Tennessee firm buys building leased to Advocate Aurora Health subsidiary - Crain's Chicago Business

5400 Pearl St. in Rosemont

A Nashville, Tenn.-based real estate firm has picked up an office building next to O’Hare International Airport, a deal that shows strong investor demand for office properties with single long-term tenants.
Montecito Medical Real Estate bought the three-story office building at 5400 Pearl St. in suburban Rosemont earlier this month, according to a statement from the firm. The purchase price was not disclosed, but sources familiar with the deal said Montecito paid just under $30 million for the 97,500-square-foot property. The building is fully leased to Advocate Aurora Health lab testing subsidiary ACL Laboratories on a lease that runs for another 10 years.
The sale likely notches a profit for the venture of Skokie-based real estate investment firm Dell Corp., which bought the building in 2017 for $24.3 million, Cook County property records show. That growth in property value stands out in a pandemic-battered broader office landscape, where remote work and shrinking tenants have hacked away at many landlords’ bottom lines, diminishing the value of their buildings.
The story for net lease office buildings—those tied to long-term leases with single, high-credit tenants—has been far different. Demand for such buildings has been strong during the pandemic as investors have sought the reliable cash flow they provide.
The Rosemont property “will be a great addition to our growing Chicago-area portfolio, and we look forward to continuing to build our relationship with Advocate Aurora Health in the coming years,” Montecito Senior Associate of Investments Tony Shallcross said in a statement.
Montecito is also betting on an office building near O’Hare, one of the most in-demand submarkets for office space in the suburbs. Office vacancy in buildings near the airport was 21.5% at the end of June, substantially lower than the record-high 27.1% overall vacancy rate in the suburbs.
ACL’s building was built in 2001 and is across the street from Impact Field, the 6,300-seat baseball stadium that opened in 2018 and is home to the Chicago Dogs independent league franchise. The stadium serves as an anchor for a mixed-use entertainment hub along Interstate 294, dubbed the Pearl District. That area is just west of Rosemont’s Parkway Bank Park entertainment area.
The Pearl Street property is the second local medical office building Montecito has acquired in recent weeks. The firm announced late last month that it purchased a 20,000-square-foot gastroenterology outpatient facility in Naperville.
Montecito was formed in 2006 and owns medical office properties across 35 states with a total value of more than $5.1 billion, according to its website.
Medical office buildings have been among the better-performing types of commercial real estate during the COVID-19 pandemic. Major health care systems are pushing more services away from hospital settings and into outpatient facilities with infrastructure to handle clinical testing and lab work, boosting demand for medical office space.
That has helped lure investors: Sales of medical office buildings nationwide totaled $7.7 billion during the first half of 2022, up 38% year over year, according to data from research firm MSCI Real Assets. That number was also 13% higher than the first-half average from 2017 through 2019, the firm reported.
A Dell spokesman declined to comment. The company also owns the 160,000-square-foot Woodland Falls Corporate Center office building in Mettawa, which houses the headquarters of medical device maker Vyaire Medical.
The capital markets team in the Chicago office of Cushman & Wakefield marketed the Rosemont building on behalf of Dell.
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