Good Samaritan land sale results in $500,000 lease compensation for the clinic

Good Samaritan Regional Medical Center collected just over $100,000 an acre when it sold off a 16-acre parcel on the southwest corner of its Corvallis campus for residential development last month.

But The Corvallis Clinic did nearly as well in the deal — for land it didn’t even own.

On March 14, Good Samaritan sold the L-shaped plot of land along Northwest Satinwood Street and Survista Avenue to Ninth Street Partners LLC for a shade over

$1.7 million.

One week later, Ninth Street Partners turned around and sold the parcel to Square G Developments LLC for a cool $2.4 million, according to records on file in the Benton County Clerk’s Office. Square G, a group led by local developer Robert Gonzalez, reportedly plans to build up to 57 houses on the land.

The story behind the two transactions casts light on the challenges of land development in Corvallis and the power of a good lease.

At one time the hospital had planned to use the tree-covered property for future expansion of its 88-acre medical campus, said Larry Mullins, chief executive of hospital operator Samaritan Health Services. But since acquiring an additional 85 acres of undeveloped land in conjunction with the city’s purchase of Owens Farm for open space, Good Sam could afford to sell the Satinwood parcel.

What’s more, the Satinwood property might have proved difficult to build medical facilities on because of neighborhood opposition, Mullins said. Despite a planned development overlay, the underlying zoning was residential and the parcel borders an established subdivision north of Wilson Elementary School.

So when Ninth Street Partners approached the hospital about buying the land, Good Sam was receptive.

“The offer came along, and we knew that over time we probably would have trouble developing it for anything other than residential,” Mullins said.

But as the deal went forward, it hit a snag. Although it didn’t own any of the property, the Corvallis Clinic, which leases space on the Good Samaritan campus for its offices, had a leasehold interest in about 5 acres of the Satinwood land.

“In order for the transaction to go forward, they had to be in agreement with it,” Mullins said.

According to Dale Kern of Commercial Associates, one of the principals of Ninth Street Partners, his group paid the clinic $500,000 — or $100,000 an acre — to sign a quit-claim deed surrendering its leasehold interest.

While this sort of thing doesn’t come up that often, Kern said, it’s far from unheard-of. Leaseholders have rights, he said, and they have to be taken into account.

“A leasehold interest on a piece of property is, in some cases, more controlling than an ownership interest,” he said. “There’s no deal if that issue’s not resolved.”

On top of the money Samaritan pocketed, that brought Ninth Street Partners’ costs on the 16-acre parcel to just over $2.2 million. But that doesn’t mean the partnership cleared anything like $200,000 when it sold the property to Square G, Kern said.

While Kern’s group was negotiating with the clinic and the hospital, it was also working its way through the city land-use process to get the property subdivided for development. Ninth Street Partners is in the real estate business, not home construction, so the plan all along was to sell buildable land to a developer, Kern said, and the group was in contact with several during this period.

But getting the Satinwood property past the Planning Commission came at a cost, Kern added. To make a strong case for the subdivision, the partners needed a planner to address zoning questions, an engineer to design a drainage plan and an architect to produce elevation drawings, among other high-priced help.

“In today’s world of land-use entitlements,” Kern said, “you have to hire a stable of consultants.”

And, of course, Square G used a real estate broker of its own, and real estate brokers work on commission.

So did Ninth Street Partners make money or lose money on the deal?

Kern wouldn’t say.

Instead, he called the Satinwood sale “a win-win for everybody involved,” including the community as a whole.

“I think it was a win for Corvallis because now we’re going to get some more housing inventory added to a great part of the city,” he said.

Corvallis Clinic spokeswoman Judy Corwin declined to discuss details of the quit-claim agreement, calling it “a private business transaction.” But she did say the total price was not exorbitant.

“It was certainly fair market value,” Corwin said. “My understanding is that the whole property was appraised at well over $2.2 million.”

Does that mean Good Samaritan should have held out for more cash? That probably wouldn’t have worked, according to Mullins.

“Trust me,” he said. “If we could get more money for it, we certainly would do it.”