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SIERRA PELONA MEDICAL CENTER 38420 5th St W #4 • Palmdale, CA 93551 Offering Memorandum 1

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SIERRA PELONA MEDICAL CENTER38420 5th St W #4 • Palmdale, CA 93551

Offering Memorandum

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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

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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

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SIERRA PELONA MEDICAL CENTER

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INVESTMENT

OVERVIEW

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SIERRA PELONA MEDICAL CENTER

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OFFERING SUMMARY

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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.

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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

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SIERRA PELONA MEDICAL CENTER

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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

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▪ 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

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PROPERTY PHOTO

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AERIAL PHOTO

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REGIONAL MAP

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lOCAL MAP

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FINANCIAL

ANALYSIS

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FINANCIAL ANALYSIS

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TENANT SUMMARY

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FINANCIAL ANALYSIS

SIERRA PELONA MEDICAL CENTER

OPERATING STATEMENT

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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.

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FINANCIAL ANALYSIS

SIERRA PELONA MEDICAL CENTER

PRICING DETAIL

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TENANT PROFILES

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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

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HOSPITAL

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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).

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MARKET

OVERVIEW

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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*:

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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.

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• 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

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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

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• 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

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• 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

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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

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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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27

• 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

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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)

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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.

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MEDICAL OFFICE RESEARCH

SIERRA PELONA MEDICAL CENTER

30

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.

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MEDICAL OFFICE RESEARCH

31

Source: CoStar Group, Inc.

Marcus & Millichap Medical Office Building Regions

Trailing 12 Months Through 2Q18

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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

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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

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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%

34

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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

35

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8

SIERRA PELONA MEDICAL CENTER

DEMOGRAPHICS

36