Colliers’ market knowledge, contacts smooth Orange County MOB sale

by | 14 December 2017

Meridian’s recent purchase of a strong, on-campus medical asset in a growing Laguna Hills market showcases the advantage of Colliers’ superior market knowledge and long-standing, solid relationships.

When the former owners of The Laguna, a 57,057 square foot on-campus medical office building (MOB) in the growing Orange County suburb of Laguna Hills, Calif., decided to put the property on the market last summer, they knew Colliers International’s Irvine office had the right formula to target the perfect buyer.

John Wadsworth, Senior Vice President, and Aaron Phillips, Associate Vice President, immediately began formulating the strategy to position the property and set their sights on the right target. That strategy was based on the team’s deep knowledge of the Orange County market, long-term relationships, and awareness of the needs and goals of several potentially interested healthcare real estate investors.

Colliers’ intimate knowledge of the geographic market didn’t just sell the building, it sold the value and potential of the whole South Orange County area, as well as the opportunity to be on the Saddleback Memorial Hospital campus and near the soon-to-be redeveloped Five Lagunas (the former Laguna Hills Mall). Colliers was not only selling the upside or value-add of the building, it was also selling the upside and value-add of the whole neighborhood.

“As we formulated our offering memorandum, we focused on several things, including some that might’ve been perceived as challenges,” Mr. Wadsworth recalls. “But we were able to address those challenges effectively because remedies to them were already underway.”

For example, at the time Colliers got involved, The Laguna was only 75 percent occupied and, therefore, not a traditional, stabilized deal. And while The Laguna is an on-campus MOB, it sits next to three other MOBs, also on campus. In addition, there was 100,000 square feet of vacancy between the three buildings.

Still, the Colliers team was able to reframe those minimal challenges by accentuating the many positives of The Laguna.

“We sold the fact that we were on-campus, affiliated with a great hospital system,” Mr. Wadsworth explains. “In addition, the competitive on-campus building that had the most vacancy of the three was once largely neglected, and there was a time no one would touch it. That building was acquired a year and a half ago by an owner who repositioned it, and it is a completely different asset now. Now that it’s fixed, it’s sent a breath of fresh air in the market.”

The Colliers team also positively positioned The Laguna’s location across the street from The Five Lagunas, and the fact that the former Laguna Hills Mall is being completely repurposed in ways that will be advantageous to the potential new owner in terms of very attractive demographics and a refreshed retail environment.

“A lot of the retail footprint is being scraped to make way for residential,” Mr. Wadsworth says. “That will change the whole landscape of this market for the better. With residential you are about 1,000 more units – and a lot more lives – two to three thousand additional people in this immediate market. That’s the way we sold the vacancy. Everyone will stand to benefit with the renovation of the mall.”

With the listing in hand, the Colliers team created an extensive offering memorandum, and started to market The Laguna in July 2017. Using a targeted list, Colliers correctly predicted that the right buyer would be someone local and, in particular, someone who understands Orange County and Southern California.

“We compiled an initial target list of what and who we thought would be in the most logical pool to draw from,” Mr. Wadsworth says. “Because of the vacancy, there was more of a value-add component to the deal. And at the end of the day, we had half a dozen real buyers, so the strategy worked.”

In addition, the seller didn’t want a highly public marketing process. They were especially sensitive to making the existing tenants unnecessarily nervous about the impact of a sale.

“Our process was more targeted, personal and hands-on,” says Mr. Wadsworth. “We had a very proactive outreach, with personal phone calls and emails. That’s what the seller was looking for, and that’s what they really liked about what we had to offer.

“I’ve personally had a long history of working in this market and have represented virtually every owner. I’ve done a lease in all the competitive buildings. I have an intimate knowledge of that submarket, which was critical because of what we had to sell around. We were promoting the area for the strengths. On a macro level, we’re next to the mall and a great hospital. The vacancy isn’t going to be around forever, because the change in the market will benefit the overall owners. You can’t sell that unless you can prove you’ve transacted in it before.”

The strategy paid off In October 2017 when Meridian purchased The Laguna for just under $20 million, and the transaction resulted in a win-win for both seller and buyer.

“It was great working with the Colliers team (John and Aaron) on this transaction,” Meridian’s Senior Acquisition Manager, R.J. Sommerdyke says. “Their responsiveness and transparency was crucial in being able to close the deal within a short escrow period. We look forward to doing many more deals with them in the future.“

Meridian, a full-service real estate developer and owner of medical real estate, is pleased because the acquisition of The Laguna further expands its footprint in Southern California, following its purchase last year of Cotton Medical Center, a 115,000 square foot, $49 million medical office complex in Pasadena, Calif., adjacent to the recently completed Shriners Hospitals for Children and near the Huntington Memorial Hospital.

“This acquisition presented us with a rare opportunity to purchase a medical office asset located on-campus to one of the premier hospitals in Orange County,” says John Pollock, Meridian CEO. “The South Orange County submarket has exceptional demographics. Approximately 50 percent of the population within a one-mile radius of the property is 65 or older, which accounts for the highest per capita healthcare spending. We’re looking forward to providing the community with a comfortable and inviting medical space that they can get to quickly and easily.”

“The property has a strong tenant base with national and local credit tenants,” Mr. Pollock continues. “There is great synergy and a large referral base among the existing tenants in the building. Some of the larger tenants at The Laguna include Simon Medical Imaging, South Coast Eye Care Center and Pacific Cardiovascular Associates. Our team is excited to get to know all of the tenants and we are eager to begin improving the building and the respective medical spaces.”

“In Meridian, we picked a great buyer who interacted well with the seller,” Mr. Wadsworth says. “This building was built in the early 1980’s, it’s not a brand new asset but well maintained with some, deferred maintenance. There are not a lot of buyers for something like this out there. Our strategy to put thought and due diligence into who to target made us successful.”

Meridian plans to invest more than $24 million into the property by the time it is fully leased. According to Mr. Sommerdyke, the property will undergo a significant renovation to fully modernize the building, which was built in 1983, and bring it up to Class-A standards. Plans call for aesthetic upgrades to the common areas including the lobby, hallways and restrooms, as well as upgraded building systems such as HVAC, lighting, fire sprinklers and various ADA upgrades over the next year.

In The Laguna transaction, Colliers negotiated a seamless sales process because it had the experience, market knowledge and strategic awareness to accentuate positives, mitigate negatives and anticipate opportunities.

“Again, given the vacancy, if I am selling a building at 75 percent occupancy alongside a market that has similar vacancy; that was not easy to do. From that standpoint, the seller was happy and approved highly of our work,” Mr. Wadsworth says.

The team’s strategy accomplished the goals of everyone in the equation, including making the seller happy and establishing a bright future with the buyer.

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