CCIM Feature

Leasing Large

A CCIM discovers a big opportunity to structure enhanced-lease use.

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

Jennifer Norbut

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