Medical

Overview

This is mostly medical office buildings, usually multi-tenant, often near or affiliated with a hospital system. You'll also see surgery centers, dialysis facilities, imaging centers, and sometimes pure single-tenant clinical buildings. DSTs in this space are typically stabilized MOBs with a mix of physician practice tenants and one or two anchor tenants like a hospital or large physician group.

Analyst Notes

For these, the affiliation with a major hospital system is the most important factor. On-campus is generally better than off-campus, and "off-campus but near a campus" beats "off-campus in a random suburb." Look at the tenant roster for concentration. If one practice is 40 percent of the rent roll and that practice is independent, that's a risk. Check whether the sponsor underwrote realistic TI dollars for re-leasing, because medical re-tenanting is expensive.

Advantages

• Tenants are very sticky. Doctors invest heavily in their build-outs, and moving a practice means losing patients, so renewal rates are high.

• Demand is tied to demographics and healthcare spending, both of which are durable across economic cycles.

• Demand is tied to demographics and healthcare spending, both of which are durable across economic cycles.

Disadvantages

• Tenant improvement costs are massive when a medical tenant does leave, which can wipe out a year or more of cash flow.

• Healthcare consolidation has reshaped the tenant landscape. Independent practices keep getting bought by hospital systems, which sometimes relocate them to system-owned space.

• Reimbursement and regulatory changes (Medicare rate adjustments, shifts toward value-based care) can squeeze tenant margins and lease coverage.

Frequently Asked Questions (FAQ)

Property Type Performance Averages