Iconic twin tower and another clinical building purchased by Texas Children’s
By John B. Mugford
One of the most recognizable medical office buildings (MOBs) in the vast Texas Medical Center just outside of Houston recently traded hands as part of a big two-building transaction between affiliated but separate health systems.
The buyer, Texas Children’s Hospital, didn’t have to look far to acquire the iconic O’Quinn Medical Tower at 6624 Fannin St. and the Baylor Clinic Building at 6620 Main St.
The 27-story O’Quinn building, with its familiar two towers, was built in 1991 and has 445,725 square feet of office and clinical space, with six stories of parking. It is across the street from the main campus of Texas Children’s Hospital, licensed for 639 beds, at 6621 Fannin St.
The other building in the deal, the 15-story Baylor Clinic Building, has 10 stories of parking and 227,670 square feet of clinical and medical space. Completed in 2003, it is across Main Street from the O’Quinn building, just a block from Children’s.
Together, the buildings have a total of 673,395 square feet of space that is 89.9 percent leased and situated on a total of 6 acres.
The seller was Baylor St. Luke’s Medical Center, a joint venture of the Baylor College of Medicine and CHI St. Luke’s Health, part of Englewood, Colo.-based Catholic Health Initiatives (CHI).
The value of the transaction has not been disclosed. However, if one were to use the 12-month average price per square foot (PSF) for MOB sales as of the end of the third quarter (Q3) of 2016 from real estate research firm Real Capital Analytics (RCA) Inc., the price would be an estimated $173 million. RCA’s average PSF for the trailing 12 months prior to the end of Q3 was $257.
That estimated figure could be considered conservative since most professionals involved in MOB sales say that sales of well-located MOBs occupied by strong health systems typically sell for PSFs that are higher, and for capitalization (cap) rates, estimated first-year returns, that are lower than the national averages.
The U.S. Healthcare Capital Markets Group with CBRE Group Inc. (NYSE: CBG), represented the seller; a team with Chicago-based Jones Lang LaSalle Inc. (NYSE: JLL), which represented the buyer.
Leading the team representing the seller were Chris Bodnar and Lee Asher CBRE, with Nelson Udstuen in the Houston market, as the seller’s exclusive advisors. Mindy Berman, Dan Bellow and David Bale from JLL represented Texas Children’s.
It looks as if Baylor St. Luke’s sold the buildings in preparation for the eventual completion of its new $1.1 billion, 27.5-acre McNair Campus, which will include a two-tower, 650-bed hospital, an MOB and ambulatory care complex, and new facilities for basic science and translational research.
The first phase of the campus, a patient care tower, is under construction while the second phase, which will include a second, 420-bed tower and the MOB, is scheduled to open in 2019.
According to a news release from Texas Children’s officials, the transaction calls for the Baylor St. Luke’s partnership to lease back a portion of each of the buildings until it completes its relocation to the new McNair campus.
Texas Children’s says it plans to “honor” the existing leases in the buildings and intends to “eventually occupy all available space as leases expire and tenants relocate. A facilities master planning initiative is already underway to integrate these two properties into Texas Children’s overall expansion and growth plans for pediatric and women’s services.”
“We value the incredible partnership we have forged with Baylor College of Medicine and St. Luke’s that spans more than 60 years, and we are proud of the rich history we share,” Mark A. Wallace, president and CEO of Texas Children’s, noted in a statement.
“This acquisition represents an investment in our mission and expands our opportunity to further our commitment to the children, women and families we serve in the Houston community.”
Acquiring the two outpatient facilities isn’t the only expansion that Texas Children’s, which also has two hospitals in suburban Houston, has planned for its campus in the Texas Medical Center.
The pediatric hospital system has also started work on a $506 million project that will add 19 new stories with 625,000 square feet of space on top of its existing Texas Children’s Pavilion for Women.
The resulting facility will have 25-floors and 130 beds for pediatric and cardiovascular intensive care and new operating rooms. It will be the new home of the Texas Children’s Heart Center, which will include an outpatient clinic, cardiovascular operating rooms and catheterization labs.
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