Group Health Association agreed yesterday to sell its downtown medical building to three prominent Washington developers -- a move that will simultaneously net the financially troubled health plan more than $30 million and end an era in Washington medical care.
Group Health said that it has signed a contract with Theodore Pedas, James Pedas and A. James Clark for the sale of the eight-story building and adjacent property on Pennsylvania Avenue, just off Washington Circle in the West End. For 25 years, the building has housed doctors' offices, a laboratory, a pharmacy and other services used by an estimated 53,000 of GHA's 141,000 members.
Under the terms of the sale, GHA will receive $20 million at settlement and will occupy the building for up to four years while it searches for newer facilities in the city, officials said. GHA is Washington's oldest prepaid health plan.
Although many members have a strong attachment to the building, Group Health officials have long viewed use of the building as the waste of a valuable asset and have said it would be more cost-effective to use several smaller facilities spread around the city. The plan also operates several centers in the Washington suburbs.
At the end of the lease and after vacating the building, GHA said yesterday, the nonprofit cooperative will also receive the proceeds and accumulated interest on an $8 million note signed by the developers, making the total value of the sale between $29.7 million and $31.2 million.
Neither the Pedas brothers nor Clark, the head of George Hyman Construction Co., were available for comment yesterday.
The Pedas brothers own much of the land adjacent to the GHA facility, where the former Circle Theatre was located. The theater was recently demolished, and the brothers have said they plan to build an office building complex on the site that would include new theaters. They reportedly have been eying the Group Health property for as long as nine years and believe the acquisition will give them more flexibility in their plans, sources say.
Sources familiar with the transaction said that Group Health had until recently been leaning toward selling the property to another developer, but the Pedas' came in at the last minute with a better offer.
For Group Health, the sale comes at a critical time in the 50-year history of the nonprofit health cooperative, which has been struggling financially in the wake of hot competition from other prepaid health plans. Last year, Group Health suffered a loss of more than $13 million on revenue of $129 million.
The plan has recently hired a new executive director, Robert Pfotenhauer, from Group Health Cooperative of Puget Sound, based in Seattle, and has been examining steps to reduce costs and increase membership.
Pfotenhauer said yesterday that with the sale of the building, which had been carried on the books as an asset worth about $3.5 million, Group Health's balance sheet will more accurately reflect its true financial health. Although Group Health is continuing to suffer an operating loss, he said, it has embarked on a plan to restore it to financial health within 18 months.