Marin Specialty Surgery Center plans big expansion as demand for outpatient procedures grows
After being vacant for about a decade, a 74,009-square-foot office building on a prominent Marin County hilltop is now half spoken for, thanks to new leases with a rapidly growing outpatient surgery center and a maker of high-end audio speakers.
Marin Health Ventures LLC leased 17,280 square feet on the second floor of 1 Thorndale Drive in north San Rafael, and tenant improvements are underway for occupancy late this year. The tenant has been doing business as Marin Specialty Surgery Center in 5,000 square feet at 505 Sir Francis Drake Blvd. in Greenbrae for about 15 years, according to administrator Cory Hall. It's an ambulatory outpatient surgery center, which means patients can be in and back home the same day.
The current facility focuses on orthopedic, urology and podiatry procedures, but the relocation to 1 Thorndale will allow for more of an emphasis on orthopedic procedures, with expansion into outpatient total-joint arthoplasty (replacement, etc.) and spine surgery, Hall said. The new facility will have three bigger operating rooms instead of the current two yet still have one procedure room. Currently, Greenbrae center completes about 330 procedures a month, totaling 3,375 last year.
“A lot of procedures now, particularly in orthopedics, can be transitioned to the outpatient ambulatory experience,” he said.
That shift has been helped by improved methods in surgery, preoperative and postoperative pain control, and anesthesia that allow more procedures to be done in an outpatient environment, Hall said. Avoiding hospital stays for otherwise healthy patients and employing modern procedures has allowed ambulatory surgery centers to save patients and health systems an average of 30% from the same work done in hospitals, he said.
Ownership of Marin Specialty Surgery Center is made up of about 20 physicians plus general partners Marin General Hospital and Surgical Care Affiliates, a Deerfield, Illinois-based company that operates more than 210 ambulatory surgery centers and surgical hospitals nationwide.
Leasing activity at 1 Thorndale also comes amid a change in management for the Sausalito-based family business that owns it. Skip Berg built Berg Holdings' portfolio to over 2.7 million square feet, mostly in multifamily properties that have a total of more than 1,000 units, mostly in the Seattle area.
After a Santa Rosa portfolio sale in 2014, Berg Holdings now has just 1 Thorndale and 100,000-square-foot Marina Plaza office properties in the Bay Area.
Leasing activity at 1 Thorndale also comes amid a change in management for the Sausalito-based family business that owns it. Skip Berg built Berg Holdings' portfolio over a 40-year career that included several notable local properties including what's now Sonoma Raceway, Hamilton Field Air Force Base as well as a portfolio of multifamily assets nationally, with a focus on the Seattle market.
After a Santa Rosa portfolio sale in 2014, Berg Holdings paired down it's office holdings and now has two office buildings, 1 Thorndale and the 86,460-square-foot Marina Plaza on the Sausalito waterfront.
Currently the managing director of Berg Holdings is 28-year-old son Carlo Berg. Before going off to business school then learning real estate, he spent summers in the family business maintenance crew, helping to ready apartments for new tenants as they turned on an annual basis.
“It's been wonderful working in the family business and continuing the legacy Dad created,” he said. “The surgery center and our team worked hard to get this deal done, and we're both pleased and look forward to a great relationship for years to come. We thought it was a great matchup: A high-quality tenant for a high-quality building.”
When his father retired at age 77 in 2017, Berg left work with a Seattle-area contractor to work full-time at Berg Holdings, analyzing the portfolio for adjustments. Though 1 Thorndale had been vacant since Disney and Sega divisions occupied much of the space in the early to late 2000s, the leasing velocity for large tenants in the San Rafael market from the Great Recession onward was sluggish, with only about 1.4 new leases on average over 30,000 feet for nearly 10 years, by Berg's reckoning.
“When a building is vacant in a downturn one can either carry it or sell. It made little sense to exit Thorndale at that time, with no tenants and more to wait for the right time and then improve the project for new demand in a stronger market,” Berg said. “The surgery center deal is an example of our strategy in action, providing value to the community as well as the asset, and we're very happy to have them in our building. I had a great time working with Cory, Dr. Brian Su, and the whole surgery center team getting them the space they needed to operate and help people. This lease is a solid signal to the market that we're officially open for business and ready to do more deals.”
After a 2013 deal to reconfigure the building as senior apartments fizzled, Berg Holdings was close to inking a lease for much of the space with Telltale Games, before funders pulled the plug on the San Rafael business last fall, Berg said.
Now occupying the balance of the middle floor is San Rafael-based Tympany, which was attracted to the $400,000 Disney and Sega soundrooms for development and testing of Tymphany speakers, including prototypes for the Amazon Alexa and Google Home speakers and car speakers for Bentley.
Berg Holdings has spent nearly $2.7 million on building upgrades in the past couple years, including $1.5 million on new infrastructure and the rest on common area upgrades such as replacing Sega's sand feature in the atrium for a meeting area with high-tech audio-visual systems. Still available is the 39,000-square-foot top floor - the first floor is parking - with 24-foot clear-height ceilings.
Thorndale is a “beast” of a building, Berg said. It was constructed with 22,000 cubic yards of concrete and 79 miles of stainless steel post-tensioned cable, creating walls that are 2-feet thick and a foundation 8 feet thick.
Trevor Buck of Cushman & Wakefield and CBRE agents in San Francisco and Seattle represented Berg Holdings in the Marin Health Ventures lease, signed March 15. Kevin Colombo of Colliers International represented the tenant. Buck is the local leasing agent for the property.
Jeff Quackenbush (jquackenbush@busjrnl.com , 707-521-4256) covers real estate, construction and wine.
Note: This story was updated May 3, 2019, with additional comments from Carlo Berg on why the family company held onto the vacant 1 Thorndale building.
