Premier medical office outpatient campus anchored by Kaiser Permanente
South Valley Medical Centre, Sacramento, Calif. (Photo courtesy of CBRE)
Product Type Healthcare Medical Office Building (On-campus, Off-campus)
Region West Market Sacramento/Roseville
Tenancy Type Multi-Tenant
Sq Ft 76,860 sq ft
Occupancy 90.3%
Listing Description
The Offering
CBRE’s U.S. Healthcare Capital Markets Group is pleased to exclusively offer the South Valley Medical Centre (the “Property”) for purchase. The six-building outpatient campus totals 76,860 square feet and is anchored by Kaiser Permanente which makes up approximately 40% of the leased space. Kaiser Foundation Health Plan (KFHP) currently maintains an investment grade ‘A+’ rating from Fitch Ratings, stating that “the ratings reflect benefits from KFHP’s unique business model and strong competitive position in California.” The campus also features occupancy by Total Renal Care which is owned by parent company DaVita Inc. (NYSE: DVA), a Fortune 500 company operating 1,991 outpatient dialysis centers in the United States serving approximately 156,000 patients.
The six-building outpatient campus is located in a rapidly growing and affluent Sacramento commercial area well known for its many amenities. With over 150,000 cars passing by the campus per day on Highway 99, tenants at the South Valley Medical Centre benefit from significant signage visibility. In addition, tenants and patients enjoy abundant parking and direct access to their suites provided by the single-story layout. The campus is also located directly across the highway from Methodist Hospital of Sacramento, a 162-bed Dignity Health facility which opened in 1972, and is less than a mile from the Kaiser Permanente South Sacramento Medical Center, a 78-bed facility that recently completed a brand new five-story tower with 48 private patient rooms and 30 intensive care rooms.
Investment Highlights
Featuring Kaiser Permanente as the investment grade anchor at the facility, the South Valley Medical Centre presents an excellent opportunity for investors to acquire one of the premier outpatient medical campuses in the market.
Investment Grade Anchor Tenancy
Approximately 40% of the existing tenancy is occupied by Kaiser Permanente, one of the strongest vertically integrated health systems in the country that currently maintains an ‘A+’ rating from Fitch Ratings. The company’s annual operating EBITDA and net income averaged $3.4 billion and $1.6 billion respectively from 2008 through 2012. In addition, EBITDA based margins averaged 7.0% over that same time frame, making Kaiser one of the most financially viable health systems in the United States. Kaiser operates 35 hospitals throughout the U.S. and boasts 5.5 million Californians as its commercial customers, collecting $23.3 billion in annual premiums, according to a Citi Investment Research analysis. That analysis concluded that the nonprofit company has captured 40 percent of California’s commercial and individual markets, more than any competitor. In Sacramento, Kaiser reports that it commands 43 percent of the privately paid insurance commercial market, more than any other health care insurer. At the South Valley Medical Centre, Kaiser operates its Chemical Dependency Program and Psychiatric clinical services.
New Model for Care
According to an article from FierceHealthPayer, “Kaiser has so successfully executed its integrated healthcare model that other insurers could benefit from following its lead as health reform pushes the industry toward further collaboration with providers. Kaiser’s streamlined, integrated care puts emphasis on prevention, wellness and electronic health records and has allowed the company to provide care that’s up to 20 percent below market average costs.” Great examples of this prevention model are the Chemical Dependency and Psychiatric clinical services provided at the South Valley Medical Centre, where Kaiser has found that most emergency department (ED) users have chronic mental health issues requiring closer coordination between primary care doctors, nurses and pharmacies. By calling members who routinely frequent EDs to a meeting with their primary care doctor, a chemical-dependency counselor and a pharmacist, Kaiser has seen members with an average of 30 ED trips a year drop to below 6 visits a year, according to FierceHealthPayer. Other tenants at the campus focusing on preventative medicine include WellSpace Health, who works in partnership with Kaiser Permanente, plus the nearby Sutter Medical Center Sacramento, Dignity Health and the UC Davis Health System.
Near Campus
The South Valley Medical Centre is located directly off of Highway-99, opposite of the Methodist Hospital of Sacramento (a 162-bed Dignity Health campus) and the Kaiser Permanente South Sacramento Medical Center which recently finished construction on a $300 million expansion including a new five-story hospital tower featuring 48 private patient rooms, 30 intensive care rooms, new admitting department, a cardiac cath lab and a 24/7 outpatient pharmacy. The expansion also included a new parking garage, an outpatient surgery center and expansion of the emergency department, making it Kaiser’s first Level II trauma center in the nation.
Rapidly Growing Submarket
The South Valley Medical Centre serves some of the most affluent, high growth communities in the Sacramento region – Elk Grove, Laguna, Galt and South Sacramento County. Elk Grove, which claimed the crown of “fastest growing city in the nation” as reported by the government census in 2006, is swelling again. The city added more than 3,000 new residents last year, making it the nation’s fourth fastest growing city with fewer than 300,000 people, based on numeric change. In addition, many of the gated communities to the east of Highway-99 cater to some of Sacramento’s wealthiest families. According to the Market Intelligence System provided by an independent 3rd party (MRA), the service area surrounding the South Valley Medical Centre scored better than 98% of the 30,000+ markets tracked around the country. As part of the analysis, MRA uses key performance indicators in their proprietary scoring algorithm, including projected population growth, affluence score, healthcare insurance coverage, outpatient procedure volume and medical office visit patterns. The service area scored high with a projected 10.03% growth in population over the next 5-years and a 12.01% projected growth in medical office visits over the next 5-years.
Minimal Management Responsibilities
All of the buildings on the campus are single-story, providing tenants with direct access to their suites. This direct access has also removed any common area factor, providing the landlord with the ability to sub-meter each suite and have tenants directly reimburse the utility companies for all expenses (with the exception of the County tenant). In addition, Kaiser fully leases both the 8241 and 8247 buildings, which has shifted the maintenance responsibility for the roof and HVAC to the tenant. The single-story campus setting provides a new landlord with minimal management responsibilities and also provides a great hedge against increasing operating costs.
Nearby Amenities
The retail centers adjacent to the South Valley Medical Centre include several national brand name anchors, such as Target, Sam’s Club, Lowes and Costco. Other smaller retailers include Starbucks, Jamba Juice, Quiznos, McDonald’s and Baskin Robins. The development also sits adjacent to the Verandas Senior Apartments, featuring one and two bedroom senior living homes in a gated community.
Appealing Aging Trends
The number of Americans aged 65 and older (with an increased need for health care) is projected to double to 71 million or nearly 20% of the U.S. population by 2030. Within a 5-mile radius of the subject property, the number of residents aged 65 or older is expected to grow by 28% over the next five years (Source: MR&A). These trends give credence to the projected stability of the subject property going forward.
Significant Investment by Tenancy
Many of the tenants in the South Valley Medical Centre have made significant investments in their space well beyond the allowance provided by the landlord, increasing the renewal probability and stability of the offering. For example, Kaiser spent $3.3 million beyond their allowance for their space while DaVita spent over $2.0 million beyond their allowance.
Offered by
Chris Bodnar Senior Vice President T: 1-303-628-1711 Fax: 1-303-628-1751 Chris.Bodnar@cbre.com
Lee Asher Senior Vice President T: 1-404-504-5965 Fax: 1-404-923-1499 Lee.Asher@cbre.com
Ali Nadimi Senior Associate T: 1-916-446-8757 Fax: 1-916-446-8750 Ali.Nadimi@cbre.com
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