He guys. Could a few of you share with me the characteristics of a medical office building. Ceiling height, HVAC requirements versus regular office/commercial, construction methods and so on? Also, my guess is the leases on some of these spaces are fairly long term given the industry and customer base of the tenant.
My neighbor who is a dentist booked a 20yr lease and spent $800k on his new office TI's. Dont' know what portion of that he paid. But that's significant TI's for a mom and pop dental office. I can only imagine if you lease space to someone performing CT Scans what the TI expense is.
Also, what lease structures and negotiations are you seeing with regard to TI's in terms of $ PerSqFt?
Any help is appreciated.
I've only looked at a few MOB deals, but generally I've seen 10 year leases; however, many of the tenants renew. A deal I recently looked at was underwritten at low $30 rents and $40 TI. I think that's generally what I've seen other deals around in other suburban markets.
If you PM me I can send you information on a couple other deals, although they're 2-3 years old now. Most leases are NNN with a few having base stops.
For hospital systems, I've seen leases ranging from 20 to 35 years with extension options that take them out to around 50 years. For those builds, TIs can be upwards of $500 PSF because of all of the speciality construction/equipment they need.
For smaller MOB tower type tenants like your dentist, I usually see 5-10 year leases. 20 is actually a fairly long lease, but if it is to a group instead of to an individual doctor, I could see that. Around $150 PSF is what we usually see our tenants spending.
As landlords, we obviously only reimburse a portion of the TI, depending on the rent/structure of the lease, but those tenants do some serious spending in their spaces.
All very good info guys. More is appreciated. This firm, from what I'm seeing is doing smaller sized deals. 20,000 to about 100,000 sqft. One to two stories.
Well, considering the TI may be necessary, 800K doesn't seem out of the realm of possibility for a dentists office. However, that depends on the size of the practice, the size of the space, what the space was used for prior to the conversion, any new hardware being purchased by the tenant (You'd be surprised what purchasing different hardware can do to the entire rewiring and re-plumbing of an office space - as it directly affects how the code needs to be applied), and any other changes that need to be done to bring the office up to code. With Radiology equipment, the TI will be expensive as it is costly to build a proper radiology suite. Last I checked it, it'll run at least 800K for a single room and 2.5MM+ for a full on suite depending on what you do in TI alone. Generally speaking though, the leases tend to be longer term depending on the nature of the physician practice (ex. A Surgeon who does not do surgical procedures in the office vs. a Cardiologist who has a full setup for testing patients on site vs. a practice with an on site minor procedures rooms), but 7-10 years are not uncommon.
The only advice I have is to read through the building code as each state does it differently.
Wow crazy. How many chairs or how much square footage was that for? I have a buddy who has a 3 chair dental office and built it out for about $80k. About $40k construction, $40k in materials he bought direct (flooring etc). Not sure if it included his actual equipment/scanners. Little mom and pop place. This was a small 1800 sf space I think. This is really light type of construction. No major MEP systems are required. However if you walked into a Sutter Health or Kaiser MOB building thats 25k sf a floor and say the building is 3 - 5 stories, thats something else. I know for sure the MEP systems will take a LOT of overhead space. So your deck to deck needs to be big enough to accommodate. Couldn't comment on lease of MOB space but I would suspect $40 range. Also, I believe MOB's are OSHPD buildings. In general, everything is over engineered. Getting through OSHPD inspections is a nightmare and you need a GC who is competent enough. Similar to if you built for the Army Corps of Engineers.
I'm talking with a COO of a MOB investor/developer here in SoCal. I need to become a bit more familiar with this asset class. The acronyms are important so thanks for dropping a few on me, lol. I put together the financing for a $17.5mil Class A MOB years ago in Glendale, Ca but was not involved in the day to day details of the construction. Construction standards and MEP requirements are something I need to know more about.
Medical Office Primer? (Originally Posted: 03/06/2016)
Wanted to see if anyone on the board could refer me to a good resource (website, market reports, etc) regarding the MOB asset class specifically. Just looking to learn more about it at the macro/national level, i.e. for investment pros who underwrite it, what are some of the general things to focus on.
Thanks
http://www.coydavidson.com/healthcare/healthcare-real-estate-primer/
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