Medical Office Investor Adopts Large Tenant Strategy

Consolidation in the healthcare industry is spurring a need for large blocks of medical office space. Medical real estate investor and developer Meridian has adopted a large tenant strategy for its latest acquisition. The property, a 26,000-square-foot medical office building in Torrance, was 100% vacant at the time of the sale and was marketed as a redevelopment opportunity. Instead of redeveloping the property into another use, Meridian saw that this would fulfill a need for large medical office tenants, and it was able to secure a tenant for half of the property during escrow.

“As the healthcare industry continues to consolidate, we’re seeing much more demand for larger blocks of contiguous space,” R.J. Sommerdyke, director of acquisitions at Meridian, tells GlobeSt.com. “We felt particularly good about this acquisition because it represented a unique opportunity to provide tenants with one of the only options in the market for large blocks of ground-floor space, which is very desirable from a medical perspective. We’re already seeing our thesis being proven by securing a large tenant so early-on in the process.”

Meridian plans to invest and additional $3.6 million into the property on upgrades. The renovation will be complete late next year, but the early leasing activity bodes well for early lease-up. “The property was previously operated as an imaging and radiation oncology center,” adds Sommerdyke. “As such, the building housed two linear accelerator vaults, which are used for radiation therapy in cancer patients. These vaults are extremely expensive to construct at $1.5 million to $2 million each, and by having those improvements in place, we can offer a very compelling rental rate to a future tenant who can utilize those improvements versus having to construct them on their own.”

The location will also help to promote leasing activity, and was a major reason why Meridian saw potential in the property. “Meridian pursued and ultimately purchased the property due to the unique location between two major hospitals and the inherent value in the existing building improvements,” explains Sommerdyke.

While the micro-market is ideal for the medical office project, Torrance in general has improving fundamentals that helped to drive Meridian’s interest in the property. “In addition to great demographics, the medical office fundamentals for Torrance are strong and continue to improve,” John Pollock, CEO of Meridian, tells GlobeSt.com. “The submarket has consistently experienced positive net absorption since 2010 and market vacancy for medical has dropped to single digits.”