Orange County’s office investment market ended 2020 in good health, in particular for buildings focused on medical uses.
The latest notable example of continued interest for these types of buildings was in Laguna Hills, where the Saddleback Medical Building sold last month for $80.6 million.
Healthcare Realty Trust Inc., a medical office-focused real estate investment trust valued at about $4 billion, is the buyer of the 135,904-square-foot office at 23961 Calle de la Magdalena.
By price, it was the largest reported office deal in OC in the fourth quarter, according to CoStar Group Inc. records.
At nearly $600 per square foot, the sale also set a high-water mark for local office deals in 2020, among offices larger than 100,000 square feet, CoStar records indicate. Large, high-end offices in the area rarely trade above $500 per square foot.
The property is part of the campus that surrounds MemorialCare Saddleback Medical Center, a 248-licensed bed hospital with nearly 2,000 full-time employees. It’s OC’s ninth-largest hospital by bed count.
REIT’s OC Focus
It’s the third reported local buy in the past year for Healthcare Realty, a Nashville, Tenn.-based healthcare real estate investment trust (NYSE: HR), and was its second purchase in 2020 in the vicinity of the Saddleback hospital.
Its acquisition focus of late has been “primarily centered on creating concentrations of buildings around leading hospitals serving dense growing populations,” Rob Hull, the REIT’s executive vice president, investments, told analysts in November.
Healthcare Realty Trust bought the Calle de la Magdalena office from Irvine-based Greenlaw Partners.
The new deal marks a 134% premium over the $34.5 million that Greenlaw paid in 2016.
Strong pricing for the Saddleback Medical Building is due to increased occupancy, physical upgrades to the property, and a healthy appetite for Orange County healthcare buildings in the wake of the coronavirus pandemic, industry watchers say.
“Like other investors, Healthcare Realty is targeting Orange County for its medical portfolio expansion,” said John Wadsworth, a senior vice president at Colliers who focuses on medical office properties, and who brokered the deal on behalf of the buyer.
“All the stars have aligned in Orange County to make it a premier investment opportunity for healthcare.”
Greenlaw acquired the building when it was 60% leased. After a series of upgrades at the facility, it has since bulked up occupancy to over 80%.
It secured its largest reported tenant in 2019 when Harvard Eye Associates inked a 27,000-square-foot lease at the five-story building.
Other tenants at the building, which has an on-site pharmacy, multiple lab services, and a dedicated parking structure, include cancer treatment and prevention firm Breastlink and a LabCorp patient service center.
The new buy bookends Healthcare Realty’s 2020 in Laguna Hills; last February it bought the city’s Taj Mahal medical office a few blocks away.
“Healthcare Realty’s interest in this building started about a year ago when it entered the South Orange County market,” said Wadsworth of the latest buy, noting that both deals were off-market transactions.
The 88,538-square-foot Taj Mahal medical office at 23521 Paseo de Valencia, among the more distinctive buildings in the city, traded hands for $42 million and nearly $475 per square foot.
In between the two Laguna Hills deals, the REIT also paid $14 million for Sycamore Medical Plaza, a 24,000-square-foot building next to Providence St. Joseph Health’s hospital in Orange.
The REIT’s Southern California portfolio now tops the 1 million-square-foot mark, with a growing focus in Orange County.
The company added in its latest earnings report, in November, that it was under contract to purchase 12 properties for $276 million by year-end or shortly thereafter, which includes the Saddleback Medical sale.
The company is “actively in pursuit of other Orange County deals,” said Wadsworth.
This sale is one of several notable healthcare-related office deals to occur in OC since the onset of the pandemic.
In November, the University of California paid $45.1 million for an eight-story building near its UCI Medical Center campus in Orange.
Plans for the building have not been disclosed by the UC system; based on the proximity to other facilities, it appears likely to be used in conjunction with the nearby medical center, which is on about 8 acres.
A September deal for a 110,400-square-foot Irvine Spectrum-area office building for $43 million is also being eyed for medical uses.
San Ramon-based Meridian, a real estate investor focused on medical properties, bought the building on a 4.8-acre parcel alongside the 133 Freeway.
The City of Hope, a research and treatment center for cancer, diabetes and other life-threatening diseases with its main campus in Duarte, closed on a 190,000-square-foot, four-story building at Irvine’s FivePoint Gateway campus, and 11 acres of adjacent land in May, for $108 million.
The Irvine campus will include a comprehensive cancer center at the existing building it bought, as well as a future acute care cancer hospital and other facilities.
UCI and Hoag Memorial Hospital Presbyterian also have significant new medical developments in the works in Irvine.
Wadsworth noted that the healthcare space continues to be “recession proof” with demand outstripping supply of investment and development opportunities.
“Southern California, and Orange County specifically, has become a center of excellence for healthcare delivery with many nationally recognized healthcare providers, such as Hoag, City of Hope and UCI among others,” he said.
“Healthcare properties will continue to fare well.”