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SIERRA PELONA MEDICAL CENTER38420 5th St W #4 • Palmdale, CA 93551
Offering Memorandum
1
N O N - E N D O R S E M E N T A N D D I S C L A I M E R N O T I C E
Confidentiality and DisclaimerThe information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Marcus & Millichap and
should not be made available to any other person or entity without the written consent of Marcus & Millichap. This Marketing Brochure has been prepared to provide summary, unverified
information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due
diligence investigation. Marcus & Millichap has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the
future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB's or
asbestos, the compliance with State and Federal regulations, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any
tenant's plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be
reliable; however, Marcus & Millichap has not verified, and will not verify, any of the information contained herein, nor has Marcus & Millichap conducted any investigation regarding these
matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to
verify all of the information set forth herein. Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2018 Marcus & Millichap. All rights reserved.
Non-Endorsement NoticeMarcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any corporation's logo or
name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or subsidiaries, or any agent, product,
service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information about this listing to prospective customers.
ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY.
PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS.
SIERRA PELONA MEDICAL CENTER
Palmdale, CA
ACT ID Z0091161
2
TABLE OF CONTENTS
SECTION
INVESTMENT OVERVIEW 01Offering Summary
Maps
Aerial Photo
FINANCIAL ANALYSIS 02
Tenant Summary
Operating Statement
Pricing Detail
MARKET OVERVIEW 03
Market Analysis
Demographic Analysis
SIERRA PELONA MEDICAL CENTER
3
SIERRA PELONA MEDICAL CENTER
4
INVESTMENT
OVERVIEW
SIERRA PELONA MEDICAL CENTER
#
OFFERING SUMMARY
5
EXECUTIVE SUMMARY
EXPENSES
CURRENT $/SF PRO FORMA $/SF
Fire/Life Safety $950 $0.15 $979 $0.16
Repairs & Maintenance (Common Area) $800 $0.13 $824 $0.13
Association CAMs $10,200 $1.63 $10,506 $1.68
Insurance $1,850 $0.30 $1,906 $0.30
Real Estate Taxes $18,821 $3.01 $18,821 $3.01
Management Fee $7,254 $1.16 $8,708 $1.39
Total Expenses $39,875 $6.38 $41,743 $6.68
VITAL DATA
CURRENT PRO FORMA
Price $1,550,000 CAP Rate 6.79% 8.54%
Down Payment 40.6% / $629,300 Net Operating Income $105,212 $132,416
Loan Amount $930,000 Net Cash Flow After Debt Service 6.61% / $41,587 10.93% / $68,791
Loan Type Proposed New Total Return 9.77% / $61,466 14.24% / $89,635
Interest Rate / Amortization 4.75% / 25 Years
Rentable SF 6,250
Price/SF $248.00
Current Occupancy 80.00%
Year Built 2008
Lot Size 0.62 acre(s)
DEMOGRAPHICS
1-Miles 3-Miles 5-Miles
2017 Estimate Pop 10,912 67,057 124,693
2010 Census Pop 10,455 63,540 119,295
2017 Estimate HH 3,323 19,717 36,049
2010 Census HH 3,193 18,648 34,419
Median HH Income $49,793 $47,439 $53,418
Per Capita Income $20,493 $19,361 $20,788
Average HH Income $67,016 $65,756 $71,827
Notes:1.) Real Estate Taxes – Calculated based on the list price of $1.55M and the property’s 1.21426% mill rate.2.) Mgmt. Fee – M&M analysis projected this at 5% EGI.
SIERRA PELONA MEDICAL CENTER
OFFERING SUMMARY
▪ 80% Current Occupancy
▪ 8.54% Projected Pro Forma Cap Rate
▪ 1 Block from the 184-Bed Palmdale Regional Medical Center
▪ Anchored by Social Vocational Services, Inc. (75 Locations in Socal)
▪ 2008 Construction
▪ Situated 63 Miles NE of Downtown Los Angeles
INVESTMENT HIGHLIGHTS
Marcus & Millichap is pleased to present for sale the free-standing 6,250 SF multi-tenant medical/office building located in the Sierra Pelona Medical Center. The Sierra
Pelona Medical Center (Building #4) is nestled at the base of the Sierra Pelona Mountain range in southern Palmdale, CA, at the intersection of 5th Street West and
Palmdale Boulevard. The building is situated 63 miles Northeast of Downtown Los Angeles, in the very attractive Southern California market.
The subject property is a high-quality medical/office building that was built in 2008 and is strategically located just 1 block from the east entrance of the recently
constructed 184-bed Palmdale Regional Medical Center (Universal Health Services). The building is anchored by Social Vocational Services, Inc. (80% Leased), which has
75 locations throughout Southern CA and aids individuals with intellectual and/or developmental disabilities.
In the rapidly growing Antelope Valley, there has been a dramatic shift in medical office demand with many physicians relocating from Lancaster to Palmdale in order to be
closer to the newly built hospital. The subject property not only offers an attractive current yield/existing stable tenant, but it also offers value-add upside with a projected
8.54% pro forma cap rate upon the lease-up of the small vacant suite (20% of the building).
INVESTMENT OVERVIEW
6
SIERRA PELONA MEDICAL CENTER
#
PROPERTY SUMMARY
OFFERING SUMMARY
THE OFFERING
Property Sierra Pelona Medical Center
Price $1,550,000
Property Address 38420 5th St W, Building 4, Palmdale, CA
Assessors Parcel Number 3004-002-026
Zoning CPD*
SITE DESCRIPTION
Number of Floors 1
Year Built/Renovated 2008
Rentable Square Feet 6,250
Ownership Fee Simple
Lot Size 0.62 acre(s)
Parking Ratio 4.50/1,000 SF
7
▪ One Mile From Antelope Valley Regional Mall & Other Amenities
▪ 1 Block from Palmdale Regional Medical Center
▪ Easy Access to Highway 14
▪ Close Proximity to Antelope Valley Country Club
▪ 6 Miles From Palmdale Regional Airport
NEARBY AMENITIES
PROPERTY PHOTO
SIERRA PELONA MEDICAL CENTER
8
AERIAL PHOTO
SIERRA PELONA MEDICAL CENTER
9
REGIONAL MAP
SIERRA PELONA MEDICAL CENTER
10
lOCAL MAP
SIERRA PELONA MEDICAL CENTER
11
SIERRA PELONA MEDICAL CENTER
12
FINANCIAL
ANALYSIS
FINANCIAL ANALYSIS
SIERRA PELONA MEDICAL CENTER
13
TENANT SUMMARY
FINANCIAL ANALYSIS
SIERRA PELONA MEDICAL CENTER
OPERATING STATEMENT
14
Notes:1.) Real Estate Taxes – Calculated based on the list price of $1.55M and the property’s 1.21426% mill rate.2.) Mgmt. Fee – M&M analysis projected this at 5% EGI.
FINANCIAL ANALYSIS
SIERRA PELONA MEDICAL CENTER
PRICING DETAIL
15
12
TENANT PROFILES
SIERRA PELONA MEDICAL CENTER
16
Social Vocational Services, Inc.
(SVS) was founded in 1977 as a small after school program for teenagers with autism in
Manhattan Beach. Social Vocational Services, Inc. is a 501c (3) California not-for-profit
corporation. In the 35 years since its establishment, SVS has grown to serve over 4000
individuals with intellectual or developmental disabilities throughout California. They offer a wide
variety of services to meet the needs and interests of a diverse population.
SVS operates in 75 locations throughout California and each individual SVS program site has its
own distinctive ambience. This allows each facility the opportunity to customize its activities to
the interests and talents of the individuals it serves and to make use of the resources available in
its community. SVS's Palmdale facility operates as an Adult Day Care & Supported Employment
and has been at the location for over 11 years.
General Information
Tenant Name Social Vocational Services, Inc.
Website www.socialvocationalservices.org
Rentable Square Feet 5,000 SF
Percentage of RBA 80.00%
Lease Commencement 03/02/2007
Lease Expiration 6/4/2023
No. of Locations 75
12
HOSPITAL
SIERRA PELONA MEDICAL CENTER
17
Palmdale Regional Medical Center
Palmdale Regional Medical Center (PRMC) is located just 1 block from the subject property and the hospital includes an egress that leads directly to the west entrance of 5th Street West. Opened in
December 2010, PRMC is the Antelope Valley’s newest most state-of-the-art hospital and acute care center. The Antelope Valley includes Lancaster, Palmdale and outlying desert communities, with a total
population of approximately 476,845 people.
The hospital features 184 licensed acute care beds as well as inpatient and outpatient surgery, cardiac services featuring a STEMI Receiving Center (heart attack) and a 35-bed 24-hour emergency
department. PRMC boasts approximately 900 employees, including nearly 400 RNs and other nursing staff. Centers of emphasis include: Emergency Medicine, Surgery (including Robotics), Oncology,
Outpatient Rehabilitation Services, Orthopedics, Bariatrics, Cardiology and STEMI Receiving Center and The Center for Wound Care. PRMC is managed by nationwide healthcare facility operator Universal
Health Services (UHS).
SIERRA PELONA MEDICAL CENTER
18
MARKET
OVERVIEW
MARKET OVERVIEW
OVERVIEWSAN FERNANDO VALLEY
DIVERSE ECONOMY
While the entertainment industry underpins the economy, other economic drivers include aerospace, insurance and healthcare.
EDUCATED WORKFORCE
Roughly 23 percent of San Fernando Valley residents who are age 25 and older hold a bachelor’s degree and 13 percent also obtained a graduate or professional degree.
GROWTH
Population and household growth will increase faster than other large metros in Southern California, generating a demand for housing, and goods and services.
Approximately 2.5 million people reside in the San Fernando Valley,
which includes the submarkets of Northridge-Northwest San Fernando
Valley, Van Nuys-Northeast San Fernando Valley, Woodland Hills,
Burbank-Glendale-Pasadena and Sherman Oaks-North Hollywood-
Encino. The area’s population is expected to increase by 33,000
residents through 2022. Many people are attracted by the region’s more
affordable home prices.
▪ Known for its entertainment industry, the Valley boasts more than 100 soundstages. Entertainment
giants calling the Valley home include Walt Disney Co., Universal Studios, Warner Brothers,
DreamWorks and Paramount Ranch.
▪ Aerospace giants Boeing and Northrop Grumman as well as 21st Century Insurance generate
numerous well-paying jobs.
▪ Healthcare is also a major source of employment with providers that include Kaiser Permanente and
Providence Health & Services. As a result of its large concentration of high salaries and successful
companies, household incomes are above the national average.
DEMOGRAPHICS
1
ECONOMY
METRO HIGHLIGHTS
* Forecast
Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody’s Analytics; U.S. Census Bureau
SIERRA PELONA MEDICAL CENTER
2.5M
2017POPULATION:
875K
2017HOUSEHOLDS:
38.6
2017MEDIAN AGE:
$65,200
2017 MEDIAN HOUSEHOLD INCOME:
U.S. Median:
37.8U.S. Median:
$56,3002.7%
Growth2017-2022*:
1.3%
Growth2017-2022*:
20
Annual absorption surpasses 2.6 million square feet. At full employment, Los Angeles
County continues to add jobs at a stout rate, yet the sectors that are driving this job
creation have recently shifted. Over the past 12 months, office-using organizations
bolstered staffs by more than 19,000 positions, a significant rebound following a
period when hiring velocity turned negative. Expansions by tech, entertainment and
media-related companies are largely to credit for this improvement, which notably
boosted leasing activity in Westside Cities, Mid-Wilshire and the Tri-Cities. Vacancy
compression in these locales has lowered the metro’s overall availability to a cycle-
low rate, positioning the market to handle a wave of new supply during the next three
quarters.
Developers get creative, shift regions. Robust absorption warrants a surge in
deliveries, with more than 3.5 million square feet slated for finalization in 2018, the
largest annual volume since at least 2007. Differing from previous years, upcoming
completions are not concentrated in Greater Downtown Los Angeles. Instead,
Westside Cities and the South Bay-Long Beach area welcome 1.2 million and
925,000 square feet, respectively. At least a third of this space comprises
loft/creative projects, including 555 Aviation in El Segundo and Mark 302 in Santa
Monica. This overall influx of new floor plans is met with consistent tenant demand
and strong pre-leasing, preserving cycle-low vacancy throughout the year.
Investment Trends
Office 2018 OutlookTenant Demand Matches Cycle-High Influx of New Supply
Vacancy
Y-O-Y
BasisPoint
Change
MetroAsking
Rent
Y-O-Y
Change
Downtown Los Angeles 15.7% 0 $38.91 2.1%
San Fernando ValleyTri-
Cities11.5% -130 $28.63 2.4%
South Bay-Long Beach 16.7% 110 $30.80 5.5%
Westside Cities 14.0% 40 $56.63 2.7%
LOS ANGELES METRO AREA
* Cap rate trailing 12-month average through 1Q; Treasury rate as of March 29, 2018
Sources: CoStar Group, Inc.; Real Capital Analytics
SIERRA PELONA MEDICAL CENTER
• The performance of the Los Angeles County office market, from both a job
creation and leasing standpoint, has a diverse pool of buyers eager to
expand local footprints. Yet, these same factors are swaying more owners to
hold onto properties and reap steady returns. The result has been a recent
decline in listings, which has heightened investor competition for available
properties. A smaller for-sale stock has also elevated asset values, with total
sales volume reaching $9.1 billion for a second straight 12-month period
amid a double-digit decrease in deal flow.
• Home to the lowest vacancy rate among the county’s four primary regions,
the Tri-Cities-San Fernando Valley area recently witnessed a roughly 50
percent uptick in sales activity. Here, buyers hunt for Class A properties at
below-average pricing that can be quickly improved while new supply
additions remain minimal. Also home to lower pricing, the South Bay-Long
Beach region is targeted by investors seeking Class A assets at 5 percent
minimum returns
• Robust absorption in Westside Cities fuels buyer interest, yet a dwindling
number of listings is limiting acquisition opportunities. Assets that do trade
are commonly priced above $600 per square foot, providing investors with
low-2 to 3 percent minimum yields. Regional buyers seeking core-located
properties with upside potential nab older Class B assets in Downtown Los
Angeles.
21
• Organizations bolstered staffs by
55,100 jobs over the past 12
months after adding 61,000
positions during the previous
period. Recent hiring reduced the
unemployment rate by 40 basis
points to a historicallly low 4.5
percent.
• Over the past year, the
professional and business
services sector added 12,700
workers, only outdone by the
leisure and hospitality industry,
which created 22,000 positions.
EMPLOYMENT
• Delivery volume intensified
during the past four quarters
following the completion of nearly
1.7 million square feet during the
prior period. More than 70
percent of the space finalized
over the past 12 months was
located in either Greater
Downtown Los Angeles or
Westside Cities.
• Metrowide, developers are
underway on at least 6 million
square feet, with completions
extending into 2020.
CONSTRUCTION
• On net absorption of 2.6 million
square feet, vacancy dipped to
14.1 percent. Robust leasing
velocity in Westside Cities drove
this reduction, as nearly 1.9
million square feet was
absorbed in the region.
• Amid a rise in deliveries, Class A
vacancy inched up 20 basis
points to 17.4 percent, while
Class B/C availability reached a
10-year low of 10.8 percent.
VACANCY
• Average Class A rent rose by 4
percent over the past year,
boosting the metro’s overall
asking rate to $36.92 per square
foot.
• Above-average gains were
registered in South Bay-Long
Beach and Tri-Cities-San
Fernando Valley, where
increases of 5.9 percent and 4.8
percent elevated regional rents
to $29.59 and $29.03 per square
foot, respectively.
RENTS
LOS ANGELES METRO AREA: LOS ANGELES COUNTY
increase in effective
rents Y-O-Y3.4%basis point decrease
in vacancy Y-O-Y20units
completed
Y-O-Y
2.2 millionincrease in total
employment Y-O-Y1.2%
* Forecast
SIERRA PELONA MEDICAL CENTER
1Q18 - 12-Month Trend
22
Recently Upgraded Assets, Properties with
Improvement Potential Dominate Deal Flow
Outlook: Rising values and fewer listings
prompt buyers looking to quickly expand
footprints at discounted pricing to
consider portfolio transactions..
Vacancy
Rate
Y-O-Y
BasisPoint
Change
SubmarketAsking
Rent
Y-O-Y%
Change
Southeast Los Angeles 8.4% 60 $23.84 4.4%
San Gabriel Valley 11.2% -40 $26.38 2.6%
Mid-Cities 11.3% -10 $25.16 1.1%
San Fernando Valley 12.2% 0 $29.03 4.8%
Burbank-Glendale-
Pasadena12.3% -60 $33.09 3.4%
West Los Angeles 12.9% -190 $55.05 3.1%
Mid-Wilshire 14.3% -130 $37.35 0.7%
Downtown Los Angeles 16.6% 100 $38.68 3.2%
Santa Clarita Valley 16.8% 80 $29.02 0.4%
South Bay 17.3% 160 $29.59 5.9%
Overall Metro 14.1% -20 $36.92 3.4%
Submarket Trends
Lowest Vacancy Rates 1Q18
Sales Trends
LOS ANGELES METRO AREA: LOS ANGELES COUNTY
• A drop in listings translated to a 15.3 percent reduction in sales activity over the past
year. More than a third of recent transactions occurred in the Tri-Cities-San Fernando
Valley region.
• Fewer acquisition opportunities placed upward pressure on asset values, lifting
average pricing by 10 percent to $404 per square foot. Despite this increase, the
average cap rate rose 10 basis points to 6.1 percent due to the number of higher-
yielding deals in the South Bay and Tri-Cities areas.
* Trailing 12 months through 1Q18
Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
SIERRA PELONA MEDICAL CENTER
* 2017
**1Q18
23
• Building activity increased over
the past year following the
finalization of 644,000 square
feet during the previous 12-
month span, yet the first quarter
of 2018 witnessed no deliveries.
• Developers are underway on
more than 2.6 million square
feet. More than 80 percent of this
pipeline is slated for 2019 or
2020 finalization.
CONSTRUCTION
• Vacancy inched up over the past
12 months, reaching 15.7
percent in March. The
absorption of 791,000 square
feet in Mid-Wilshire minimized
the effects of negative leasing
velocity in Downtown Los
Angeles.
• Amid an uptick in delivery
volume, the region’s Class A
vacancy expanded by 130 basis
points to 19.5 percent, the
highest rate in two years.
VACANCY
• Supported by a 3.2 percent gain
in Downtown Los Angeles, the
region’s average asking rent sat
at $38.17 per square foot
entering the second quarter.
• The gap between average Class
A and Class B/C rents tightened
to $3.30 per square foot, as
asking rates in the more
affordable segment rose by 2.6
percent to $36.20 per square
foot.
RENTS
LOS ANGELES METRO AREA: GREATER DOWNTOWN LOS ANGELES
increase in effective
rents Y-O-Y2.2%basis point increase
in vacancy Y-O-Y10square feet
completed
Y-O-Y
947,000
• Last year, the Greater Downtown
region welcomed a cycle-high 1.5
million square feet of office space,
eclipsing the previous three years’
combined delivery volume. In 2018,
completions activity is more than cut in
half, with 530,000 square feet slated for
finalization. The lack of large-scale
projects is the driving force behind this
slowdown, with the Santa Fe Business
Center representing the largest
upcoming delivery at 98,000 square
feet. This brief lull in development
should from a leasing standpoint
benefit sizable projects, including
Wilshire Grand Center, that were
delivered within the past 12 months.
The moderation in deliveries should
also allow regional vacancy to hold
below 16 percent for a third straight
year.
• Listings volume dwindled over the past
year, translating to a modest dip in deal
flow. Properties that did trade primarily
provided buyers with 5 to 6 percent
returns. Downtown Los Angeles
continues to offer investors select sub-
$400-per-square-foot pricing, with
price tags for pre-1970s-built assets in
Mid-Wilshire starting at $450 per
square foot.
• U.S.-based institutional buyers remain
interested in downtown’s stock of
Class A high-rises, yet a lack of $50
million-plus listings has eliminated
foreign investment activity.
Investment Trends
* Forecast
SIERRA PELONA MEDICAL CENTER
1Q18 – 12-Month Period
24
• Completions rose over the past
year after 481,000 square feet
was finalized during the previous
period. The 283,000-square-foot
C3 in Culver City along with a
speculative project in Playa Vista
accounted for more than 60
percent of the recently delivered
space.
• The region’s pipeline includes
more than 1.3 million square feet
currently under construction.
CONSTRUCTION
• Net absorption nearly tripled
delivery volume over the past
year, reducing vacancy by
nearly 200 basis points to 12.9
percent.
• The sizable drop in vacancy was
driven by the Class A space,
where availability fell 240 basis
points to 15.1 percent. Class B/C
vacancy also tightened by triple
digits, compressing 100 basis
points to 9.3 percent.
VACANCY
• The average asking rent
reached $55.05 per square foot
in March. The recent year-over-
year increase marked a
slowdown in overall rate growth
following the previous period’s
7.9 percent boost.
• Rent gains were most
pronounced in the Class A
space, where a 4 percent uptick
elevated the average asking rate
to $58.96 per square foot.
RENTS
LOS ANGELES METRO AREA: WESTSIDE CITIES
increase in effective
rents Y-O-Y3.1%basis point
decrease in
vacancy Y-O-Y
190square feet
completed
Y-O-Y
648,000
• The robust growth of Silicon Beach
supported the absorption of nearly 1.9
million square feet of office space
during the past 12 months. Leasing
velocity was largely driven by
expanding media, tech and
entertainment companies that inked
agreements for Class A space.
Marketing agency Trailer Park, along
with Apple and Tesla all recently signed
leases for spaces that exceed 100,000
square feet. This stout rate of overall
absorption placed the region’s vacancy
rate at a cycle-low level entering the
second quarter, positioning the market
to handle the 1.2 million square feet of
new supply slated for completion this
year.
• Expansion of the local office sector
coupled with limits on development has
a growing number of owners hesitant to
sell well-located, older properties now
considered trophy assets by some
buyers. This reluctance resulted in a
recent reduction in listings volume,
translating to a more than 40 percent
drop in deal flow over the past year.
• Buyers targeting sub-$500-per-square-
foot pricing compete heavily for Class B
properties at 3 percent minimum yields.
Larger Class A buildings and campuses
are coveted by institutional and foreign
capital willing to accept returns in the 2
percent range and pricing that rarely
dips below $600 per square foot.
Investment Trends
* Forecast
SIERRA PELONA MEDICAL CENTER
1Q18 – 12-Month Period
25
• Minimal completions in the Tri-
Cities and a dearth of new
supply in the San Fernando
Valley equated to a sharp drop in
delivery volume over the past 12
months, following the finalization
of 449,000 square feet during the
prior period.
• Entering the second quarter,
developers were underway on at
least 684,000 square feet, most
of which is slated for 2019 or
2020 completion.
CONSTRUCTION
• The absorption of 346,000
square feet and a lack of new
supply reduced the region’s
vacancy rate to 12.3 percent.
Facebook’s agreement to
occupy roughly 80,000 square
feet in Northridge represented a
notable recent lease.
• Vacancy in the Tri-Cities fell 60
basis points to 12.3 percent,
while availability in the San
Fernando Valley was unchanged
after strong leasing in the past
two quarters.
VACANCY
• Tight vacancy and above-
average gains in the Class A
sector elevated the average
asking rent to $31.44 per square
foot. A gain of 2.9 percent was
registered during the previous
period.
• Average rent in the San
Fernando Valley rose 4.8
percent to $29.03 per square
foot, yet the submarket is the
most affordable locale within the
county’s four primary regions.
RENTS
LOS ANGELES METRO AREA: SAN FERNANDO VALLEY/TRI-CITIES MARKET
increase in effective
rents Y-O-Y3.9%basis point
decrease in
vacancy Y-O-Y
30square feet
completed
Y-O-Y
47,000
• Vacancy in the county’s tightest
region is primed to drop by triple
digits for a third straight year, as a
lack of new supply is delivered during
the remainder of 2018. This
compression warrants speculative
development, some of which is
already underway and slated for
completion in the next two years. In
North Hollywood, an existing Macy’s
is being repurposed into 218,000
square feet of office space. The
adaptive reuse of a former Los
Angeles Times printing plant in
Chatsworth will serve as the
headquarters for MGA Entertainment
upon buildout. Tenant interest in
these projects is likely to spark similar
conversion proposals moving
forward.
• Deal flow rose by 50 percent over the
past 12 months, driven by heightened
Class A transaction activity in the Tri-
Cities. The lack of new construction
and a moderate construction pipeline
has institutional investors eager to
acquire older and post-2000-built
offices in Burbank and Pasadena
near I-5 and I-210. Pricing for these
assets rarely exceeds $500 per
square foot, with minimum yields in
the low-4 percent range.
• In-county buyers are mainly in play
for 1980s- to early-1990s-built Class
B properties in the San Fernando
Valley. The Van Nuys and Woodland
Hills neighborhoods are popular
spots where high-4 to low-6 percent
yields are obtainable.
Investment Trends
* Forecast
SIERRA PELONA MEDICAL CENTER
1Q18 – 12-Month Period
26
• Delivery volume rose over the
past 12 months aided by the
completion of 259,000 square
feet in the first quarter of 2018.
During the previous period,
developers finalized 102,000
square feet.
• Construction is underway on at
least 932,000 square feet. Long
Beach’s new, 270,000-square-
foot city hall is the largest
ongoing project and is slated for
2019 delivery.
CONSTRUCTION
• Net absorption turned negative
by 580,000 square feet over the
past year, elevating the region’s
vacancy rate to 17.3 percent.
Move-outs by Toyota and
Kyocera played a significant role
in the recent triple-digit vacancy
increase.
• Availability rose across the
board. Class A vacancy
expanded by 190 basis points,
while the stock of vacant Class
B/C space increased by 140
basis points.
VACANCY
• Asking rent climbed by nearly 6
percent for a second
consecutive 12-month period,
reaching a historically high
$29.59 per square foot at the
end of March.
• The annual rate of rent growth
was comparable at both high-
quality and more affordable
properties. Class A rent recently
escalated by 6.0 percent to
$31.56 per square foot, while the
average Class B/C rate rose by
5.7 percent.
RENTS
LOS ANGELES METRO AREA: SOUTH BAY/LONG BEACH
increase in effective
rents Y-O-Y5.9%basis point increase
in vacancy Y-O-Y160square feet
completed
Y-O-Y
450,000
• Office construction in the South Bay
reaches a cycle-high level in 2018 as
more than 925,000 square feet is
completed, surpassing the previous four
years’ combined delivery volume. A
quartet of projects accounts for nearly 75
percent of this year’s new supply. These
properties include a new headquarters for
the Port of Long Beach and an expansion
of Boeing’s El Segundo office. A duo of
speculative developments, 555 Aviation
and Ascend at Utah Avenue Campus,
round out the grouping. While the
submarket is home to the county’s
highest vacancy rate, this volume of new
construction and recent lease
agreements by NFL Media, SpaceX and
the Los Angeles Times signal an
increased demand for higher-quality
office space.
• Class A and B properties built in the late
1970s to early 1990s dominate deal flow.
Most of these assets trade below the
metro’s average pricing and feature either
low vacancy or improvement potential.
Cap rates for these buildings bottom out
at 5 percent.
• Future job growth projections in El
Segundo have a group of out-of-state
and Bay Area investors acquiring larger
Class A properties, often via portfolio
transactions. Local buyers maintain a
focus on Long Beach and Torrance,
where Class B assets priced between
$10 million and $20 million are available.
Investment Trends
* Forecast
SIERRA PELONA MEDICAL CENTER
1Q18 – 12-Month Period
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• Fed raises benchmark interest rate, plots path for additional increases. The Federal
Reserve increased the federal funds rate by 25 basis points, lifting the overnight lending rate
to 1.75 percent. The Fed noted that inflation has broadly reached its objective, while the
domestic economy is performing tremendously well as tax cuts power household spending
and corporate investment. As a result, the Fed has guided toward two additional rate hikes
this year, likely in September and December, while setting the stage for as many as four
increases in 2019.
• Lending costs rise alongside Fed rate increase. As the Fed continues to lift interest rates,
lenders are increasingly tightening margins in order to compete for loan demand. Despite
these efforts, borrowing costs remain on an upward trajectory, which may prompt investors to
seek higher cap rates or pursue greater returns in secondary markets. However, robust
economic growth and rising net operating incomes are keeping selling prices elevated, which
may widen an expectation gap as property performance and demand trends remain positive.
• Lending continues to be highly competitive. While the Fed has committed to tightening
policy, global markets and foreign central banks are keeping pressure down on long-term
interest rates, restraining the 10-year Treasury to the 3 percent range. Banks, commercial
mortgage-backed securities (CMBS) and life insurance companies are providing debt for
office assets, with leverage at banks typically capped at 65 percent. Meanwhile, life insurance
companies will typically provide capital with leverage between 60 and 65 percent, with CMBS
offering up to 70 percent. Lender spreads have narrowed in recent months, while 10-year loan
structures will typically range between 4.25 and 5.25 percent, depending on tenancy, location,
sponsorship and loan-to-value ratio. Minimum debt service coverage required is 1.3 times
expected asset revenues, supporting debt yields of 8.5 percent. The national economy should
grow strong and office demand should support a 10-basis-point decline in vacancy to 13.7
percent nationally.
Include sales $2.5 million and greater
Sources: CoStar Group, Inc.; Real Capital Analytics
LOS ANGELES METRO AREA
Capital Markets
SIERRA PELONA MEDICAL CENTER
MEDICAL OFFICE RESEARCH
SIERRA PELONA MEDICAL CENTER
28
Shifts Toward Outpatient Care Encourage Off-Campus Medical Office
Development; Investors Optimistic About Market Outlook
Industry consolidation prompts medical office development. Mergers among healthcare
companies and providers has been a driving force behind changes in the industry and how
physicians interact with patients. Emerging technologies and a shift in the care delivery model are
spilling over into the development of medical offices. A rise in outpatient services and procedures
has encouraged medical office development in off-campus locations over the past few years.
Hospitals and medical providers seek to place offices in neighborhoods and suburban areas,
closer to where people live and work, in order to reduce costs and appeal to patients seeking
medical care. While these factors bode well for today’s medical office market, the industry still
faces numerous challenges as an aging population is met with a physician shortage, rising
healthcare costs and insurance reform uncertainty. Despite these challenges, patient demand for
services remains strong and will continue to drive further expansion and growth in the medical
office building sector.
Advancing healthcare costs. Healthcare expenditures have risen at a hastened pace since 2014
and current projections place annual growth at an average near 5.5 percent through 2026. With
expenses rising faster than forecasted GDP growth, healthcare expenditures are expected to
make up nearly 20 percent of U.S. GDP by 2026, growing from 13.3 percent in 2000. In 2016,
healthcare expenditures surpassed $10,000 per capita.
Investment Highlights
▪ Recently completed single-tenant medical office assets remain in high
demand across both private and institutional buyer segments. Properties
with major medical providers or hospital systems backing leases trade at
a premium, with first-year returns averaging in the high-5 percent to low-
6 percent span.
▪ Sale-leaseback opportunities with private physician groups often require
personal guarantees of leases. Many physicians are bringing buildings to
market in order to cash in on increased equity as property values have
risen over the past few years. Investors will be mindful of lease terms and
are scrutinizing these deals closely as many buyers prefer the longer
lease guarantees that come with deals tenanted by a major hospital
system or healthcare group. Buildings tenanted by a private physician
typically trade 100 basis points above properties leased by major groups.
▪ Investors are seeking stabilized multi-tenant medical office properties in
primary and secondary markets. Yield spreads between on-campus and
off-campus assets have compressed over the past few years, with
private investors and institutions expecting similar returns regardless of
assets’ proximity to an established hospital.
* Forecast ** Trailing 12 months through 2Q
Sources: CoStar Group, Inc.; National Health Expenditure Accounts (NHEA)
MEDICAL OFFICE RESEARCH
SIERRA PELONA MEDICAL CENTER
29
Economic and Demographic Trends
▪ Healthcare employment gains have been some of the strongest over the past few years, with approximately
307,000 healthcare services positions added over the past 12 months. While total job growth posted losses during
the Great Recession, employment in the healthcare segment remained positive. Hiring among ambulatory care
services, which includes a range of physicians and general practitioners, has been the strongest at 27 percent
since 2009.
▪ The 65 and older population has grown at an annual pace greater than 3 percent since 2011. The age group is
anticipated to rise by 20 million people by 2028 and will comprise 20 percent of our nation’s population base.
▪ Hiring in healthcare services remains steady this year with the addition of nearly 300,000 positions, or growth of
2.0 percent. Though growth remains healthy this year, the potential for a future physician shortage and steadily
rising healthcare costs are facilitating changes and innovations in the healthcare industry that could restrain future
medical office space demand.
* Forecast
Source: CoStar Group, Inc.
MEDICAL OFFICE RESEARCH
SIERRA PELONA MEDICAL CENTER
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Construction Trends
▪ Medical office developers completed nearly 4.1 million square feet of space in the first six months of the year, with
annual deliveries approaching 9.9 million square feet. The pace of deliveries slowed from the previous annual
period when 10.8 million square feet of space was added to stock.
▪ Developers continue to focus on off-campus locations for new medical office space as medical providers expand
services into neighborhoods and locations farther away from hospitals and major medical centers.
▪ The southern United States remains a target for developers with 3.8 million square feet of space coming online in
the Southeast and Southwest regions during the past 12 months. More than 1 million square feet of space also
came online in each of the Central Plains, Midwest and Pacific regions.
Vacancy and Rent Trends
▪ Vacancy in the property sector ticked up 10 basis points over the past four quarters to 8.2 percent, remaining near
a 10-year low. Nearly every region realized an increase in vacancy during the annual period, with the exception of
the Mountain region, where vacancy plummeted 60 basis points year over year to 11.1 percent.
▪ The average gross rent ticked up 0.9 percent since the middle of 2017, reaching $23.18 per square foot in the
second quarter. Consolidation within the healthcare industry is keeping pressure on rental rate growth. Two
regions recorded rent advancement of more than 3.0 percent over the past year, the Central Plains and the
Southeast.
▪ While the Central Plains recorded the lowest medical office vacancy rate in the country at 5.4 percent in the
second quarter, the highest rents are found in the Pacific. The region’s average gross rent reached $29.89 per
square foot during the past year, and six of the state’s major metropolitan areas boast some of the highest rental
rates in the U.S.
MEDICAL OFFICE RESEARCH
31
Source: CoStar Group, Inc.
Marcus & Millichap Medical Office Building Regions
Trailing 12 Months Through 2Q18
MEDICAL OFFICE RESEARCH
32
2018 Medical Office Building Forecast
Construction:
Medical office deliveries totaled nearly 11.3 million square feet during 2017, but completions taper slightly this year. The bulk of new
space comes online in the Southwest and Southeast regions, where 980,000 and 950,000 square feet of space is slated for delivery in
2018.
Vacancy:
The vacancy rate ticks up this year to 8.4 percent. The increase will be the first after eight consecutive years of vacancy declines.
Despite the uptick, the rate remains near the 10-year low of 8.0 percent achieved during 2017.
Asking Rent:
A slight increase in the average gross rent advances the rate to $23.05 per square foot this year. The average medical office rent has
yet to climb back to the peak rate achieved before 2009 but is now within 20 cents of the mean recorded during 2008.
40 basis point
decrease
10.7 million
square feet
1.0%
increase
MEDICAL OFFICE RESEARCH
SIERRA PELONA MEDICAL CENTER
33
Fed watchful as economic surge raises inflationary pressure. Strengthened hiring amid exceptionally low unemployment levels has boosted wage growth, placing upward
pressure on inflation. Amid this trend coupled with rising trade protectionism and tariffs, the Federal Reserve appears determined to head off inflation risk by continuing its
quarterly increases of the overnight rate. These actions are lifting short-term interest rates while the 10-year Treasury rate remains range bound near 3.0 percent. Should the 10-
year remain steadfast, Fed tightening could create an inverted yield curve in which short-term rates rise above long-term rates. Although this event has preceded every
recession of the past 50 years, many economists suggest such an inversion this year could be an exception to the rule. Because of distortions caused by regulatory changes
and quantitative easing, this inversion could be different. Nonetheless, the Fed’s stated path does raise recessionary risk levels because it could weigh on confidence levels and
restrain spending by consumers and businesses, thus slowing economic growth.
Lending market remains competitive as interest rates rise. Though interest rates are rising and cutting into investors leverage objectives, yield spreads for medical office
buildings are still favorable. Average medical office cap rates remain more than 400 basis points above the 10-Year Treasury rate, which could prompt additional investors to
seek assets in the property sector as they search for higher-yielding alternatives. Medical office interest rates currently reside in the mid-4 percent to mid-5 percent realm with
maximum leverage of 70 percent.
Potential rapid interest rate escalation a downside risk. Although capital remains plentiful, lending could tighten quickly for a short period if interest rates rise rapidly. As
experienced in late 2016 when the 10-year rose by more than 80 basis points in 60 days, and again at the beginning of 2018 when there was a 60-basis-point surge, market
liquidity could tighten if rates jump. Considering this has happened twice in the last two years, borrowers will likely benefit by taking a cautious approach with their lenders and
lock in financing quickly.
** Cap rate trailing 12-month average through 2Q;
Treasury rate as of June 28.
Sources: CoStar Group, Inc.; Real Capital Analytics
Capital Markets
PROPERTY NAME
MARKETING TEAM
SIERRA PELONA MEDICAL CENTER
DEMOGRAPHICS
Source: © 2017 Experian
Created on October 2018
POPULATION 1 Miles 3 Miles 5 Miles
▪ 2022 Projection
Total Population 11,140 69,971 131,876
▪ 2017 Estimate
Total Population 10,912 67,057 124,693
▪ 2010 Census
Total Population 10,455 63,540 119,295
▪ 2000 Census
Total Population 9,131 52,395 94,677
▪ Current Daytime Population
2017 Estimate 9,078 61,652 103,369
HOUSEHOLDS 1 Miles 3 Miles 5 Miles
▪ 2022 Projection
Total Households 3,521 21,128 39,063
▪ 2017 Estimate
Total Households 3,323 19,717 36,049
Average (Mean) Household Size 3.37 3.39 3.43
▪ 2010 Census
Total Households 3,193 18,648 34,419
▪ 2000 Census
Total Households 2,802 15,905 28,388
HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles
▪ 2017 Estimate
$200,000 or More 2.70% 2.50% 3.07%
$150,000 - $199,999 4.55% 4.20% 5.13%
$100,000 - $149,000 9.81% 10.87% 11.81%
$75,000 - $99,999 13.20% 13.90% 14.63%
$50,000 - $74,999 19.55% 16.34% 18.00%
$35,000 - $49,999 13.86% 13.84% 13.18%
$25,000 - $34,999 11.03% 10.89% 10.38%
$15,000 - $24,999 12.21% 11.94% 10.38%
Under $15,000 15.61% 15.33% 14.32%
Average Household Income $67,016 $65,756 $71,827
Median Household Income $49,793 $47,439 $53,418
Per Capita Income $20,493 $19,361 $20,788
POPULATION PROFILE 1 Miles 3 Miles 5 Miles
▪ Population By Age
2017 Estimate Total Population 10,912 67,057 124,693
Under 20 33.08% 33.48% 32.74%
20 to 34 Years 23.76% 22.23% 21.58%
35 to 49 Years 18.44% 19.10% 19.29%
50 to 59 Years 12.60% 12.34% 13.18%
60 to 64 Years 4.52% 4.46% 4.66%
65 to 69 Years 3.00% 3.14% 3.23%
70 to 74 Years 1.80% 2.01% 2.08%
Age 75+ 2.81% 3.23% 3.25%
Median Age 30.13 30.50 31.39
▪ Population by Gender
2017 Estimate Total Population 10,912 67,057 124,693
Male Population 49.57% 48.79% 48.93%
Female Population 50.43% 51.21% 51.07%
AVERAGE HEALTH CARE
EXPENDITURE1 Miles 3 Miles 5 Miles
▪ 2017 Estimate Total Expenditure
Percent of Total 16.36% 17.53% 17.61%
Health Care Insurance $2,351 $2,376 $2,566
Percent of Total 70.10% 69.99% 70.09%
Medical Services $612 $615 $662
Percent of Total 18.25% 18.12% 18.08%
Medical Supplies $106 $108 $116
Percent of Total 3.17% 3.18% 3.16%
▪ Percentage Change 2017-
Health Care Insurance 22.57% 23.59% 23.00%
Medical Services 25.10% 27.20% 26.25%
Medical Supplies 27.33% 30.05% 29.48%
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Income
In 2017, the median household income for your selected geography is
$49,793, compare this to the US average which is currently $56,286.
The median household income for your area has changed by 15.02%
since 2000. It is estimated that the median household income in your
area will be $57,167 five years from now, which represents a change
of 14.81% from the current year.
The current year per capita income in your area is $20,493, compare
this to the US average, which is $30,982. The current year average
household income in your area is $67,016, compare this to the US
average which is $81,217.
Population
In 2017, the population in your selected geography is 10,912. The
population has changed by 19.50% since 2000. It is estimated that
the population in your area will be 11,140.00 five years from now,
which represents a change of 2.09% from the current year. The
current population is 49.57% male and 50.43% female. The median
age of the population in your area is 30.13, compare this to the US
average which is 37.83. The population density in your area is
3,472.44 people per square mile.
Households
There are currently 3,323 households in your selected geography. The
number of households has changed by 18.59% since 2000. It is
estimated that the number of households in your area will be 3,521
five years from now, which represents a change of 5.96% from the
current year. The average household size in your area is 3.37 persons.
Employment
In 2017, there are 3,361 employees in your selected area, this is also
known as the daytime population. The 2000 Census revealed that
54.69% of employees are employed in white-collar occupations in
this geography, and 46.41% are employed in blue-collar occupations.
In 2017, unemployment in this area is 8.40%. In 2000, the average
time traveled to work was 41.00 minutes.
Race and Ethnicity
The current year racial makeup of your selected area is as follows:
44.31% White, 13.22% Black, 0.20% Native American and 5.35%
Asian/Pacific Islander. Compare these to US averages which are:
70.42% White, 12.85% Black, 0.19% Native American and 5.53%
Asian/Pacific Islander. People of Hispanic origin are counted
independently of race.
People of Hispanic origin make up 59.69% of the current year
population in your selected area. Compare this to the US average of
17.88%.
PROPERTY NAME
MARKETING TEAM
SIERRA PELONA MEDICAL CENTER
Housing
The median housing value in your area was $177,701 in 2017,
compare this to the US average of $193,953. In 2000, there were
1,532 owner occupied housing units in your area and there were
1,270 renter occupied housing units in your area. The median rent at
the time was $498.
Source: © 2017 Experian
DEMOGRAPHICS
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SIERRA PELONA MEDICAL CENTER
DEMOGRAPHICS
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