By Gail Kalinoski, Contributing Editor
The Broe Group, a Denver-based firm that invests in and owns real estate, transportation and energy companies, has acquired a 122,000-square-foot Class A office building in Rockville, Md., and plans to reposition it as a medical office asset.
The price Broe paid for the property at 9602 Blackwell Road was not released by the company but The Washington Business Journal reported it was $16 million. It is not known how much the firm will spend to reposition the building from its current general office use to medical, but the company press release noted the firm had “plans for investment of substantial capital” for the property.
Broe has renamed the property Shady Grove Medical Pavilion because the office building is adjacent to the Shady Grove Adventist Hospital campus.
While this is Broe’s first purchase in the Washington, D.C. , area, it is not the company’s first foray into the medical office arena. The company said its managed affiliates have owned more than 50 medical office buildings totaling more than 2.5 million square feet across the United States.
“We’re very excited about this purchase,” Jim Crawford, vice president of acquisitions at Broe Real Estate, said in the release. “We believe this building is a hidden gem in the marketplace with an irreplaceable location and beautiful Class A finishes that will allow us to attract quality medical tenants to the community.”
Broe has selected medical office specialists Chuck Feitel and Leonard Brown of Health-Pro Realty Group to lease the building. Donna Kay and her team at Avison Young will manage the asset. Both the leasing and management teams have more than 20 years of related medical real estate experience in the D.C. area, according to the Broe release.
“This property presents an exceptional opportunity for tenants seeking premier Class A space in the heart of Rockville’s medical community,” Feitel said in the release. “There is pent up demand for high quality medical space in the immediate area and Shady Grove Medical Pavilion is perfectly positioned to provide tenants with close proximity to the hospital and amenities, Class A finishes and experienced management.”
The Washington Business Journal stated the building is currently about 9 percent leased due to the recent departure of two major tenants—the University of Phoenix and Rydex Investments.
The proximity to Shady Grove Adventist Hospital as well as Johns Hopkins University apparently played into the decision to reposition the asset as a medical office building. Demand for updated or new medical office properties is increasing as the federal Affordable Care Act is phased in and more space for medical services will be required. A Marcus & Millichap Medical Office Research Report for the first half of 2014 noted that national “medical office vacancy slipped below 10 percent in 2013 for the first time in five years and conditions should tighten further this year.”
The report stated that the Central Plains had the lowest medical office building vacancy at 6.4 percent with the Pacific Northwest next at 7.2 percent, the Southeast at 8.4 percent and the Northeast at 8.9 percent. Rents are also up slightly from last year, about 1 percent. Rents depend on location as well as the age and quality of the property, the report noted.