By Meghan Hall
A rare opportunity for investors has come to market in Foster City, where medical product does not often trade hands. The Hillsdale Medical Building has hit the market for $18.75 million, and according to industry experts, offers investors a solid value-add and reinvestment opportunity in one of the Bay Area’s tightest markets.
Marcus & Millichap’s First Vice Presidents Stephen Jackson and Joe Owens, as well as Associates Cindy Abuyaghi and Brodie Vogler, as well as Capital Pacific Partner Bryan Webb, are representing the seller.
“It’s a true value-add story here,” explained Jackson. “It has had non-traditional real estate owners that have not made real estate decisions at the building to increase value. They’ve made decisions for their business…They purchased it to control their destiny, to control their business.”
The sellers are a limited liability company affiliated with about half of the dentists and medical professionals currently working within the building. The decision to sell came about as a number of these medical professionals hit retirement, said Jackson.
Located at 1291 E. Hillsdale Boulevard, the Class C building was originally constructed in 1970. The asset itself totals 43,549 square feet and sits on about 2.2 acres of land. And while the owners never saw the building as a real estate play intended to actively create value and add money, several capital improvements were made to the building recently. The infrastructure and exterior shell of the building, including the roof, elevators and mechanical is effectively brand-new. Building amenities include a balcony, conference facility and courtyard.
Additionally, long-term lease renewals are also in place. All of the tenants in the building have signed brand-new ten-year leases at high-market rent. Tenants also have the option to extend an additional five years. Typically, medical office tenants command some of the highest rents per square foot in the market, between $4.50 and $4.75 per square foot. By comparison, office rents in the are close to $3.50 per square foot. Rents have held stable throughout the pandemic as well, as medical and dental professionals are considered essential workers and business is booming.
“There hasn’t been any default in rent payments,” said Jackson. “This is a type of asset that is very resilient. We’ve had a lot of attention from investors because in this market, there are still a lot of buckets of capital out there looking to be deployed. Investors are looking for safe havens.”
Currently, the asset is 83.9 percent occupied and 70 percent leased to medical tenants.
The property is also positioned as good investment for potential buyers just simply due to the very limited inventory in the Foster City market. Many of the multi-tenant medical office buildings in Foster City have been purchased or redeveloped by major market players and employers, such as Gilead, Siemens and soon, Facebook. While demand has remained high, supply has become extremely constrained; Jackson estimates that there are only four true, multitenant, medical office buildings in Foster City today.
“It is in a great location; it is a great piece of real estate,” said Jackson. “And these pieces of real estate don’t come up often.”