Known as the Tucson Medical Office Portfolio, the package consists of the Desert Life Medical Plaza at 2001 W. Orange Grove Rd. and La Cholla Medical Office Building at 6261 N. La Cholla Blvd. The Desert Life complex, consisting of more than 56,000 sf on five acres, has five one-story buildings and one two-story structure, all built since 1980. It includes 280 parking spaces. The La Cholla asset is a two-story building on nearly five acres with about 55,000 sf of office and 368 parking spaces.
Daniel Prosky, vice president of acquisitions for the REIT, says he expects to have leasing above 70% shortly. "We've already got a 4,000-sf lease out for signature and we're talking on others," he says.
According to Prosky, medical office vacancies in the area began rising three or four years ago as rental buildings lost tenants to medical condominiums. He says that trend has abated, leading to an upsurge in occupancy levels and rents. He pegs medical office rents for the general area at $18 per sf to the low $20 per sf, adding it's considerably higher than it was a couple years ago.
The REIT bought the portfolio from a partnership headed by Torrance, CA-based West Coast Capital Partners, which held the properties about 1.5 years. "The vacancy level was even higher when they bought it," Prosky tells Globest.com. "They put a lot of money into renovations and leasing. And, we're confident we can continue where they left off."
Both properties are adjacent to Northwest Medical Center, a 300-bed full-service hospital with in-patient and outpatient services, which Prosky terms a major factor in the acquisition. "This is a very strong hospital. It has a very good operator. That was very important in terms of assuring us we could attract quality tenants," he says. The more general location also was important, he adds, noting Northwest Tucson has been one of the city's fastest growing areas for the past 10 years.
Kevin Shannon, a vice president in the institutional investment group of CB Richard Ellis in Torrance, represented the seller in the transaction. The buyer was represented in-house. Financing was provided by LaSalle Bank NA. Asset management services will be provided by the REIT's sponsor, NNN Realty Advisors Inc., also of Santa Ana, which earlier this month received permission from the SEC to merge with Grubb & Ellis Co.
As of Nov. 15, NNN Healthcare/Office REIT had sold approximately 18.7 million shares of its common stock for more than $186 million through an initial public offering that began in third quarter 2006. The REIT has made 15 other acquisitions. Including the current purchase, its portfolio is valued in excess of $315 million.
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