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Healthcare REIT Adds Office Next to Saddleback Hospital

Healthcare Realty Trust Inc., a medical office-focused real estate investment trust valued at about $5 billion, has expanded its area holdings with the purchase of the Taj Mahal building in Laguna Hills.

The 88,538-square-foot medical office at 23521 Paseo de Valencia, among the more distinctive buildings in the city, traded hands for $42 million.

The deal is among the top office sales of the past quarter in Orange County, and works out to a price of about $475 per square foot.

The Nashville, Tenn.-based healthcare real estate investment trust (NYSE: HR) now has a Southern California portfolio spanning close to 825,000 square feet, much of which is in Orange County.

The local office of commercial brokerage Colliers International represented the buyer in the deal.

“One of the highest priorities for Healthcare Realty in 2020 is to expand its Southern California footprint, and this acquisition played into that strategy nicely,” said John Wadsworth, senior vice president of healthcare services at Colliers, who worked on the deal.

“There’s a lot of competition in the medical office space, so this was a big win for everyone involved.”

The building was nearly 80% leased at the time of sale to a mix of medical tenants including Sea View Pediatrics, Atlantis Eye Care and Quest Diagnostics.

Healthcare Realty’s Rob Hull, an executive vice president for investments, this month said that the “real opportunity” in the purchase was that “leasing discussions are underway that would take occupancy from 80% to over 90% and would increase the yield to over 6%.”

700K SF in OC

Irvine’s Muller Co., a privately held investor, sold the four-story building. It had owned the property since 1990, and renovated it about eight years ago.

The building was first built in 1964, and is across from the 248-bed MemorialCare Saddleback Memorial Hospital, OC’s No. 9 hospital by net patient revenue (see the Feb. 17 print edition of the Business Journal for more).

Most of Healthcare’s investments—close to 90%—are situated on or next to hospitals.

Medical office buildings are increasingly in demand by investors, said Healthcare Realty CEO and President Todd Meredith.

The company’s long-built network of connections has helped it close deals at good prices, he told analysts earlier this month, during the company’s latest earnings call. He cited the Laguna Hills buy as such an investment.

“While the environment for medical office investment remains competitive, our confidence to invest at an attractive pace is based on our established relationships, financial strength, and access to accretive capital,” Meredith said.

“A key part of our strategy is to avoid bidding wars and portfolio premiums as often as possible. In 2019, we sourced nearly 70% of our acquisitions working directly with owners and brokers before the properties were widely marketed.”

“A great example is the [medical office building] we recently acquired in Orange County; [it’s] a property we’ve been pursuing for years through direct dialogue with the owner and help of a local broker.”

Top 5 Market

Southern California is among the top five markets for Healthcare Realty, which owns north of 200 properties in 26 states totaling 15.4 million square feet. Those buildings are valued at about $5.9 billion.

Elsewhere in Orange County, Healthcare Realty owns the Fountain Valley Medical Center, a five-building, 601,000-square-foot medical office next to MemorialCare’s hospital in the city. Healthcare purchased the building in 1994 for $41 million, according to CoStar Group Inc. records.

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