San Jose Medical Office Property Hits the Market with $17MM Asking Price

Market Street Development, San Jose, Sacramento, DaVita Dialysis, Colliers, Cushman & Wakefield

By Jon Peterson

Market Street Development, a commercial real estate firm with offices in Newport Beach, Sacramento and Seattle is looking to sell one of its medical office properties in San Jose at an opportune time. The company has put on the market the 25,464-square-foot DaVita medical office building located at 614 Tully Road, according to a flyer distributed across the industry. Market Street has gone out with an asking price of $17.3 million, or just under $680 per square foot, as announced in the property’s offering document.

The current owner has held title to the property for almost three years. It purchased the asset at the end of 2019 for $9.5 million, as stated in public records. The listing agents on the current sale include two brokerage firms: Colliers and Cushman & Wakefield. One of the people involved in the marketing efforts includes Jay Patel, vice chairman for Colliers. He works out of the firm’s Carlsbad office.

Should the sale of the property reach its asking price, the transaction would deliver a 5.25 percent cap rate. This return would be based on the property’s current net operating income of $910,291.

The property would most likely attract three types of buyers. One group would be 1031-exchange investors, another group could be private high-net-worth individuals and the third group could be comprised of real estate funds.

The main tenant in the property is DaVita Dialysis. This company signed a lease that started in August of last year for 17,496 square feet or 68.7 percent of the building. The lease with this company does not expire until the end of June 2036. The lease has 10 percent annual rent increases, three five-year options and a corporate guaranty by DaVita Inc. Its space is made up of 48 patient stations, an exam room, a business administration area and a reception/waiting area.

The property’s other tenant is the US Army Corps of Engineers. This tenant has a lease that started in September of this year for 6,039 square feet or 23.7 percent of the building. The lease runs for five years expiring near the end of September 2027. The layout for the tenant features segregated sections for Army, Air Force, Navy and Marines administration offices.

There is a small value-add component to the property. This would be the opportunity to lease up the 1,929 square feet of vacant space in the building. The new owner could bring in a new tenant in the space or expand the space with one of the other two current tenants.

The DaVita property is considered to be a net-lease asset, an it was recently refurbished in 2021, according to the property’s offering document. The asset is located in a high-traffic area with a Costco store located across the street. Other nearby businesses include the Santa Clara Valley Health Center, Concentra Urgent Care, San Jose Fairgrounds, Happy Hollows Zoo and the Kelly Park Golf Course.

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