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North Bay Business Journal

Thursday, January 3, 2013, 1:53 pm

Investor buys building occupied by Sutter

‘Economies of scale are gravitating to larger medical groups’

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    SANTA ROSA — A Southern California real estate investment trust for medical office buildings purchased the 100,125-square-foot Sutter North Bay Health Plaza building, mostly occupied by Sutter Health, fronting on the west side of Highway 101 in northwest Santa Rosa.

    Griffin American Healthcare REIT II Santa Rosa Health Plaza MOB LLC, an affiliate of a nontraded REIT sponsored by Newport Beach-based American Healthcare Investors (americanhealthcareinvestors.com) and El Segundo-based Griffin Capital Corp., on Dec. 21 purchased the building, also known as Landmark Executive Center. The seller was Urdang/Sequoia Creek Holdings Santa Rosa LLC, managed by Nearon Enterprises of Danville and Pennsylvania-based Urdang Capital Management.

    The purchase price wasn’t disclosed in public documents or by participants in the deal.

    The REIT was among eight serious prospective buyers of the building, which was on the market for only two months after being marketed to buyers of medical offices, located at 3883 Airway Dr., according to Vince Schwab, part of a Marcus & Millichap team who brokered the deal.

    “Very little has been built in the last four years in the Bay Area,” Mr. Schwab said about medical office space. “People are assuming there will be a need for more doctors with ObamaCare. There’s a consensus that larger blocks of space like this will hold strong. Smaller medical office buildings filled with 700-square-foot offices with one doctor or 1,000 square feet with a few doctors are going to go by the wayside because doctors can’t afford being one-offs with their own computer systems and receptionists. Economies of scale are gravitating to larger medical groups.”

    Indeed, that trend in the past few years has fueled the growth of health systems, new health plans and physician networks. [See "Western Health Advantage, other health plans enter market," Dec. 31.]

    The REIT has invested in 125 medical office buildings, hospitals, and skilled-nursing and assisted-living facilities nationwide, valued at more than $1.1 billion.

    Urdang Sequoia Creek purchased the building from Washington Mutual in December 2004 for roughly $17 million. It had been the headquarters of North American Mortgage Co. before the bank bought it in 2002.

    A few years later as the real estate-led economic slowdown spiked office vacancies, the building underwent a significant renovation as a high-end multitenant office building. In 2008, Sutter Health signed its first lease in the building for physician offices and expanded extensively over time, including a 10,000-square-foot high-tech scanning center on the first floor.

    The health care provider now occupies about 80 percent of the building. The building is 91 percent occupied, including geotechnical engineering firm ThermaSource and Chloe’s French Café.

    Representing Urdang/Sequoia Creek in the recent deal were Mr. Schwab, Scott Pertel and John Smelter. Representing Griffin American Healthcare REIT II were Mr. Schwab and Mr. Smelter. Advising Griffin on land use issues were David Warner and Ed Grutzmacher of Meyers Nave.

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