Will the Hahnemann Sale Have Real Estate Implications?

Disclaimer: The following story is pure speculation and we’re writing it without any inside information whatsoever. That being said, if any of this comes true, you heard it here first.

You might have seen the reports, a couple weeks back, that Paladin Healthcare has a deal in place to purchase Saint Christopher’s Children’s Hospital in North Philly and Hahnemann University Hospital on North Broad Street for $170M. Tenet has owned these hospitals for the last 20 years, having acquired them as part of a package with six other hospitals previously owned by Allegheny Health System. Hahnemann and Saint Chris are the only two hospitals left from that deal, as Tenet has closed or sold the others over the years. Does this speak to the consolidating healthcare market in Philadelphia? Does it indicate that Tenet did a lousy job running their hospitals in Philadelphia? Is it a little bit of both? We couldn’t say.

View at Broad & Race

At this point, it’s a moot issue, as the sale is expected to move forward by the beginning of next year. Paladin owns five hospitals, with four in California and another in Washington, DC. It’s certainly possible that Paladin is acquiring these two Philadelphia hospitals as part of a larger strategy to expand to the east coast, a move that dovetails with their purchase of Howard University Hospital in 2014. Another potential angle to this story, and this is where our speculation comes into play, is that this purchase is more about real estate than it is about health care.

Oldest part of the hospital
Looking up

Hahnemann was founded in the middle of the 19th century, but has operated out of a facility on North Broad Street since 1928. Over the years, the hospital has expanded its footprint, and it now encompasses the entire square block between Broad & 15th, Race & Vine. That’s a little over four acres of prime real estate. On the other side of Vine Street, the hospital controls almost two more acres which currently house a parking lot. Throw in a few more one-off parcels in the area, and you’re talking about some enormously valuable real estate.

Parking garage at Broad & Vine

Did we mention that Hahnemann loses money? According to Philly.com, Saint Chris and Hahnemann had a combined $790M in revenue and $15M in operating losses, with Hahnemann being the drag on the bottom line. Is there a way to turn those losses around? We don’t know anything about hospital management, so… maybe? But the fact remains, health care is incredibly competitive in Philadelphia, with Penn, Jeff, Temple, and Hahnemann all vying for patients. Given that Hahnemann has supposedly lost money for many years, we must consider the possibility that Philadelphia simply can’t support four major hospitals.

We’d like to believe that Paladin is buying Hahnemann with the intention of turning around its fortunes financially, but if they aren’t able to do so in a speedy fashion, we can see a scenario in which they would close the hospital and sell the real estate to the highest bidder. We don’t know exactly how much a developer would be willing to pay for 6 acres at Broad & Vine, but we’d think it’s into the tens of millions of dollars. If Paladin closes Hahnemann, they’d be left with the profitable Saint Chris, which they could continue to operate, or they could sell it off to one of the local hospitals (other than Penn) looking to add a children’s hospital to their portfolio.

Such a plan would come with countless complications and would likely mean a lengthy lead time. Drexel Med School is contracted with Hahnemann through 2022. Over 1,000 people work at Hahnemann and there are surely employment contracts that run for several years into the future. The City might fight to keep the hospital open, especially as downtown Philadelphia experiences population growth for the first time in decades. None of those factors could stop Paladin from eventually moving forward with such a plan, in the face of a hospital that doesn’t make money and expected profits from selling its real estate.

Make no mistake, we’re hopeful and downright optimistic that new ownership is just what the doctor ordered for Hahnemann, and with Paladin at the helm, the hospital will be on its firmest footing in years. But we can’t rule out the possibility that Paladin won’t be able to turn around the fortunes at Hahnemann, and this transaction will be the beginning of the end for one of Philadelphia’s longest serving hospitals.

  • James Goodwin

    A lot will depend on Paladin’s ability to close on the deal first. When that is done, then they will see what they can do to make the pieces they have acquired work with each other. Among things, they will have to discern why Tenet sold the buildings and what can they do to maximize the profitability of this investment. It will take them at least one year to do the tire kicking to see how the departments work with each other in the existing building before making any changes.
    Speculation would be premature as Paladin is the only one who will own those buildings. Keep in mind, Tenet was posting this for sale for many months. Any real estate speculator could have scooped up the buildings, find new homes for the hospitals in existing medical corporations in the city before considering condo/apartment/office uses for those buildings. The Hahnemann building was built in 1928 and will need a lot of work by Paladin to update it to current use. A developer who bought the Hahnemann building would have to spend a lot to update everything inside it for his uses.
    Too early to speculate about final uses. But fun to imagine the possibilities!

  • whatsup

    I hope that the hospital survives. But it would be nice if they would develop the two big empty lots, the one on Broad and Race and the other across Vine St. A couple of high rises would be nice.