Outpatient Facility Sells for $54M

LOS ANGELES-Montecito Medical, a real estate acquisition and deposition company specializing in medical buildings, has acquired a 51,342-square-foot outpatient surgery and oncology treatment facility across from the UCLA Santa Monica Medical Center in Santa Monica. Montecito Medical purchased the facility for $54.7 million through credit tenant lease financing with an interest rate of 4.627%. The Regents of the University of California have already signed on to lease the space through 2042, the full term of the 29-year loan.

Medical Montecito purchased the building from a private developer, who built the facility in 2012 for UCLA. The building is one of the nation's first LEED Gold-certified buildings, which comes equipped with 266 patient beds, eight operating rooms and radiation oncology treatment equipment, including two linear accelerators.

Jones Lang LaSalle secured the CTL financing on behalf of Montecito Medical through the placement of private bonds to institutional investors in global capital markets. This financing option proved as the prime choice because UCLA was secured as a long-term and single-lease tenant for the facility. 

“This piece of property traded for a very high dollar-per-square-foot number. A lot of facilities you look at in healthcare typically do have a higher dollar-per-square-foot cost because of the special use of the real estate,” Brion Haist, JLL executive VP tells GlobeSt.com. “One of the reasons Montecito elected to pursue the CTL financing was because of the fact that it is a type of financing that is not affected by dollars per square foot, nor is it affect by the ultimate use of the property. CTL looks at the credit of the tenants inside of the building and allows traditional real estate factors to take a backseat to the underwriting. That is one of the reasons Montecito Medical found this to be such a compelling form of finance.”

CTL financing is becoming a good alternative to conventional financing for the healthcare market. In Los Angeles specifically, the healthcare industry is extremely competitive and medical outlets are increasingly seeking single-tenant options for outpatient centers located in “desirable demographic areas,” according to Mindy Berman, the managing director and leader of JLL's healthcare capital markets. These locations are commonly in heavy infill locations where it can be difficult for smaller outpatient facilities to compete for patients with larger hospitals.

“The UCLA project is very representative of what is going on with health care,” Berman tells GlobeSt.com. “Healthcare is switching from inpatient environments to outpatient environments. In major health systems, of which there are many in the broad Southern California market, UCLA being a prominent one, are moving to community-based outpatient centers where people go to see doctors and get healthcare services.”

The Medical Montecito transaction was comparatively very large when looking at other recent medical building transactions in Los Angeles, like the Parnell Medical Plaza transaction, which changed hands for $15 million, or $847 per square foot, in July, as reported by GlobeSt.com. As healthcare moves from inpatient to outpatient facilities, the medical industry will continue to position itself as a driving force in the office market.