Trask Leonard, CEO, participated in a panel conversation on medical office building market conditions at the Interface Healthcare Real Estate Conference in Los Angeles on February 1 along with John Koss, Senior VP Asset Management and Partner at Anchor Health Properties, Trey Trask, Senior Director of Leasing at PMB Real Estate Services and Steven Salas, Exec Managing Director at Newmark Knight Frank.
The group’s conversation covered all of California, with consensus that smaller tenants are the most active in today’s market, with occupancy levels remaining firm in most suburban markets. Of particular interest was a thread on landlord attempts to obtain a slight increase in fixed base rent increases as a result of inflation.
On November 1, 2022, Trask Leonard, CEO of Bayside Realty Partners, participated in a panel discussion at the Bisnow Northern California Healthcare conference in San Francisco attended by healthcare real estate executives.
Several major trends in healthcare building design and function were discussed during this and other panels at the event, including:
The increasingly challenging investment environment for investors in medical office buildings given the tightening and more expensive debt markets.
New demand by tenants backed by private equity investors in several specialist practices including behavioral health, orthopedics, fertility and plastics/dermatology.
James Goldberg, VP of Real Estate from One Medical, commenting that the merger with Amazon may present unique opportunities for them to capture a substantially larger pool of patients.
The long term trend in the Bay Area of medical office building ownership becoming more institutional, resulting in the significant capital investment by these owners in upgrading older MOBs to meet the needs of the modern tenant base.
Design of the new UCSF Parnassus hospital centered around healing, with a non-traditional (at least for the US) approach to connect the healing spaces with the outdoors.
Photo caption: From left to Right: Erik Hanson (moderator), Healthcare Practice Leader at Perkins & Will / Stuart Eckblad, VP of Major Construction Projects at UCSF Health / Trask Leonard President & CEO Bayside Realty Partners / John Pollock, CEO of Meridian / Michael Williams, Principal of Boulder Associates.
SAN FRANCISCO, PHOENIX TAKE THE PULSE OF MEDICAL OFFICE
Two commercial real estate executives explain how their cities’ healthcare industries are growing and changing in 2020.
By W. Trask Leonard, Jr. and Alexandra Loye
New state mandates and a labor shortage have caused these two Western metros to examine how their healthcare real estate is doing now — and what it may need to remain successful in the future.
Monumental Shifts Cause San Francisco’s Medical Office Market to Respond
Two significant factors have driven dramatic changes in the San Francisco medical office landscape that this market has never seen before, including the addition of three new hospital campuses at a total cost of more than $4.4 billion.
The drivers — the California mandates for seismic compliance for hospitals and the drive toward healthcare system employment of physicians — have spurned significant new investment in healthcare real estate in San Francisco.
Last year, healthcare system Sutter Health completed the repositioning and redeployment of its hospital foundation in San Francisco, opening its $2.1 billion California Pacific Medical Center (CPMC) Van Ness Campus on March 1. The 289-bed facility at 1101 Van Ness Ave. opened after a planning, entitlement and construction process of more than 15 years. The facility is replacing the CPMC California Campus (Laurel Heights), which was deemed not feasible to retrofit to conform to SB 1953.
Concurrently, 1100 Van Ness, the first new multi-tenant medical office building in San Francisco since 1984, was opened by Pacific Medical Buildings, with Sutter Health leasing about 78 percent of the total 250,000-squarefoot, Class A building. The building, connected to the hospital via a tunnel under Van Ness, offers 10 stories of unsurpassed views and is now about
84 percent leased. In addition to Sutter, the building is now home to two
Sutter-affiliated independent practices and one specialty group.
Leonard
Sutter Health also re-positioned its 480-bed CPMC Pacific Campus at 2333 Buchanan Street in San Francisco from an acute care facility to ambulatory care. This is in addition to opening the newly reconstructed 120- bed CPMC Mission Bernal Campus (formerly St Luke’s) at 3555 Cesar Chavez in the Mission District in August 2018 at a cost of $600
million.
Since 2015, other healthcare systems have contributed to the largest series of capital investments by healthcare systems in San Francisco since the 1940s and ‘50s. UCSF Mission Bay opened in 2015, growing into its current $1.5 billion footprint that boasts three hospitals, including UCSF Benioff Children’s Hospital, UCSF Betty Irene Moore Women’s Hospital and UCSF Bakar Cancer Hospital, part of the Helen Diller Family Comprehensive Cancer Center. The campus also houses the 207,500 square-foot UCSF Ron Conway Family Gateway Medical Office Building, supporting the hospitals. In 2016, Kaiser Permanente opened a new $200 million, 220,000-square-foot medical office building at 1600 Owens Street in the backyard of UCSF Medical Center at Mission Bay.
Reinvestment Continues
In response, investors in San Francisco’s medical office buildings have reinvigorated or repositioned their buildings to attract new tenants. This includes the substantial upgrade and 100 percent-focus on medical office tenants for 1 Daniel Burnham Court, which is strategically located at the corner of Van Ness and Post, across the street from the CPMC Van Ness Campus; the dramatic modernization of common areas at 3838 California Street in Laurel Heights; the repositioning of Stonestown Medical Building, with Dignity Health Medical Group as a significant tenant; and the modernization of the Lakeside Medical Building, where Sutter Health will open a significant clinic later this year.
We have seen several larger and interesting trends in the past few months from the national landscape that will affect the San Francisco marketplace in the years to come. This includes a significant increase in the presence of cash-based or elective practices not constrained by declining insurance reimbursements, such as fertility, wellness and larger-scale behavioral health practices. A recent offering of fertility benefits to employees of large technology companies, in particular,
is further driving the strong demand for medical office space from well capitalized fertility practices.
Other trends include healthcare systems opening 15,000- to 30,000-squarefoot facilities in neighborhood and community locations within the city that are underserved. This includes conversions of formerly retail and/or office buildings in high visibility and high-convenience locations, rather than the 100,000-square-foot or more facilities. Vacancies, which increased modestly in 2019 from 6 percent to 9 percent as a result of the increased supply, will decrease again as these newly emerging practices take larger footprints. Construction costs for tenant improvements will continue to increase at high rates, with landlords likely to offer higher allowances for longer-term, strong-credit tenants. Just as the market has begun to digest the California mandates for seismic compliance for hospitals and the drive toward healthcare system employment of physicians, we will be on the lookout for the next possible change — the November 2020 election and a potentially radical change in nationalized reimbursement for services. — W. Trask Leonard, Jr.,
President and CEO,
Bayside Realty Partners in San Francisco
Developed by Pacific Medical Buildings and leased by Bayside Realty Partners, 1100 Van Ness is the first multi-tenant medical office building in San Francisco since 1984.
Advancing the urban outpatient experience: PMB’s 1100 Van Ness building is 92% leased
The first new multi-tenant medical office building built in San Francisco since the 1980s offers a convenient central location, tenant ownership opportunities, scenic views and more
SAN DIEGO, RELEASE DATE – Thanks to the recent lease of the last remaining full floor to a major healthcare provider, 1100 Van Ness, San Francisco’s largest and newest medical office building (MOB), is now about 92 percent leased to a variety of world-class medical providers.
The landmark 250,000-square-foot, 10-story, state-of-the-art medical building was developed in a joint venture between San Diego-based PMB, one of the nation’s most prominent developers of medical office buildings, and Ventas Inc., a diversified healthcare real estate investment trust which is headquartered in Chicago.
“We are extremely proud to have been selected several years ago to become the developer on this landmark medical office building project,” says Mark Toothacre, Partner and President of PMB. “Now, with its convenient urban location, 1100 Van Ness houses top-notch physicians and labs that provide easy access to important outpatient healthcare services, particularly during the pandemic.”
Mr. Toothacre adds, “Not only is this the first new multi-tenant medical office building constructed in the city since 1984, it provides tenants many unique benefits, including the opportunity to buy into ownership of the building. Tenants also enjoy beautiful views, easy access to major San Francisco neighborhoods and convenient underground parking. Plus tenants and patients can easily go to the new hospital via a tunnel underneath Van Ness that connects to it.”
The 1100 Van Ness building is home to more than 100 healthcare system specialists. Combined, these providers offer a wide range of medical services for area resident such as cancer care, cardiology, a transplant clinic, OBGYN and neurology.
Additionally, a world-class academic medical center-backed pediatric practice occupies a full floor and offers children and adolescents care across 17 subspecialities, marking a significant step for children’s healthcare in the city.
Other tenants include Walgreens, San Francisco Surgical Medical Group, San Francisco Critical Care Medical Group and Cranial Technologies, providing a unique full-service ambulatory care center in the heart of San Francisco. Starbucks will be opening in the coming year as well. The building also features a five-level, 383-space underground parking garage.
Mr. Toothacre says the 1100 Van Ness building, which was completed in March 2019 after a 13-year entitlement effort and complex construction process, is enabling major healthcare providers to better serve the growing San Francisco area population and comply with new California seismic building codes.
A few select tenant leasing and investment opportunities are still available, with remaining spaces ranging from about 1,000 to 15,000 square feet. For more information, please contact Bayside Realty Partners representatives Trask Leonard at 650-533-2591 or tleonard@baysiderp.com or Caroline Doyle at 650-722-1495 or cdoyle@baysiderp.com.
