Broe Real Estate Sells Metro DC Medical Pavilion

The 18-year-old property is situated in the city of Rockville, Md., and in the four years that the firm owned it, the building’s occupancy went from zero to 72.5 percent.
Shady Grove Medical Pavilion
Shady Grove Medical Pavilion

Caddis Healthcare Real Estate has acquired Shady Grove Medical Pavilion, a 121,789-square-foot medical pavilion in Rockville, Md., from Broe Real Estate Group.  

“The property has distinct competitive strengths, beginning with its institutional building quality and its central location,” Peter Albro, Broe’s vice president of asset management, real estate group, told Commercial Property Executive. “Its efficient layout provided the optionality needed to execute a multitenant strategy. Abundant and efficient parking on-site was critical to the medical pavilion repositioning. These existing strengths were key considerations in our business plan and helped support the transformation from a distressed office property to a Class A medical building.”

It was back in 2014 when Broe acquired a Class A office building for $16 million, with plans to reposition it as a medical office asset. Located at 9601 Blackwell Road and built in 2000, the transformed property was completed in 2015.

Over the past four years, Broe has invested in numerous substantial capital improvements and implemented an active management plan to achieve medical office status. This conversion strategy resulted in a current occupancy rate of 72.5 percent, up from the vacant status it had at original acquisition.

“In reality, it was not only about the capital market conditions. The decision was driven by our investment philosophy and the culmination of a successful repositioning,” Albro said. “Having begun with a vacant office building, we’ve completed a transformation that has driven occupancy and positioned the property for longer-term success. With durable in-place cash flow and a diversified tenant mix in the building, the offering garnered significant demand from medical office investors.”

An attractive value

Caddis Healthcare Real Estate was drawn to the property due to its strong medical tenant base, which includes Shady Grove Fertility, Shady Grove Orthopaedics and Schreiber Allergy. The firm was also attracted to the pavilion because of the remaining vacant space that could add upside once leased.

According to Albro, Broe is a value investor and seeks out high-quality distressed assets in strong markets, which typically require deep value-add strategies.

“We focus on the asset’s potential and formulate an intensive capital and management strategy tailored specifically to the opportunity,” he said. “The Shady Grove Medical Pavilion repositioning is a good example of that approach. We determined that a medical office represented a higher and better use for the project and tailored our business plan accordingly.”

Montgomery County is widely recognized by institutional investors for having strong demographics and an attractive economic base. Shady Grove’s neighborhood is also very appealing. With the nearby Adventist Healthcare Shady Grove Medical Center and the renowned medical research facility on the Johns Hopkins University campus, the location and surrounding neighborhood was a strong fit for this repositioning project.

CBRE Healthcare Capital Markets team of Chris Bodnar, Lee Asher and Shane Seitz represented the seller in the deal.

In August, Broe acquired a three-building flex/office portfolio totaling more than 210,000 square feet, part of Colorado Springs, Colo.’s Briargate Office Park, a 9,600-acre master-planned community.

Image courtesy of Broe Real Estate Group