Sutter Health sells medical building to doctor tenants

A group of doctors who lease space in San Francisco’s Pacific Professional Building has bought the fee-simple interest in the 130,000-square-foot medical office asset from Sutter Health, according to property records.

The $44.5 million financing deal includes both the acquisition of the land under the property and repayment of the existing leasehold loan, according to a press release from brokerage CBRE, which represented the buyers.

CBRE’s Mike Taquino, Kyle Kovac, Alec Haley and Giancarlo Sangiacomo represented buyer Pan-Med Enterprises, which the press release described as “a collection of doctors who occupy and operate their practices” out of the five-story Lower Pacific Heights building. The doctors built the 1987 medical office building next door to the Pacific campus of Sutter’s California Pacific Medical Center and were already owners of the leased fee, CBRE said.

The agency also arranged financing for the 2100 Webster Street property. It’s a 10-year, fixed-rate, non-recourse loan for both the land and repayment of the existing leasehold loan through a “middle-market East Coast bank that is looking for exposure to quality real estate lending opportunities in select West Coast markets,” according to a press release. Mike Walker and Brad Zampa of CBRE’s debt and structured finance team secured the $44.5 million loan, but CBRE would not disclose how much went to the fee-simple purchase and how much to the existing loan repayment.

Walker, executive vice president at CBRE, said in a statement that the agency was able to find “competitive” financing for the deal even with “heightened sensitivities from investors and lenders.”

“The medical office sector has remained robust despite market headwinds, fueled by the ongoing need for state-of-the-art medical facilities and delivery of essential services,” he said.

CBRE would not name the seller in the deal, which closed Sept. 13, but property records list Sutter Bay Hospitals as the former owner. In July, Sutter also sold two medical office buildings in Sunnyvale for a combined $27 million.

Sutter ended in-patient services at its CPMC Pacific campus in 2019 after moving emergency and hospital care to a new facility on Van Ness Avenue. But the nonprofit health system continues to offer out-patient care such as cancer treatments, dialysis and cosmetic surgery, at the Pacific campus.

The Pacific Professional Building next door also provides outpatient services including radiology and testing, and is 97 percent occupied, according to CBRE.

“Medical office availability in San Francisco remains low, with nearly all medical office buildings fully leased,” according to the CBRE release.

In May, Sutter also decided to sell its closed Presidio Heights CPMC campus with no asking price, rather than building the 273 homes it took five years to entitle on the 5-acre site. Both campuses were part of a 1991 deal where Presbyterian Hospital (which owned the Pacific campus) and Children’s Hospital (which owned the Presidio Heights campus) merged to create CPMC. CPMC joined Sutter Health in 1996.