PeaceHealth is winning big time in the Eugene real estate game, while it struggles to break even with its three-state medical business.

The nonprofit hospital chain grossed $84 million late last month selling buildings and land on what once was its University District campus in Eugene, the sale deeds show.

Georgia-based Landmark Properties on June 29 paid $34 million for the site that housed PeaceHealth’s University District hospital and for a catty-corner PeaceHealth parking garage, the deeds show. Landmark plans student housing for the parcel where demolition of the hospital is ongoing.

Meanwhile on June 25, a Tennessee company that buys medical real estate paid PeaceHealth $50.3 million for the medical office building and adjoining parking garage at 1200 Hilyard Street, across from the former hospital site, the deed shows. It’s the so-called Physicians and Surgeons South building, where medical practices lease space.

The PeaceHealth system, which in recent years has posted dire operating losses, doubtless welcomes the cash. But the money is far from a game-changer for a system that has a $4 billion annual budget. PeaceHealth will use some of the money for capital projects at or near its RiverBend hospital in Springfield, including renovating the emergency department, building a rehabilitation hospital, and designing the Timber Springs psychiatric hospital, says PeaceHealth spokesperson Jim Murez.

The sales to Landmark and the Tennessee company — Montecito Medical — are major steps in PeaceHealth’s divesting of University District real estate.

PeaceHealth last year sold a University District office building along East 11th Avenue to Bushnell University for a sum that neither PeaceHealth nor Bushnell will disclose.

All that remains for PeaceHealth to sell is a vacant 82,000-square-foot Hilyard Street medical office building and adjoining parking garage — the Physicians and Surgeons North complex. That may be tough, given that it has no tenants.

“We continue to negotiate with potential buyers,” Murez says.

Housing glut?

Developers are overbuilding the Eugene student housing market, some observers figure. But Landmark is raring to go with its newly acquired site. It has secured loans totalling $127 million to pay for the site purchase and construction, mortgage records show.

Landmark will “immediately” begin phase one, which consists of 272 units with 1,002 beds, the company tells Eugene Weekly. Expect a fall 2028 opening. “We are confident that demand is satisfactory for both phases of our project. We plan to begin construction on phase two as phase one nears completion ahead of the 2028-29 academic year,” Landmark said in a statement to EW. “It’s important to note that, for projects of this size, labor availability is a key factor and it made sense to mitigate that aspect primarily through a phased approach to construction,” 

The five-story building will go up while rival developers complete two student high-rises literally across the street that will add more than 1,000 beds to the market. And the University of Oregon has begun work on an 870-bed student-housing block on the east side of campus.

Landmark’s purchase includes the 428-space parking garage at the southwest corner of East 13th Avenue and Hilyard. The garage will remain open to the general public, but 185 spaces will be set aside for occupants of the student complex once that is built, a Landmark document shows.

Meanwhile, Montecito’s purchase is its first in Oregon. The privately held company says it owns properties in 21 states. These include buildings housing surgery, orthopedic and eye-care centers. Founded in 2006, the company says it is “one of the largest privately held acquirers of medical real estate in the country.” Using money raised from lenders and investors, it buys buildings from medical businesses that don’t want their wealth tied up in real estate. 

The Physicians and Surgeons South building rises six stories, totalling 177,400 square feet, plus the adjacent three-level 888-space parking garage. Tenants include Oregon Imaging Centers and PeaceHealth clinics. PeaceHealth has “secured long-term leases with the new owner… for all current [PeaceHealth] clinic space, so our patients will not see any changes,” Murez says.

Years of losses

PeaceHealth’s success at selling real estate contrasts with its worrisome medical finances.

The nine-hospital system, based in Vancouver, Washington, chronically falls short of operating break-even, its filings show. Most of the chain’s hospitals, including in Cottage Grove and Florence, lose money; the system historically was propped up by super-sized profits from RiverBend, and a couple of the system’s Washington hospitals, filings show. But RiverBend has been hammered by rising costs for doctors, nurses and other staff, and now has a profit margin of only 1 to 2 percent, the filings show. 

The chain as a whole reported an operating loss of $105 million on operating revenues of $3 billion for the nine months ended March 31, the latest filings show. However, operating numbers don’t include the financial results of the system’s $1.3 billion investment portfolio of cash, stocks and bonds. Once the income and value growth of the portfolio is factored in, the system had a $43.6 million profit — or 1.4 percent — for the nine months, the filings show. 

But hospital executives don’t like to rely on volatile investment income to cover the cost of running hospitals. The PeaceHealth chain also had big operating losses throughout 2022-2025, which were mostly offset by investment gains.

In an analysis last fall of PeaceHealth’s financials, the bond rating agency S&P Global warned “the region’s higher labor and staffing costs have contributed to PeaceHealth’s operating pressures.”

More than half the system’s workers are covered by labor union contracts, the analysis added.

High operating costs pose the “potential for ongoing operating losses,” the analysis said.

Bricks $ Mortar is a column anchored by Christian Wihtol, who worked as an editor and writer at The Register-Guard in Eugene 1990-2018, much of the time focused on real estate, economic development and business. Reach him at Christian@EugeneWeekly.com.