By Jon Peterson
San Francisco-based Swift Real Estate Partners has offered for sale the ground lease on the 75,901 square foot Physicians Medical Center medical office building in Daly City located at 901 Campus Drive, as stated by sources familiar with the property.
Swift declined to comment when contacted for this story regarding the sale. The listing agent on the sale is HFF. Two of the people involved are David Dokko, director, and Austin White, analyst. Both of them work out of HFF’s office in San Francisco.
Swift has owned the ground lease on the property since November of 2014. At this time, the real estate investment firm paid $9.6 million, or $127 per square foot, for it. The land underneath the property is owned by the Jefferson School District in Daly City, and the ground lease runs until 2084.
Physicians Medical Center now has strong current income and a chance to add some additional value to the property in the future. The property is 92 percent occupied, presently, and three major tenants occupy 52 percent of the asset. These are Campus Surgery Center, Palo Alto Medical Foundation and Unilab. The weighted averaged remaining term on the leases with these tenants is 7.2 years. The new owner of the ground lease will realize a yield premium from the lease with Palo Alto Medical Foundation’s larger suite paying an above-market contractual rent bump of 5.7 percent in 2019.
The value-add component is to lease up the remaining vacancy in the property and the fact that the existing rents in the property are roughly 20 percent below current market rents. The amount of space left to lease in 901 Campus Drive is 5,719 square feet in a medical office market that has a current overall occupancy of 97.5 percent.
The property was first developed in 1989. The property benefits from a population within a three-mile radius of the location that is forecasted to grow by 5.1 percent by 2022. This area also has significant physical barriers to entry within San Francisco, and the surrounding areas have led to minimal new deliveries with no multi-tenant medical office buildings constructed in over 25 years.