CCIM Feature
Leasing Large
A CCIM discovers a big opportunity to structure enhanced-lease use.
By Jennifer Norbut |
Many commercial real estate pros spend their careers searching for a
business-changing transaction, but few expect to find it while biking through
the neighborhood. Yet that's how Michael Hoadley, CCIM, president of Spinnaker
Real Estate Ventures LLC in Chicago, spotted one of the most rewarding -- and
complex -- deals he's ever completed.
"I was riding my bike by it and thought, 'This is
definitely not the highest and best use for this property,'" Hoadley says
of the U.S. Department of Veterans Affairs' Lakeside Hospital. Tucked into
downtown Chicago's upscale Streeterville neighborhood, the hospital includes
several buildings spanning more than 300,000 square feet on some of the city's highest-priced land.
As it turned out, the VA already was conducting a
regional, systemwide analysis of care delivery in relation to utilization of
its real estate. The Chicago area's four medical facilities, including
Lakeside, were of particular interest since a majority of veterans lived closer
to the city's west-side facility. In addition, professional real estate
consultants working with the VA had estimated the Lakeside complex's value to
be approximately $100 million.
Hoadley, who at the time was a vice president of
corporate services for Staubach Co., contacted the VA's regional chief
financial officer to learn how and when the VA's study would be implemented. In
June 2002, Hoadley's team was retained to conduct a highest-and-best-use
analysis of Lakeside, which provided further evidence that the site had
significantly greater value as a source of funds than as a hospital.
"Utilizing its statutory authority to engage in an enhanced-use lease, the
VA elected, after a series of public hearings and much fact finding, to attempt
to monetize the asset through a competitive process," Hoadley says.
In 2003, the VA hired Hoadley's team to solicit proposals
from competitive parties with whom it would structure the enhanced-use lease, a
property-transfer system that is permitted by law only for specific government
entities, including the VA.
As the project unfolded, Hoadley realized its complexity
was surpassed only by its potential. "Not only did we do extensive market
analyses, but due to [the property's] location, this was a very politically
charged issue. We interviewed everyone from state legislators to the mayor's
chief of staff to neighborhood groups." After months of research and
analysis, the Staubach team helped the VA structure an enhanced-use lease for
two local tenants: the Rehabilitation Institute of Chicago and Northwestern
Memorial Hospital, which have nearby facilities and are expanding. Eventually,
the property is likely to be demolished and replaced with a state-of-the-art
health-care center, Hoadley says.
With this structure, the VA was able to "front-load
the value in the enhanced-use lease and redeploy the money for other
mission-critical projects," Hoadley says. The deal was worth about $52
million.
While Hoadley found working with the government to be a
valuable experience, he hopes to parlay his skills into a niche business.
"I'd like to take that knowledge and work with the private developers on
the other side of the transaction," he says.
photo: Jill Paider Photography