Financial Feasibility & Speculative Medical Office Building Construction

February 4, 2019

So, You’re Building (or Investing In) a Medical Office Building…

In decades past, a speculative (“spec”) building for medical tenants was rarely constructed, as few real estate developers were willing to take on the perceived risk associated with the medical sector due to comparatively high tenant improvement (“TI”) packages, uncertain absorption periods, and the dominance of on-campus[1] real estate.  However, over the past ten to twenty years, the healthcare delivery system has increasingly moved off-campus while simultaneously attracting a larger pool of real estate investors and buyers.  These new buyers are seeking higher yields or anticipating the long-term demand in healthcare driven by an aging population.  In the face of these trends, more real estate investors and developers are exploring the possibility of constructing “shell” medical space either on a standalone basis or within mixed-use developments.

This article provides brief guidance on assessing risk associated with speculative medical office development. Questions addressed include: a) the viability of medical space at a given location; b) how much medical space should be built at a given location; c) regulatory concerns associated with the MOB sector; and d) other considerations related to built-to-suit real estate assets.

If you require advisory services on a specific project, please contact VMG for further information.

Download the full article below.