Hot Property: JLL plans to sell 13-building portfolio

Offering totals 657,811 square feet in California, Arizona; Dignity occupies 33%

Name: Dignity Medical Office Portfolio
Number of MOBs: 13
Locations: California and Arizona
Size: 657,811 square feet
Occupancy: 79%
Seller: JLL Income Properties Trust Inc.
Largest tenant: Dignity Health (33%)
Brokerage firm: CBRE Group Inc.

CALIFORNIA, ARIZONA – Big medical office building (MOB) portfolio offerings with a good share of credit-rated tenancy remain somewhat rare in the market place, meaning when one comes along the interest from investors is typically high.

That has indeed been the case with one of the market’s current portfolio offerings, the 13-building Dignity Medical Office Portfolio. The Healthcare Capital Markets Group of Los Angeles-based CBRE Group Inc. (NYSE: CBG) is marketing the portfolio for the seller, Jones Lang LaSalle Income Properties Trust Inc., an unlisted real estate investment trust (REIT).

Eight of the buildings are in California, in the cities of Bakersfield, Northridge, Glendale and Santa Maria. The other five buildings are in the Arizona cities of Phoenix, Chandler and Gilbert.

With 657,811 rentable square feet, the 13 buildings are 79 percent occupied, with San Francisco-based Dignity Health, the country’s fifth largest health system, occupying about 33 percent of the space. Dignity, the largest not-for-profit hospital provider in California, has an investment grade rating of ‘A’ by Standard & Poor’s and Fitch, as well as an ‘A3’ from Moody’s.

Ten of the buildings are either on hospitals campuses, while three – all in Arizona – are in high-traffic, off-campus locations.

With an occupancy rate of 79 percent for the portfolio, there are, according to CBRE, opportunities to increase that figure. For example, the firm notes that Dignity Health has expressed an interest in renting 22,000 or so square feet in one of the buildings, Mercy North Medical Office Building in Bakersfield.

The 38,621 square foot building, which is on the campus of Dignity’s Mercy Southwest Hospital, is currently 42.9 percent leased. Should Dignity take all of the space it has shown an interest in, the building would be nearly 100 percent occupied, according to CBRE.

Most of the buildings in the portfolio are in the 30,000 to 49,000 square foot range.

One building, however, is significantly larger than the others. McAuley Medical Center, at 500 W. Thomas Rd. in Phoenix, is a nine-story, 168,511 square foot facility on the campus of he 673-bed St. Joseph’s Hospital and Medical Center, which is part of Dignity Health.

Another notable building is the 67,810 square foot Northridge I Medical Office Building at 18350 Roscoe Blvd. in Northridge. The seven-story building is connected by two skybridges to Dignity Health’s 371-bed Northridge Hospital Medical Center; there is also a connecting  tunnel. Nearby are two other buildings in the offering: Northridge II Medical Office Building, a 40,999 square foot facility at 18546 Roscoe Blvd; and Northridge III, which has 25,375 square feet and is 100 percent leased to the 150-provider, 10-location Facey Medical Group.

According to marketing materials from CBRE, the annual pro-forma net operating income (NOI) of the portfolio is $7.223 million, while the in-place NOI is $7.457 million.

CBRE’s marketing team includes Lee Asher and Chris Bodnar of the firm’s national Healthcare Capital Markets Group, as well as local brokers Matthew Heyn in California, and Mindy Korth and Barry Gabel in Arizona.

CBRE’s marketing materials adds: “The portfolio is offered free and clear of existing debt, providing an incoming investor tremendous value with stable investment grade credit tenancy and strategic on-campus locations.”

– John B. Mugford