Medical Tenants Revive Valley Office Market

The general office market in the Valley areas has seen better days, but the medical office market is healthy and improving. Calabasas commercial brokerage firm Marcus & Millichap Inc. released a positive analysis of the national medical office sector’s second-quarter performance, and forecast a positive prognosis. Locally, brokers say that the region reflects the broader climate. The brokerage firm reported an aging population and a push into more visible retail settings by health care providers are driving medical office metrics. Investor uncertainty lurks on the horizon, the authors write, due to worries that possible legislative reforms of national health care could stall the sector’s growth. But locally, buyers are confident enough in the medical office market’s continued uptick to buy properties even if they include non-medical tenants. Three properties sold locally since the beginning of the year that reflect such optimism. In March, Hafco & Associates in Los Angeles paid $13.8 million for a 52,000-square-feet medical office building at 29525 Canwood St. in Agoura Hills, according to CoStar Group Inc. Marcus & Millichap broker Tony Azzi negotiated the deal on behalf of the buyer. James Debuiser, senior associate, and Gary Cohen, director of national office and industrial property, both with Marcus & Millichap, explained that despite the property’s lower occupancy of 90 percent when compared to the Conejo Valley’s 95 percent occupancy, the buyer made the value-add purchase because of the sector’s improving metrics and positive outlook. “The plan is to improve aesthetics, including renovating common areas such as the lobby, and the landscaping, with the long-term plan to increase rental rates and improve occupancy,” Debuiser said. Vacancy rates for medical office buildings range between 6 and 9 percent in Agoura Hills and Camarillo, Cohen said, while in the San Fernando Valley, they are around 6.5 percent. That’s getting close to the peak of the market in 2007 when vacancy rates were as low as 5 to 6 percent, compared to the lowest point in the Great Recession when they were at 12 percent, he added. Sale prices overall have seen a healthy increase, said Cohen and Debuiser. “A few years ago, buildings were selling south of $200 a square foot, and now they’re selling at times north of $250 to $300 square foot,” Debuiser said. In another Marcus & Millichap deal, 771 E. Daily Drive in the Camarillo Business Center VI sold to Robert Taylor of Camarillo in April, according to CoStar, for $7.15 million, less than the $11.8 million that the seller paid for it in 2007. Despite the 40,300-square-foot building’s mere 50 percent occupancy by non-medical as well as medical tenants, and needed tenant improvements, the buyer paid a higher price than he would have under normal circumstances because of its medical office potential, Debuiser said. He and Cohen represented the seller. “The buyer who bought it with the high vacancy paid a higher price because he was under the impression he could add to the medical base in the building,” Debuiser explained. “Medical office brings higher rents, and the vacancy rate is lower. There are less options for medical tenants looking for space.” And in Simi Valley, the 24,000-plus-square-foot Royal Medical Plaza at 2045 Royal Ave. sold for $6.5 million to StoneCreek Co. Developers of Rancho Santa Margarita in May, according to CoStar. The seller, Johnston Group of Agoura Hills, made a 34 percent profit on the deal. Debuiser and Cohen negotiated the deal on behalf of the seller, while another Marcus & Millichap broker represented the buyer. “Vacancy rate (for medical office) in Simi Valley is extremely low, which is reflected in this property being 100 percent leased,” Debuiser said, adding the seller had updated and leased up the building, resulting in much higher rental rates than a traditional office building. Movers & Shakers Coldwell Banker Commercial Advisors announced it has hired Jonathan Aldrich as a sales associate in the Woodland Hills office. Aldrich will focus on multifamily and investment sales advisory services, and the acquisition, disposition and repositioning of commercial assets in Los Angeles, particularly the West L.A. submarket. Amcal Group of Cos. in Agoura Hills said it has hired Michael Winter as senior director of preconstruction and predevelopment. Winter will lead all predevelopment and preconstruction operations at Amcal’s development projects in California. A 25-year-industry veteran, Winter’s experience includes master-planned and mixed-use multifamily and high-rise development. He was previously employed by Irvine Co. Staff Reporter Carol Lawrence can be reached at (818) 316-3123 or [email protected].