the nonprofit organization for two years, has received initial interest from 15 parties. After a qualification and bidding process, Swedish will select a finalist and could close the sale by mid-summer. “Having so much resource tied up in medical office buildings no longer makes the most sense for us,” says Ron Sperling, Swedish’s chief financial officer. “We believe the capital from the sale of these buildings could be better used on investing in improvements that are central to Swedish’s nonprofit mission of providing excellent patient care.”The properties include 1101 Madison Tower, Arnold Pavilion (seventh floor and above), located at 1221 Madison; 600 Broadway; the Heath Building, located at 801 Broadway; and the retail space around the Nordstrom Tower, located on Madison Street between Summit and Boylston avenues-–all on the Swedish Medical Center/First Hill campus. Also included is the Ballard Medical Plaza, located at 1801 N.W. Market, at the Swedish/Ballard campus in northwest Seattle. Swedish developed all but one of the buildings. Currently, they house some Swedish clinical programs and departments, physician practices and retail businesses. Sperling says the portfolio is about 92% leased and that Swedish occupies about 20% of the total space, which it will continue to lease from the new owner.”This is the ideal time to reconfigure these assets,” says Sperling. “Historically, when the economy sags and interest rates are low, properties such as medical office buildings are considered lower-risk investments.”With regard to the $100-million estimated value of the portfolio, Sperling says the figure was generated after looking at what prospective buyers might be willing to pay based on cash flow and estimated cap rates on a building-by-building basis. “But we’re more interested in who is actually going to buy it,” says Sperling.Given the ongoing relationship that will exist, Sperling says Swedish is first and foremost interested in finding a buyer who has “extensive experience” in working with medical tenants. “This really will be a partnership; we hope that whomever we select will be involved in the future redevelopment of older, undersized buildings on the campus,” says Sperling. “That’s why we are looking for one entity to purchase the whole portfolio; we want to deal with just one company in the future.”Since its inception in 1910, Swedish has acquired considerable real estate in Seattle. With more than 25 city blocks, it is one of the region’s largest landowners. Sperling says most of that real estate is utilized as patient healthcare facilities and wouldn’t be sold. The largest of the medical office buildings in the for-sale portfolio is 1101 Madison, a 250,000-sf, 15-story building completed in 1994.