PORT TOWNSEND — Jefferson Healthcare hospital commissioners have agreed to spend $7,475,333 to purchase a building in which it is renting space. The building at 915 Sheridan St. across from the hospital was last valued by the Jefferson County Assessor’s Office in 2009 for $1,677,500.
The purchase will save the hospital money in the long run, according to Jefferson Healthcare CEO Mike Glenn.
“This is the right thing to do,” he said.
“If we continue to rent, we will be paying $3 million over the course of the next 10 years and will have no equity in the building,” Glenn noted.
Commissioners agreed 4-0 Wednesday to the purchase of the building, which was built in 2005 and is now owned by Jim McCarron.
During the vote, Commissioner Jill Buhler abstained because of a prior private business arrangement he had with McCarron.
The building’s 2012 tax bill was $14,696.
The county will no longer collect property tax when the hospital owns the building because of the public hospital district’s tax-exempt status.
The building currently is split between a hospital-run clinic on the ground floor and the state Department of Health and Human Services and the Olympic Area Agency on Aging on the second floor.
Once the hospital owns the building, it will continue to rent to these tenants. The rent brings in about $282,000 a year under the current lease.
The purchase price is based on an appraisal submitted by Clark, White and Veenstra of Edmonds to the hospital in April.
The appraisal included six comparable medical office buildings in the Puget Sound area, with values between $2.3 million to $10.5 million.
One was in Jefferson County: the Madrona Hill office building at 2500 W. Sims Way, which was valued at $2.3 million.
It has 13,062 square feet, less than half of 27,006 square feet of the building that the hospital plans to buy.
Despite the gap between the assessment and the selling price, Glenn said the building is a good deal for the hospital.
“The most tried and true method in determining the value of a commercial building is to identify the revenue that the building generates,” Glenn said.
“That is quite a different methodology than what the assessor uses.”
He said the situation might be different if the hospital was not two years into a 10-year lease for the property, for which it is committed to paying $369,420 a year, an amount that will be raised at a rate of 7.4 percent every year.
“We will be paying that lease whether we own the building or not,” he said.
Mark Mauren, hospital board chairman, agreed.
“I could care less what the assessment is for tax purposes,” Mauren said.
“It makes sense for the hospital, and at the end of 15 years, we will own it free and clear.”
When asked whether the hospital considered investing the $7 million allocated for the purchase toward construction of a new building, Glenn said construction was not practical, especially when the lease money is considered.
The building’s proximity to the hospital also made it more valuable than any building that could be constructed on another site, he said.
Buhler said in a statement that she would not vote on the proposal because she and her husband were in a business partnership with McCarron in a commercial building that is now dissolved, and she wanted to “avoid any hint of impropriety that might tarnish the reputation of this organization.”
The purchase is to be self-financed by the hospital, which will pay McCarron $850,000 cash from its reserves and pay off the remainder at a rate of 5.175 percent for a 15-year period.
The hospital is not allowed to prepay the mortgage for 10 years, according to the agreement.
Jefferson County Reporter Charlie Bermant can be reached at 360-385-2335 or at charlie.bermant@peninsuladailynews.com.
