Walnut Creek, Calif.-based Meridian, a well-known HRE development firm with a long history of completing redevelopment and repurposing project, recently completed the conversion of a former Masonic Hall Oakland into the 60,000 square foot Broadway Medical Plaza. The MOB is just a block or so away from the 349-bed Kaiser Permanente Medical Center in the heart of Oakland's "Pill Hill" area.

On the surface, it might have looked like a bit of a gamble for a well-known healthcare real estate (HRE) firm to acquire a half-century-old, vacant, former Masonic Hall in Oakland with the intention of repurposing it into a modern "Class A" medical outpatient building (MOB).

However, even though the building was acquired for a speculative project with no tenants signed, it didn't seem all that risky to Walnut Creek, Calif.-based Meridian, thanks to the firm's local market knowledge and extensive experience in converting other facility types into medical buildings.

To move forward with the spec project, Meridian structured a joint venture (JV) with an institutional capital partner to buy and eventually repurpose the fraternal organization's former home. That partner was Chicago-based Harrison Street Real Estate Capital, which manages $56 billion in "alternative" real estate assets. Despite the lack of pre-leasing, strong demand for medical space in the area made it possible to secure financing on a spec basis, Meridian says.

The JV partners had no medical tenants lined up in early 2022 when they acquired the building, which they subsequently rebranded as Broadway Medical Plaza. But they were bullish on the leasing prospects of the three-story, roughly 60,000 square foot facility at 3901-3903 Broadway, as it sits on a 1.25-acre site in a major medical corridor in Oakland known as "Pill Hill," which is bisected by U.S. Interstate 580 and includes sveral medical facilities. The 349-bed Kaiser Permanente Oakland Medical Center, which is part of the massive health system and managed care provider of the same name, anchors the medical corridor and is less than a block from the now repurposed building.

According to RevistaMed data, Harrison Street paid $13.5 million, or $235 per square foot (PSF), for the former Masonic Hall and commercial kitchen, which had been vacant for a year or so. Sid Ewing, a senior VP in the Bay Area office of Colliers International Group Inc. (Nasdaq: CIGI), who brokered the sale, said at the time, "Medical offices make so much sense at that location," as it's "right near Kaiser and Pill Hill."

Harrison Street and Meridian clearly felt the same way, as they outbid a number of other prospective buyers, according to Mike Conn, Meridian's principal and CEO.

"When we were looking at the building as a potential purchase, our due diligence and analysis of the area showed that there were no large blocks of space in that area for lease for the major health systems and physicians groups that would want to expand their presence there, or have a new presence in the area," he says.

Meridian started construction in early 2022 for the project, which cost a total of $50 million, including the purchase price. It completed most of the non-tenant construction last fall.

In December, Meridian and Colliers announced the signing of the first major tenant, the locally based Center for Elders' Independence (CEI), a PACE (Program of All-Inclusive Care for the Elderly) that provides services for area senior citizens. CEI is taking 23,000 square feet in the building.

With the project now complete, aside from tenant improvements, Mr. Conn says Meridian and the Colliers' leasing team of Mr. Ewing and Eric Erickson are in talks with a number of major health systems and physicians' groups that would like more of a presence, or to establish a new location, in the Pill Hill area.

"There is a flight to quality in the area," Mr. Conn says, adding that the property's fenced, secured, 225-space parking garage is an added positive amenity for many prospective tenants. "We had been looking for opportunities in that area because of the need for good medical space there.

"We're confident we found the right space and took on the right project, as doing a repurposing project in the area allowed us to have a much better speed-to-market – in large part because it speeds up the entitlement and approval process – and was less expensive than building from the ground up.

"Having a repurposing project in that area was especially the right way to go, and we're seeing momentum and are optimistic about filling the spaces in the building."

Overcoming a few issues

Meridian certainly went to great lengths to make sure the project meets the needs of the medical community in the Pill Hill area of Oakland.

"The site required substantial upgrades, including (adding a new) parking garage," Meridian noted in its written submission of the project for the Best Renovated or Repurposed Healthcare Facility category of the 2024 HREI Insights Awards™, for which it was chosen as a finalist. HREI is scheduled to announce the award winners next week, on Wednesday, Feb. 5, during the Revista Medical Real Estate Investment Forum and Life Science Workshop at PGA National Resort in Palm Beach Gardens, Fla. The conference takes place Feb. 3-5.

"Despite challenges, like a nearby homeless encampment, strong demand for medical space in this low-vacancy area made it possible to secure financing on a speculative basis," Meridian adds in the submission.

"To move forward with the speculative purchase, Meridian structured a 90 percent/10 percent (limited partnership/general partnership) joint venture with (Harrison Street) to purchase the property without any pre-leasing required.

"Meridian collaborated with the community and city officials to address the homeless encampment on site, ensuring a safe and humane dismantling and relocation."

The construction project entailed replacing the concrete exterior with glass curtain walls, metal panels and plaster, according to Mr. Conn.

The firm adds in its submission that it upgraded "the building's base systems with two new elevators and a state-of-the-art HVAC system," and that it also "added an elevator tower for ADA (Americans with Disabilities) accessibility and upgraded the structure to meet (California's) stringent Seismic Lateral Resistance IV requirements for medical buildings.

"A 225-stall precast concrete parking structure was also built to support tenant parking needs, ensuring the facility would meet medical use requirements and create an enhanced patient experience and safe environment for staff."

As for the successes that the building has achieved, the firm notes that "Broadway Medical Plaza project was a success across multiple dimensions."

"Strategically, Meridian converted a 60,000 square foot assembly hall into a state-of-the-art, Class-A medical office building with a dedicated parking structure, meeting the high demand for medical space in Oakland's Pill Hill area. Meridian secured a lease for 23,000 square feet with CEI … which will positively impact East Bay seniors by offering local care.

"The building now offers the largest block of contiguous medical space available in the (U.S. Interstate 880) submarket, making it highly marketable for medical tenants who want signage, visibility on Broadway, and speed to market for first class medical office space. This project also prioritized sustainability, with energy-efficient systems and access to local transit, thus enhancing long-term viability and Meridian's commitment to LEAN projects."

The building is also approved for a potential ambulatory surgery center (ASC), according to the firm.

Meridian is currently building out the $10 million space for CEI and expects to finish the project in March.

"Our initial business premise for this project was that there were no large blocks of space available in an area where health systems and physicians would like to have space – it's a great location with high visibility," Mr. Conn says. "And we still believe in that premise. Having the major portion of the construction complete on the project, and then to have a major tenant moved in, is a great way for prospective tenants to see what the building offers and to build on that leasing momentum."

Also part of Meridian's initial business premise was to build a medical facility that would provide all of the security needed for physicians, nurses, staff and patients working in or visiting the building.

"The project is fully fenced and secure with cameras and a private parking structure for employees and patients," Mr. Conn notes. "It's an important aspect of a project there, where health system and physician tenants are looking for a flight to quality and where they know they will have the necessary security.

"We're bullish that we will lease up the building in 2025."

Firm is staying busy

During a bit of a slowdown in the MOB and HRE development market, Meridian has been able to remain quite busy.

The firm typically has three to five development projects underway on at any given time, and now is no exception.

Among the projects it is currently working on is the renovation of a 94,569 square foot vacant medical facility in Tucson, Ariz. The firm acquired the former inpatient cardiovascular hospital on a 9.27-acre site at 4888 N. Stone Ave. last fall and has plans to upgrade and renovate the building for locally based El Rio Health.

The Federally Qualified Health Center (FQHC) has 16 locations and has "provided comprehensive, accessible, and affordable healthcare to the Tucson community for 54 years." Meridian broke ground on the project in recent months and plans to complete it by early 2026.

Meridian recently completed a 95,000 square foot, three-story MOB and comprehensive cancer center with about 520 parking stalls in Sante Fe, N.M. Located at 4200 Beckner Road, the facility is close to the 36-bed Presbyterian Santa Fe Medical Center and is occupied by locally based Nexus Health, which is affiliated with the Woodlands, Texas-based U.S. Oncology Network.

The firm is also in the process of developing a 57-acre office park in Santa Fe that would be home to up to three buildings with about 200,000 square feet of medical, educational and professional services tenants. The office park, Las Soleras Medical Junction, is slated for the corner of Beckner Road and Rail Runner Road.

As for its current strategy in a slow market for acquistions and development, Mr. Conn says Meridian is looking to increase its focus on value-add acquistions.

"There's still a bit of a bid-ask spread between buyers and sellers in the HRE transaction market," Mr. Conn says, adding, "and we're looking to get out ahead of that and buy a few value-add assets."

To help it make such acquisitions, the firm in the past year or so hired Ryan Borzouei as VP of real estate investments. Mr. Borzouei previously worked in the HRE sector with Redlands, Calif.-based LDM Commercial, a firm led by Lon Mapes, president and CEO, as well as Sila Realty Trust Inc. (NYSE: SILA) and Rancho Santa Margarita, Calif.-based Cypress West Realty Partners.

"We have a good track record in buying and renovating value-add properties, and Ryan is leading our renewed efforts to find these types of properties," Mr. Conn says.

Broadway Medical Plaza
3900 Broadway, Oakland, Calif.

STAT
• Project size: Three stories, 60,000 square feet
• Lot size: 1.25-acres
• Total project cost: $50 million
• Start of repurposing: February 2022
• Completion: August 2024
• Occupancy: 40 percent
• Parking: 225 garage spacesS

PLAYERS
• Developer: Meridian
• Ownership: HSRE MPCCA Oakland MOB LLC, a partnership of Harrison Street and Meridian
• Tenant: Center for Elders' Independence (CEI)
• Architect: Smithgroup
• Contractor: Whiting-Turner
• Lender: MidCap, Harrison Street
• Leasing agents: Sid Ewing, Eric Erickson, Colliers International
• Property manager: Meridian

https://wolfmediausa.com/2025/01/27/project-case-study-from-masonic-to-medical-in-oakland-calif-s-pill-hill/