Ryan Gallagher, Michael Leggett, CJ Osbrink, Tim Wright HFF LP Sharp Health Care Facility, 10243 Genetic Center Drive, San Diego; Scripps Clinic, 15004 Innovation Drive, Rancho Bernardo 253,676 total square feet (two properties-portfolio deal) Total Consideration: $147.5 million
About the properties: Scripps was a build-to-suit and relocation for Scripps (from across the street). Sharp was an existing single-tenant building that was converted to a medical office by Sharp. Scripps and Sharp Health are both top 10 employers in San Diego County and the two largest private employers in the county. At the time, Scripps Credit was high-investment grade, and they were ranked 38 nationally (SDI). Sharp was investment grade credit and ranked No. 1 health care provider in California and 13 nationally (SDI).
Closing the deal: The Sharp building was leased but not occupied at the time of closing. The building was undergoing construction to build out Sharp’s space.
Ultimately, the agents were able to make the buyer comfortable since Sharp had taken over the tenant improvements and was paying rent. Additionally, they were using a reputable contractor to finish the work. The seller’s team of institutional construction managers also helped assure the buyer that the job would be completed shortly after closing, and there would be no issues with delivery of the space.
This was one of the largest medical office deals in San Diego County and the West Coast in 2012. The core nature of the opportunity and long-term (nearly bondable) net lease structures significantly drove up the pricing and eliminated most private buyers and REITs. At a price of nearly $600-per-square-foot, the sale is an eye-opening metric of where the medical office market is headed. Additionally, this property trade demonstrates the growing appetite of core institutional capital for medical office buildings.