A joint venture including St. Luke’s Health System and a number of investors closed March 8 on the $86.5 million purchase of the four-building Washington Group Plaza complex originally built by Morrison Knudsen Corp, a corporate giant that was acquired and relocated in 2007.
The 622,000-square-foot acquisition at Broadway and Front Street substantially expands St. Luke’s 1.1 million-square-foot campus on the east end of Boise’s downtown.
St. Luke’s has been angling to acquire the former MK/Washington Group property for a couple of years and has leased one of the structures, the six-story, 125,568-square-foot Plaza I building, since June 2015.
The largest hospital group in Idaho plans to occupy 120,000 additional square feet in portions of the Plaza II, Central Plaza and Plaza IV buildings by the end of the October, said Mary Cronin, St. Luke’s senior director of operations.
Over the next six years, as existing tenants – particularly the state of Idaho – move out, St. Luke’s will occupy the entire complex where Broadway, Myrtle Street, Front Street and Park Boulevard all converge, she said.
St. Luke’s historic downtown St. Luke’s Regional Medical Center campus is just three blocks away with plans for a 700,000-square-foot expansion. St. Luke’s departments in buildings that are slated for demolition at the regional center will relocate to Washington Group Plaza, which will eventually be renamed.
The St. Luke’s billing team, administrative team support for outpatient services and scheduling & registration will be the first tenants moving into the newly acquired space. St. Luke’s human resources and Center for Learning and Development moved into Plaza I in July 2016.
St. Luke’s has a lease-to-own deal
St. Luke’s has a 49.5 percent ownership share in Broadway Park Holdings, the limited liability corporation that bought the former Morrison Knudsen corporate headquarters from City Office REIT, Inc., a Vancouver, B.C., real estate investment trust that acquired the property in April 2014 from Second City Capital Partners, also of Vancouver.
“Since that time, we have implemented substantial operational improvements and cost savings, increased the square footage of the buildings by 23,000 square feet through re-measurement,” said Greg Tylee, chief operating officer and president of City Office in a news release.
City Office owned Washington Group Plaza through its wholly-owned SCCP Boise LP subsidiary, which it acquired from Second City.
St. Luke’s will be the master leaseholder of the property, leasing from Broadway Park Holdings, which will pay off the $86.5 million mortgage, likely over 30 years with refinancing expected after five and or 10 years, said David Wali, managing member of Broadway Park Holdings.
Wali is executive vice president at Gardner Company, developer of several high-profile Treasure Valley office and medical facilities. He is the principal investor of the 50.5 percent ownership share at Broadway Park Holdings, along with a small number of other investors. Wali has had several similar co-ownership arrangements with St. Luke’s.
Cronin said Washington Group Plaza now has about 100,000 square feet vacant with tenant improvements underway for St. Luke’s.
The state of Idaho leases 159,535 square feet for three agencies, with leases expiring in the next three years. The Idaho State Tax Commission, occupying 111,381 square feet, will depart in October to the former Hewlett-Packard campus, which the state acquired Dec. 21 for $110 million.
Idaho Fish & Game’s lease on 28,022 square feet runs to December 2019 and the Idaho Department of Finance’s lease on 20,132 square feet ends in July 2021, said Linda Miller, the statewide leasing manager at the Idaho Department of Administration.
City Office reported it anticipated a $45 million net gain on the sale.
The Ada County Assessor assessed the four-building complex at $82.1 million in 2017, but only $43.98 million in 2016 and $39.87 million in 2015.
“The value is in the eye of the beholder and sometimes not in the eye of the assessor,” Wali said. “If you take the $86.5 million and divide it by the square footage, I can’t build it for that.”
That division comes to $139 per square foot. Cronin said St. Luke’s calculated the cost of building such a campus, and came up with construction costs of $250 per square foot.
St. Luke’s has departments in 12 to 20 leased buildings around the Treasure Valley, and is considering moving those into the plaza in the next two to five years. The only buildings Cronin would identify are the former Kmart and the Shoreline Center, both at Americana Boulevard and Shoreline Drive, both under contract for sale for a potential downtown stadium and mixed-use complex.