The MOB deal that took place in June 2021 at what many professionals in the MOB sales sector consider an all-time low cap rate is already turning out to be a good transaction for the buyer, according to an executive with one of the firms that acquired the facility in a joint venture partnership.
In the deal, a partnership of long-time HRE firm Anchor Health Properties and Morgan Stanley Real Estate Investing (MSREI) acquired the 106.018 square foot Mid-Peninsula Medical Arts Building at 1720 El Camino Real in Burlingame, Calif., in the South San Francisco submarket, for $64.4 million, or $607 per square foot (PSF).
The sale took place at a cap rate of 3 percent, according to Revista data and industry sources.
Since closing on the deal in June, the buyer has already improved upon the yield, James Schmid III, chief investment officer and managing partner with Anchor, told an audience during a panel session at BOMA International’s 2021 Medical Office Building + Healthcare Real Estate Conference held Nov. 1-3 in Dallas.
“The building was 75 percent leased at closing and there were all sorts of different levers to pull to quickly maneuver yields higher,” he said during a panel session titled “Notable Transactions and Deals.”
Anchor and MSREI have started $5 million to $6 million of capital improvements on the property, which is across the street from Sutter Health’s 242-bed Mills-Peninsula Medical Center, and, according to Schmid, “on the leasing side (undertook) a conversion to mostly gross leases to a market standard of triple net.”
In addition, a leasing effort has landed about 15,000 square feet of new leases (of the approximate 25,000 square feet of vacant space) “since June 1” and has a “couple of other spaces under letters of intent (LOI),” Schmid said.
“We should, by the end of the year, be at 96 percent leased,” he noted. “That takes a theoretical mid-3 percent yield well into the 5 percent range, particularly when considering a gross-to-net conversion of rents.”
Matthew Tarpley, a VP with New York-based H2C moderated the panel, which also included Jon Lewin, chief financial officer with Minneapolis-based MedCraft Investment Partners, a new investment platform, and Steven Smith, chief acquisitions officer with Denver-based NexCore Group LLC.