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Transactions: A closer look at Tower Health’s $203.7M monetization

Amid the pandemic, the Pa.-based system sold 23 assets to Oak Street Real Estate Capital

By John B. Mugford

The Chestnut Hill Hospital MOB at 8815 Germantown Ave. in Philadelphia was part of the second largest MOB portfolio sale of Q2. Oak Street Real Estate Capital bought 24 properties, including 17 MOBs, from Tower Health for $172.46 million.

Just as June was coming to a close, a Pennsylvania-based health system’s sale of a 23-property, mostly medical office building (MOB) portfolio in southeastern Pennsylvania garnered a strong price of $203.7 million at a capitalization (cap) rate, or expected first-year return, of 6.45 percent.

Although the packaging of the portfolio and many of the preparations for its marketing and eventual sale had been started prior to anyone’s knowledge of the devastation the COVID-19 pandemic would have on the economy, a good share of the process – including presenting the offering to potential buyers, receiving bids and finalizing the buyer – took place amid the throes of the crisis.

That’s why the sale-leaseback of the portfolio occupied by West Reading, Pa.-based Tower Health, a five-hospital system serving 2.5 million people at more than 230 locations in southeastern Pennsylvania, to Chicago-based private equity firm Oak Street Real Estate Capital, which is well known for its investments in the industrial and retail sectors, has quite an interesting background story.

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