Hot Property: Location is key for California MOB

Redevelopment of adjacent hospital could add value to 99% leased facility

Name: Freeman Medical Towers
Address: 323 N. Prairie Ave.
City: Inglewood, Calif.
Size: 79,428 square feet (rentable)
Number of floors: Four
Lot size: 1.4 acres
Occupancy: 99%
Seller: Grabel Financial LLC & Linton Financial LLC
Largest tenant: Didi Hirsch Mental Health Services (45%)
Buildings completed: 1972, 1991
Renovated: 2012
Broker: Evan A. Kovac
Brokerage firm: Newmark Grubb Knight Frank

INGLEWOOD, Calif. – Almost any time a hospital closes, the on-campus medical office buildings (MOBs) suffer significant tenant losses, right?

Not always, as an MOB in Inglewood has been proving for the past six years or so.

The Freeman Medical Towers complex, a melding of two facilities into a 79,428 square foot MOB at 323 N. Prairie Ave. in Inglewood, is virtually 100 percent occupied by multiple tenants despite being located on the campus of the former Daniel Freeman Memorial Hospital, shuttered in late 2007.

Located just a few minutes or so from LAX airport, the MOB has been put on the market by its owner, a partnership of two local individuals that has owned it since 1991.

A few years prior to the 358-bed hospital being closed by its owner at the time, Prime Healthcare Services of Ontario, Calif., the facility was owned and operated for nearly 50 years by its founder, the Sisters of St. Joseph Carondelet. Dallas-based Tenet Healthcare Corp. (NYSE: THC) took control in 2001 before letting the facility go in 2004.

Today, the hospital building and the land for the campus are owned by a local firm, Inglewood North Development Corp., whose plans for the building remain uncertain.

However, according to marketing materials from Newmark Grubb Knight Frank, “it is our understanding that current zoning requires that part of the hospital property be used for medical purposes. Given its strategic location in the Los Angeles basin (and) including its proximity to West Los Angeles and Beverly Hills, its long-term position as senior housing, assisted living, long-term acute care or some other specialized medical use would appear to be the highest and best usage.”

As noted, despite being adjacent to a shuttered hospital, the Freeman Towers complex remains virtually filled, with tenants ranging from the multi-location Didi Hirsch Mental Health Services, RSM Lifeline Vascular Access, South Bay Family Health Care, Quest Diagnostics and others.

“A lot of the individual doctors and other practices in the building are affiliated with Centinela Hospital Medical Center, which is part of Prime Healthcare Services and located just a mile or so from the Freeman Towers,” says the broker for the offering, Evan A. Kovac, a managing director with Newmark Grubb Knight Frank in Newport Beach.

The first building of the two Freeman Towers, according to Mr. Kovac, was completed in 1972, with another built alongside and incorporated into the overall facility in 1991. “Extensive remodeling and upgrades” have been performed during the past three years or so, he adds. The property contains an adjacent four-story parking garage with 285 spaces; it also has additional parking rights on the campus.

Why hasn’t the MOB suffered from the closing of the hospital in 2007?

Mr. Kovac credits its location amid a densely developed and populated area of Greater Los Angeles as well as scant competition for medical office space. “Only three other MOBs of reasonable size” are within a couple of miles of the Freeman Towers,” he says.

One of those buildings, owned by Los Angeles-based Jamison Services, is across the street from the Freeman campus while the other two are owned by Prime Healthcare Services and located on its Centinela Hospital campus a mile or so away. 

Even though the Freeman Towers complex is virtually filled, Mr. Kovac adds that there is plenty of pending upside for the eventual buyer.

“Should the hospital, for example, be redeveloped as some type of senior housing, such as a continuing care retirement community, which is a possibility, that would add to the patient base for and the value of the Freeman Towers,” he notes.

In addition, two iconic landmarks within blocks of the campus are in the process of well-publicized redevelopment and rebranding projects.

One is the Great Western Forum, once home to the Los Angeles Lakers. The arena’s new owner, New York-based Madison Square Garden Co., is in the midst of a $70 million renovation of the facility that company officials say will reestablish it as one of Southern California’s “premier entertainment venues.” A grand reopening is scheduled for mid-January, kicked off with three concerts by legendary rock group the Eagles.

Also nearby is the soon-to-be-razed and redeveloped Hollywood Park horse racing track, where Seabiscuit won the inaugural Gold Cup 75 years ago. The new owner of the 230-acre site, San Francisco-based Stockbridge Capital Group, plans to break ground in January on a redevelopment that would include a casino, shopping center, 300-room hotel, office space, two lakes and 2,995 residential units.

“It just doesn’t sound right to say that a 100 percent occupied medical office building is a value-add opportunity,” Mr. Kovac says of the Freeman Towers. “But, in using a different way of defining it, that’s what this property presents.”

– John B. Mugford