For VCU Health System, moving away from the development in downtown Richmond was costly.
VCU Health confirmed that it paid $73 million to bail out its master lease for the rebuilding of the public safety building at 500 North 10th Street, Richmond BizSense, Virginia City ReportThe news comes after a Freedom of Information Act request for the publication made a request for the project, which largely collapsed in February.
The city sold the property to developer Capital City Partners in 2021 for $3.5 million. However, Richmond repossessed the property in February after determining the project did not meet development requirements.
VCU Health will lease the property for 25 years. The project is expected to cost $325 million.
VCU Health will be stuck with $617 million over the life of its lease, starting with a $12.8 million first-year lease and increasing over time. In his statement, the health system’s interim chief executive said it needed to step back to address the pandemic and financial problems.
Payments from VCU Health were made to the building’s previous owner, an affiliate connected to Oak Street Real Estate Capital. Oak Street itself is a division of Blue Owl Capital, which handles financing on behalf of the developer.
The scope of the project changed last year when Capital City transitioned from a 20-story, 545,000-square-foot building to a 463,000-square-foot three-story complex. Office space in support of VCU Health was replaced with laboratory space. The scaled back plan led to legal action from the city.
The health system’s operating funds generate a one-time payment. That was a particularly big blow to VCU Health, which reported an operating loss of more than $62 million in the first seven months of its fiscal year.
VCU — technically a separate entity from the health system — recently approved a $415 million project to build the school’s dental center on the same site. First, it may have to acquire the three-acre site from the city.
— holden warner