By Jon Peterson
One of the sectors of commercial real estate that has maintained its prominence over the last couple of years has been the medical office buildings. For companies that own this type of product, it is not unusual to find them testing the market to see if they may be able to reach superior returns in a potential sale.
One such owner, Omni Medical Group, has placed on the market for sale the 54,069 square foot medical office building in Sacramento located at 2288 Auburn Boulevard. The asking price on the price is $14 million, or $259 per square foot, according to the property’s offering document.
Omni Medical has been the owner of the property since March 2014 when it acquired the property for $10.1 million, according to published reports. The seller has hired CBRE to be the listing agent on the sale. One person working on the sale is Chris Martin, an associate who works out of the company’s Newport Beach office. CBRE did not respond to a phone call seeking comment for this story.
Should the property be sold at its asking price, the transaction would result in a 4.85 percent cap rate. This is based on information stated in the property’s offering document. This yield would be based on the property’s current net operating income. A stabilized three-year cap rate would come in at 6.77 percent.
The asset does have a major tenant in the property who has been in the asset since it was developed in 1990. This is Greater Sacramento Surgery, a well-established surgery practice in the region. The property was first built by the tenant for its own use. The tenant has over 12 years remaining on its lease, which makes up roughly 46 percent of the property’s existing gross revenue.
The medical office building has a current occupancy of 80 percent. There are a total of nine tenants in the property presently with an average remaining lease term of 6.65 years. Additional revenue could be added to the property by the new owner by leasing up the empty space and moving in-place rents to market. This alone could increase existing annual net operating income by $313,091 during the initial three years of the holding period.
The current ownership has made some recent capital improvements to the property. This has included upgrades to 10 new HVAC units costing $227,234 and parking lot asphalt work and ADA upgrades totaling $166,395.
2288 Auburn is a two-story medical office asset. The property includes a surface parking facility for approximately 260 cars. It is located in an area with many medical facilities and hospitals. Within 8 miles of the building, there are a total of 9 hospitals including two separate locations for both Sutter Medical Group and VA Hospital.
The property is located within the Arden-Arcade medical office submarket of Sacramento. This region has a vacancy of 4.1 percent for buildings between 10,000 and 100,000 square feet, a result of several years of positive absorption within the submarket. 2288 Auburn is one of 10 non-owner-occupied multi-tenant medical office buildings over 10,000 square feet within the submarket.