HCA-The Healthcare Co. has completed the $250 million sale of a third of its medical office buildings to MedCap Properties, a start-up company headed by Chuck Elcan, the son-in-law of Thomas Frist Jr., M.D., HCA's chairman and chief executive officer.
In addition to the family interest in MedCap, HCA also has a minority ownership interest in the company, which like HCA is based in Nashville.
Elcan and HCA launched MedCap Properties last July to buy 116 of HCA's medical office buildings. MedCap Properties completed the purchase Nov. 30 and announced it last week. After selling the 116 properties, HCA plans to keep the remaining two-thirds of its medical office buildings for now, said Jeffrey Prescott, HCA's spokesman.
HCA, the nation's largest hospital chain, currently has two of its employees on MedCap's five-member board.
Prescott would not disclose the percentage of equity HCA holds in the privately held company, but he said HCA's ties to MedCap helped the real estate firm get off the ground.
"By being involved in it . . . you create a very viable business from the word go instead of relying on someone else on a start-up basis," he said.
Elcan said he got involved in the project about 21/2 years ago, when HCA decided to spin off some of its medical office buildings to free up cash and focus more on its core business of operating its hospitals. At the time, Elcan was vice president of development and capital asset management at Behavioral Healthcare Corp., a psychiatric hospital chain in Nashville. He began talking to HCA's Frist about opportunities for the company's real estate assets.
"Obviously the family connection was a big influence," he said.
Last July, GE Capital Services, a unit of General Electric Co., loaned MedCap an undisclosed amount to finance the deal with HCA. And on Nov. 30, other investors provided $55 million in equity, enabling it to complete the transaction. Of the $55 million, First Union Capital Partners, Charlotte, N.C., which led the financing round, provided $23.5 million. The rest came from other financial firms and private investors.
All but one of MedCap Property's current property holdings came from HCA, but the company aims to buy properties from other healthcare providers and also develop medical office building projects for them. The goal is to allow hospital companies to free up capital by getting them out of the real estate business. MedCap Properties can then lease the space directly to physicians.
Elcan said he will be pitching the company's services to not-for-profit hospitals. Because of HCA's financial interest in the company and the potential concern that might arouse in not-for-profit clients, the company will create a separate business unit that will not have any HCA ownership, Elcan said.
For now, MedCap Properties also has another tie to HCA. The real estate firm and its 10 corporate employees are housed in an office space that the company is subleasing from HCA, although it is not located on HCA's main campus. The building also happens to be where HCA spinoff companies HealthTrust and LifePoint Hospitals got their start.