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Top 3 Medical Office Investment Considerations
The medical office sector is booming and considered to be recession proof in many respects. Find out three major factors to weigh before diving into the sector.
Investing in Medical Office Assets
The medical office sector is a critical but often overlooked asset type within office commercial real estate. Medical office buildings, also frequently referred to as MOBs, generally offer investors stable, sizeable returns owing to a strong, largely recession-proof tenant base, low vacancies, and increasing demand for outpatient services as retired populations grow. They can, however, offer a few more complications into an investment decision compared to your standard office property acquisition.
Several different types of buildings can be considered MOBs. While most people think of a property with a few doctor’s offices as a medical office building — and, yes, it is — a number of other assets can fall within this category. They can include:
Ambulatory surgery centers
Screening or testing centers
General or specialist physician office buildings
What are the most important factors to consider when investing in a medical office?
When investing in a medical office, the most important factors to consider are location, financing options, and the property itself.
Location is critical for medical office buildings, as they tend to perform better when located near major hospital campuses or in markets characterized by a higher-than-average median age.
Financing options are also important to consider when investing in a medical office. Commercial Real Estate Loans offers a variety of loan products for medical office investments, including bridge loans, SBA loans, and more.
Finally, it's important to consider the property itself. Factors such as the condition of the building, the size of the space, and the amenities offered should all be taken into account.
What are the benefits of investing in a medical office compared to other types of real estate?
Investing in medical office assets can offer investors stable, sizeable returns owing to a strong, largely recession-proof tenant base, low vacancies, and increasing demand for outpatient services as retired populations grow. Additionally, medical office buildings located on or near to a major hospital campus or in markets characterized by a higher-than-average median age offer significant investment upsides.
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What are the risks associated with investing in a medical office?
Investing in medical office assets can offer investors stable, sizeable returns, but there are some risks associated with this type of investment. These risks include:
- Location: Medical office buildings located near major hospital campuses tend to perform better, but medical office properties near large retirement communities or in markets characterized by a higher-than-average median age can also offer significant investment upsides.
- Tenant Base: The tenant base of medical office buildings is largely recession-proof, but there is still a risk of tenant turnover.
- Demand: Demand for outpatient services is increasing, but there is still a risk that demand could decrease.
It is important to consider these risks when investing in a medical office property. For more information, please contact a commercial real estate financing advisor.
What are the best strategies for financing a medical office investment?
The best strategies for financing a medical office investment depend on the specifics of the property and the investor's goals. Generally, medical office investments can be financed through traditional bank loans, SBA loans, or private financing. Bank loans typically offer the lowest interest rates, but may require a larger down payment and have more stringent eligibility requirements. SBA loans are government-backed loans that offer more flexible terms, but may have higher interest rates. Private financing is often the most flexible option, but may also have higher interest rates.
For more information on medical office loans, please visit https://www.commercialrealestate.loans/medical-office-loans/.
What are the tax implications of investing in a medical office?
Investing in a medical office can have a variety of tax implications, depending on the type of property and the investor's individual situation. Generally, medical office buildings are considered commercial real estate, and as such, investors may be eligible for certain tax deductions, such as depreciation, mortgage interest, and operating expenses. Additionally, investors may be able to take advantage of certain tax credits, such as the Low-Income Housing Tax Credit (LIHTC) or the New Markets Tax Credit (NMTC).
It is important to note that the tax implications of investing in a medical office can vary greatly depending on the investor's individual situation. It is recommended that investors consult with a tax professional to determine the best course of action for their particular situation.
3 Key Considerations for Acquiring a Medical Office Property
If you’re looking to add medical office buildings to your commercial real estate investment portfolio, there are three key questions you should ask yourself, well before visiting the property or even looking at your financing options.
Where Is It Located?
As with every commercial real estate sector, location is critical. But a medical office building’s location dynamics are quite different compared to those of traditional office properties. MOBs on or near to a major hospital campus unsurprisingly tend to perform better, but also medical office properties near large retirement communities — or even those in markets characterized by a higher-than-average median age — offer significant investment upsides, even if that may be reflected in the asking price.
Does It Have the Right Features?
Another generic category, but several property characteristics can make the difference between a successful MOB investment strategy and a failure. Ensure the building meets all accessibility standards under the Americans with Disabilities Act. And don’t be afraid to do a deep dive into the building’s systems where they differ from a standard office asset’s. Plumbing, electrical, and ventilation requirements may vary significantly, and having to foot the bill to upgrade a behind-the-times property may be more trouble than it’s worth. Also be sure to check out the building’s parking ratio.
One thing to consider, however, is not what your tenants need today but what they may need tomorrow. You may not have a crystal ball, it’s important to ensure your asset is marketable and adaptable to the requirements of future tenants, should your existing tenant roster downside, relocate, or even close up shop for good. Having an adaptable setup is essential.
Do the Size and Tenant Mix Meet Patient Needs?
This one can be really important. A general practitioner may only require, say, 1,500 to 2,000 square feet, and a specialist may require around the same, depending on the specialization. But it’s not as simple as meeting one or two tenant’s needs individually — if few medical office assets are in the area, or if your property doesn’t have the greatest location, consider if there’s enough space for different, complementary tenants to create a beneficial ecosystem for their patients just through proximity to each other.
Think about it this way: If you acquire a small building a little out of the way with a nephrologist office and a dental practice, the two tenants probably have little to offer each other, except by pure, unfortunate, oddly specific circumstance. On the other hand, if you have a similarly sized building, leased to a general practitioner and a radiologist, patients visiting their doctor for a referral for an X-ray may be able to simply stop by next door for the next step in getting care. If patients constantly need to drive from one building to another several miles away, that may impact how many patients choose your tenant for their care — and that can eventually lead to vacancy.