The Innovation Institute LLC, a La Palma-based for-profit healthcare company formed by St. Joseph Health in Irvine last year, has taken over ownership of four medical buildings surrounding Mission Hospital in Mission Viejo.
St. Joseph Health, the nonprofit owner and operator of Mission Hospital, is lending the Innovation Institute $130 million to fund the purchase, according to loan documents.
Terms of the portfolio purchase were not immediately disclosed, but the deal for the four buildings—which total about 263,000 square feet of office space—appears to be among the most expensive commercial real estate sales in Orange County so far this year.
The largest of the four buildings is the Mission Medical Tower, a five-story, 120,000-square-foot medical office building on Crown Valley Parkway.
Also trading hands, according to loan documents, are a trio of offices at 27800 Medical Center Road. Those multitenant buildings total about 143,000 square feet.
Executives of the Innovation Institute—which is run by Chief Executive Joe Randolph, a former executive at St. Joseph Health—declined to comment last week on the purchase or the company’s plans for the properties.
The Innovation Institute’s stated goal is to advance innovation in healthcare by developing products and services stemming from inventions and ideas of doctors and employees.
It ultimately aims “to improve care delivery and reduce costs,” Randolph told the Business Journal last year.
An idea and technology acceleration lab, an equity fund, and a group of healthcare-related service companies are among the initial business lines for the institute, which is not known to directly own any other real estate.
CoStar Group Inc. records show the four buildings it has acquired—along with a nearby surgery center that’s smaller and isn’t part of the recent deal—traded hands as a group in 2004 for $95.5 million.
An affiliate of LaSalle Investment Management in Chicago was the buyer of the properties in 2004.
The debt the Innovation Institute took from St. Joseph Health to make the buy came to about $495 per square foot; CoStar records show the four buildings’ occupancy rates running from 86% to 96%.
Mission Hospital and the four buildings are just off the San Diego (I-5) Freeway next to the Shops at Mission Viejo.
2013 Launch
The real estate deal marks a step up in St. Joseph Health’s investment in the Innovation Institute, which it launched at the start of 2013.
The hospital operator also owns Mission Hospital-Laguna Beach, St. Joseph Hospital in Orange, St. Jude Hospital in Fullerton, another in Apple Valley, and several in Northern California and Texas. Its Orange County hospitals are among the largest here, and combined for 1,372 beds and patient revenue of nearly $1.5 billion last year.
St. Joseph Health, which also has an affiliation with Newport Beach-based Hoag Memorial Hospital Presbyterian, announced a $40 million investment in the Innovation Institute at the time of its creation.
The institute has been established separately from St. Joseph Health and its various hospitals.
The institute announced Bon Secours Health System, a $3.4 billion hospital operator based in Marriottsville, Md., as a second equity investor last October. It expects to eventually draw equity investments from seven nonprofit health systems, including St. Joseph.
The institute also plans to raise capital from private investors to fund mid- to late-stage healthcare companies.
