Healthcare Realty, a Nashville-based publicly-traded real estate investment trust (REIT), acquired its fifth property in the Puget Sound region on Tuesday, totaling 819,777 square feet of medical office space.
The firm purchased the University of Washington School of Medicine Valley Medical Center from Talbot Professional Center for $53 million, or $602 per square foot, confirmed CBRE Senior Vice President Paul Carr, who represented the buyer.
“They have been successful growing their portfolio here due to their reputation as a good real estate partner and a good landlord,” Carr said. “Both health systems and private sellers recognize the quality and character of Healthcare Realty’s management team. Their focus on integrity allows Healthcare Realty to continue to grow their key provider relationships across the Washington market.”
Their focus on integrity allows Healthcare Realty to continue to grow their key provider relationships across the Washington market
Located at 400 S. 43rd Street in Renton, the 28-year-old 88,000-square foot building is a 303-bed acute care hospital and clinic that is the only disaster recovery facility in South King County. According to the center’s website, it is the largest non-profit healthcare provider between Seattle and Tacoma.
Healthcare Realty plans to improve the building over time, as they do with most of their investments, says Carr. “Their goal is to be the highest quality medical office landlord with the most desirable medical office buildings in the market,” Carr said. “They already have the most well regarded portfolio in the market allowing tenants around most medical campuses from Tacoma to the north end of Lake Washington to the ability to locate in well managed and high quality medical office buildings. The Talbot building will be improved, but exact plans are still in the works.”
The property was Healthcare Realty’s fourth acquisition in the region over the last two years, however, Healthcare Realty completed construction on it’s first Puget Sound region project in October 2011, Overlake Medical Pavilion in Bellevue. According to the firm’s website, the seven-story 191,000-square-foot development cost $92.2 million to build. In December 2014 the company then acquired a five-story medical facility in Burien, Three Tree Medical Arts Building, for $22.7 million. Highline Medical Pavilion, a three-story building also located in Burien, was acquired in June 2015 for $14 million. About three months later, Swedish Orthopedic Institute in Seattle was acquired for $28 million, where Proliance Orthopedic Surgeons leases its office space.
According to CBRE’s 2016 first quarter Puget Sound Office report, the medical business sector has received less than 500,000 square feet of new space over the last year. This sector makes up roughly 16 percent of the total office market, which absorbed a total of 3,045,579 square feet. Of this total number, Renton saw 51,450 square feet of absorption, with another 735,000 square feet under construction. The majority of this new space is the result of Seco Development breaking ground on its three-tower Southport office development, along the shoreline of Lake Washington.
“The Renton medical office submarket is comprised of medical office buildings (MOBs) located predominantly along Talbot Road South and on Valley Medical Center’s campus,” Carr said. “The MOBs vary significantly in size, age and construction type with ownerships ranging from private investors to owner occupants and institutional investors. The submarket is anchored by UW/Valley Medical Center which has the stability and high quality reputation HR seeks in its hospital partners.”
Renton’s office submarket consists of a total of 3,189,774 square feet of rentable space that sat at a 9.7 percent vacancy rate at the end of the year’s first quarter, says the report. The city’s yearly asking rental rates for Class A space are $23.84 per square foot, which are significantly lower than downtown Seattle’s rates of over $39 per square foot.