Buyer Drawn by Prognosis for Medical Offices

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Opportunities to acquire medical office buildings come along only rarely, and when they do they command steep prices.

The latest example is Carpinteria real estate investment firm Montecito Medical Investment Co.’s $54.7 million purchase of the UCLA Outpatient Surgery and Oncology Center, a new medical development at 1223 16th St. in Santa Monica across the street from UCLA Medical Center.

At that price, Montecito Medical paid the building’s developer, San Francisco development company Nautilus Group, more than $1,060 a foot for the building, which was completed last year at a cost of $29 million.

Nautilus assembled the site in 2007 when it was still two separate lots that were home to a couple of multifamily apartment buildings.

Chip Conk, chief executive at Montecito Medical, said the technology in the building was one of the main features that attracted him to the medical center.

“It’s the best medical office building I’ve ever seen,” he said. “It’s an amazing building, and we’re proud we worked a deal out with the seller to buy it.”

The medical center has won multiple awards for sustainable design and use of technology. In addition to high-tech surgical suites, it also has two copper-lined vaults to house linear accelerators – machinery used to treat cancer. The building also has an automated parking bay that can accommodate up to 380 cars.

Conk said his real estate investment firm used to focus more on multifamily property, but when the market softened, it switched gears.

“We went into medical because of the demographics,” he said. “The aging population needs more health care now than the younger population. Plus, the medical space is a very stable real estate sector. Doctors don’t move, hospitals don’t move. It’s been a very steady investment for us.”

The building also boasts a solid, long-term tenant in the Regents of UCLA, which signed a 40-year lease for the entire building when it opened in January 2012.

The Santa Monica facility is the first property for the firm in Los Angeles County, but Conk hopes it won’t be the last.

“We’d like to buy more medical office buildings along with hospitals, and West Los Angeles is one of our target markets,” he said.

The purchase was financed by a 29-year, fixed-rate loan at 4.6 percent interest provided by Jones Lang LaSalle Capital Markets, led by Brion Haist and Bill Cavagnaro.

Sweet Deal

A Third Street Promenade landlord landed a sweet deal last week, securing a record rent for the Santa Monica shopping district.

Growing candy retailer It’Sugar out of Deerfield Beach, Fla., signed a lease for 2,250 square feet at $312 a foot for the space at 1427 Third St. currently occupied by shoe store Journeys. Promenade Enterprises LP signed the candy shop, which agreed to stay for more than eight years, in a deal valued at about $6.2 million.

Randy Starr, principal at the Santa Monica office of brokerage Avison Young Inc., represented the landlord. In the past, he said rents on the Promenade have been as low as $225 a foot.

“This now sets a new benchmark for the Promenade,” he said. “I think everything from here out will be leased at over $300 a foot.”

Journeys, which still had a few years left on its lease, will cede its space to It’Sugar in January. The shoe store faced stiff competition on the street after brands it sold in its store, including Converse, opened company-owned shops nearby.

It’Sugar will build out the store in the first couple months of the year, with plans to open for business by March. The chain also has plans to open a shop at 111 W. Colorado Blvd. in Old Pasadena next summer.

Starr said the landlord signed the candy shop for the small space on the Promenade because of the diversity it brings to the retail offerings.

“We went with It’Sugar versus some other typical brand names because we knew we could get the rent we wanted, but we wanted to get something unique and appealing,” he said.

Staff reporter Bethany Firnhaber can be reached at [email protected] or (323) 549-5225, ext. 235.

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