Doctors to sell offices around Memorial
A group of physicians formerly connected to Redwood Regional Medical Group, which merged with St. Joseph Health earlier this year, are selling 61,500 square feet of medical office buildings, mostly next to the care provider’s Memorial Hospital.
The doctors are offering eight buildings on Sotoyome Street next to the hospital, plus a building each in Petaluma and Ukiah. The buildings are 95 percent leased. Offers to purchase were due Wednesday, and the as-is value of the property is thought to be about $30 million, according to Evan Kovac, managing director of Newmark Grubb Knight Frank’s Newport Beach-based medical office real estate advisory group, which is marketing the portfolio.
“I think the big opportunity in the future is expansion of the medical center,” he said. “We had a local planning company and some architects look at the properties.”
An option they mentioned, he said, was a buyer could work with the hospital to close Sotoyome Street, opening the land for much larger-scale development.
The Sotoyome properties sit on more than 200,000 square feet of developable land, on which 200,000-500,000 square feet of medical office buildings might be possible, he said. Sutter Health and Kaiser Permanente, two large health care provider networks in the Santa Rosa area, have been building medical office buildings. Kaiser bought land to build one in the southwest part of the city, and Sutter has built one next to its newly opened hospital north of Santa Rosa.
With the April merger, 19 of Redwood Regional’s 31 physicians joined St. Joseph Health’s Annadel Medical Group. Outpatient imaging studies and oncology treatment provided by Redwood Regional continued through Santa Rosa Memorial Hospital. Twelve radiologists who have been part of Redwood Regional formed a new group, Redwood Radiology Group.
The health system took over Redwood Regional’s leases at the Sotoyome properties. Those leases are up for renewal in 2019.
More than 80 percent of medical office space up for renewal nationwide is retained under lease, compared with a renewal rate of roughly two-thirds for conventional office space, according to market analysts. For example, Healthcare Trust of America is one of the nation’s largest owners and operators of medical office space, with a portfolio totaling 14.1 million square feet. Its tenant-retention rate last year was 85 percent.
The 34,000-square-foot 121 Sotoyome building, the largest of the properties for sale, houses five Annadel offices: genetic counseling, oncology primary care and counseling for survivors, orthopedic surgery, urology, and vascular surgery. The building also houses the hospital’s outpatient imaging center. The other Sotoyome buildings in the portfolio contain nonclinical or administrative functions or are not occupied by St. Joseph Health, Ms. Hillenmeyer said.
“As our hub and flagship in Sonoma County, Santa Rosa Memorial Hospital itself needs to be well maintained and updated as community needs evolve, just as you’ve seen with our recent $15 million expansion and renovation of its Emergency Department,” she said. “Our master plan, however, is broader than Memorial Hospital alone. It takes into account communities throughout Sonoma County and surrounding counties where we remain committed to supporting access to care and partnering with others to help meet community needs.”
Marketing the portfolio are Mr. Kovac and Timothy Leber with the NGKF Capital Markets team of Dan Cressman, Kyle Kovac and Mike Taquino in San Francisco.
“Demand for medical office and health care investment opportunities is at an all-time high,” Mr. Kovac said.
