VA Outpatient Clinic Gets $106M in Financing

Friday, February 7, 2020 | By Thor Kamban Biberman, The Daily Transcript

The commercial mortgage banking firm Gantry arranged $106 million in construction-to-permanent financing for the 135,000-square-foot VA Outpatient Clinic being planned in Kearny Mesa.

The existing 100,000-square-foot building located at 8875 Aero Drive, which was formerly used as a Bank of America vault, will be augmented by about 35,000 square feet. Protea Properties is the developer.

Protea said the property will be a hospital annex for Veterans Affairs used in conjunction with the main La Jolla campus. The outpatient clinic will consolidate and expand its existing medical space in San Diego. It is expected that 600-800 patients will be treated daily at the Kearny Mesa facility. It will offer a wide range of services, from eye, ear and dental exams to mental health assessments.

Gantry senior director Peter Hillakas principal George H. Mitsanas arranged the financing with a correspondent pension fund. Both the construction and permanent loans will be serviced by Gantry. Further details about the terms of the financing were not disclosed. "Our combined construction financing and credit tenant lease expertise allowed us to structure a deal where the long-term financing risk was eliminated while still [maintaining] flexibility during construction," Hillakas said in a statement. "We provide financing for all product types in commercial real estate. Our comprehensive understanding of deal structures allows us to think outside of the typical CTL (credit tenant lease) financing box."

Gantry, an independently held company based in San Francisco, is a full-service mortgage banking firm with an extensive lineup of correspondent lenders and loan production, closing and servicing capabilities. Established in 1991, Gantry is currently staffed by more than 75 employees in regional offices throughout the United States. Last year, Gantry closed more than $3.1 billion in loan production and grew its national servicing platform to $13 billion, encompassing in excess of 1,500 loans located in 41 states. Rated as a primary servicer by Standard & Poor's, Gantry is one of a select few non-banking/non-insurance chartered companies with this designation.

With the aid of Voit Real Estate Services, Protea Properties was able to convince the Veterans Administration to sign a $148 million, 20-year lease for the old BofA bank vault space. Executed last March, it was one of the largest medical office leases ever in San Diego County. The outpatient clinic is also being billed as the only one of its kind in Southern California.

The new VA Outpatient Clinic will allow the VA to increase its current primary care, mental health, specialty care, and other ancillary services to veterans.

Lusardi Construction is building the project off a design by project architect Ware Malcomb. Lusardi project manager Tyler Molesworth addressed the particular challenges of the project. He said the first thing Lusardi will need to do is deal with the vault. "It has to be made seismically fit, which means there will be strips of carbon fiber everywhere," Molesworth said. "Only then can we start the demo and retrofit. The bank vault has a two-ton door that must be dealt with before the project can begin in earnest, he added.

The new space will be framed with structural steel. A nearly 400-space parking garage plus about 250 surface spaces will serve the facility. The existing building was built more like a bunker than an outpatient clinic due to its prior use. Voit said last year the old vault once guarded as much as $1 billion in cash and coin.

Features of the building included a bulletproof guard tower, bulletproof interior holding rooms (which were once used to unload cash from armored trucks), and, of course, highly secure money vaults, according to Voit. The brokerage firm was made aware of the opportunity in May 2015, when it received notice from the VA about the outpatient facility.

By early 2017, LNR Partners had taken over administration of the asset, with Voit continuing to represent the property for sale or lease. Protea was willing to accept the risk of buying the property without any assurance the VA lease would come to fruition. The Voit team then supported Protea in the $18.5 million acquisition of the asset in August 2017.

Situated on 7.74 acres along Aero Drive, the property is located in the second largest suburban office submarket in San Diego County. Some demolition work is expected later this month, with construction planned to begin in earnest in March. Molesworth said the project is expected to be completed in the fall of 2021.

In the meantime, work is reportedly close to wrapping up on a new 31,000-square-foot VA clinic at 353 H Street in Chula Vista. Along with primary care, the facility will offer integrated mental health, laboratory, pathology, audiology, telemedicine, optometry and podiatry services with approximately 100 staff members.