By Jon Peterson
San Francisco-based Swift Realty Partners has paid $9.6 million or $127 per square foot to acquire the ground lease on the 75,559 square foot Physicians Medical Center in Daly City located at 901 Campus Drive.
“I think that our interest in this kind of property is driven by the same drivers for wanting to buy regular office buildings in the San Francisco Bay Area. This is very good demand from tenants and not a lot of new construction that keeps vacancies low,” said Christopher Peatross, founder and president of Swift Realty Partners.
An example of the tenant demand is what happened with the property when the buyer was still in negotiations finalizing the deal. “We had this property tied up for some time. When this first happened, the property was 70 percent occupied. Before we closed on the acquisition we were able to bring a new tenant into the property that increased the occupancy in excess of 90 percent,” said Peatross.
The new tenant coming into the property is the Palo Alto Medical Foundation. It signed a five-year lease for around 12,000 square feet. The tenant was represented in this transaction by Mike Connor, an executive managing director for Cassidy Turley Commercial Real Estate Services in its East Palo Alto office. He did not respond to phone calls seeking comment for this story.
The Physicians Medical Center had been owned by a group of doctors that went by the name of Serramonte Ridge Medical Center Enterprises. The seller was represented by CBRE. “There was a ton of interest from investors who were interested in buying the property. I don’t think that [the ground lease impacted] the sale of the asset all that much,” says Seth McKinnon, a vice president with CBRE.
The land underneath the property is owned by the Jefferson School District in Daly City. The medical office property, which has a ground lease that runs until 2084, was first constructed in 1989. The new owner has plans to significantly enhance the building through cosmetic and capital improvements.
Swift Realty made this acquisition on behalf of its commingled fund, Swift Real Estate Partners Fund I. This real estate manager raised $330 million of equity for this fund. The capital raise was closed in the spring of this year.
Swift is looking to buy a mixture of office and industrial assets on the West Coast from San Diego to Seattle. The investment strategy for the fund is to acquire properties that have a value-added potential in the future.