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Real estate brokerage sues IU Health over commissions

October 20, 2011

One of the city’s largest commercial real estate brokerages is suing Indiana University Health for failing to pay consulting fees that could top seven figures.

The lawsuit, filed Tuesday in Marion Superior Court by the local office of Los Angeles-based CBRE Inc., accuses the local hospital system of cheating it out of commissions related to several real estate deals in Indianapolis, Lafayette, Frankfort and Mooresville.

Most notable is IU Health’s canceled plan for a $73 million administrative office building at 16th Street and Capitol Avenue, which would have been built near a $120 million neuroscience hub across the street from IU Health's Methodist Hospital campus.

IU Health instead purchased the Gateway Tower plaza at 10th and Illinois streets to house administrative staff. Officials told IBJ in March the price was so good on Gateway Plaza—where the hospital system already rents 130,000 square feet—that they couldn’t refuse.

CBRE doesn’t specify in the complaint how much it believes it should have earned in commissions before IU Health canceled the project. But based on a rate of 2 percent, the amount could be about $1.5 million.

“IU Health reneged on its commitment to compensate CBRE for its years of work toward the IU Health administrative office space consolidation,” CBRE said in its lawsuit. “When CBRE pressed for payment, IU Health ceased communicating with CBRE professionals concerning a variety of projects that were in progress, apparently without informing even its own personnel.”

That CBRE took the drastic step of suing IU Health, one of its largest clients, shows how contentious the once-chummy relationship had become.

CBRE says in the suit that it has provided real estate services to IU Health since the “mid-2000s” and even assisted IU Health with structuring and staffing its corporate real estate department.

Further, CBRE said it has provided services to IU Health both with and without a formal written agreement and, until recently, was always compensated regardless of the arrangement.

“Unfortunately, IU Health has been unresponsive to our repeated requests to resolve this matter amicably,” CBRE said in a written statement to IBJ. “This leaves us with no recourse than to initiate legal action to claim the substantial monies we are owed. We take this step very reluctantly, but IU Health has left us no other alternative.”      

Attorneys for IU Health declined to comment because the ligitation is pending.

CBRE entered into a consulting services agreement in December 2008 with IU Health to develop an administrative master plan, according to the complaint. Directors of IU Health subsequently approved a plan to consolidate administrative services in June 2010.

About the same time, Ryan Kitchell, former director of Indiana’s Office of Management and Budget, joined IU Health as vice president and treasurer, the suit said.

Kitchell asked CBRE for documents detailing the work CBRE was performing for IU Health and requested that the real estate firm perform additional financial analysis.

IU Health ultimately purchased Gateway Plaza, using CBRE’s analysis in negotiating and closing the purchase, according to the suit.
 
“IU Health would be unjustly enriched if it were allowed to accept the benefit of CBRE’s services regarding the consolidation plan and Gateway Plaza transaction without compensating CBRE,” CBRE charged in its suit.

CBRE also alleges that IU Health hasn’t paid a $158,250 commission for a facility it located to consolidate primary care and clinic groups in Mooresville.

In addition, CBRE says IU Health still owes it $85,750 in consulting fees on the IU Health Arnett hospital project in Lafayette, as well as a 1-percent acquisition fee and 1.5-percent developer selection-financing fee.

And, CBRE claims IU Health hasn’t paid it $10,500 for its appraisals of three medical office buildings—two in Lafayette and one in Frankfort.
 

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