Medical Building Investments: Are They Worth Your Time & Money?

Mar 17, 2016

Often when people consider investing in real estate properties, they think of the current market position and which properties have the most potential for long-term growth. So, why might it be good to invest money and time into medical buildings?

Medical buildings are an up and imminent asset class in a commercial real estate. Not only are the vacancy rates at their lowest since the recession, but the amount of medical buildings being built is expected to fall short of demand. Additionally, capitalization rates (CAP) are low and continue to fall, especially for investment- and near-investment-grade properties. They also offer financial opportunities due to their good location and high demand, but low supply.

Getting Into Medical Buildings…

Getting Into Medical Buildings

The resurgence in demand for medical buildings is partially in response to the Affordable Care Act, which penalized hospitals for high Medicare remission rates. As a result, hospitals have begun hiring developers through leaseback arrangements to build medical office buildings. Hospitals are also better than individual practitioners as tenants in terms of credit, and they also rent spaces for as long as 15-20 years (making them ideal for STLPs).

However, the standard setup of offices with a central lobby surrounded by offices has given way to a more complex arrangement that reflects the changing medical landscape.

Medical buildings that allocate space so that outpatient team-based care can be provided efficiently are rapidly becoming the standard for developers and investors alike.

Whether a particular office focuses on the aging population, who require comprehensive, team-based care, or on pediatrics, offering parents a complete suite of pediatric services, medical buildings are now being built as community-based, one-stop centers offering a suite of medical services.

If you’re still not convinced that medical offices are a lucrative investment, consider the following reasons to get into Medical buildings.

Why Medical Building Investments Are Worth Your Time and Money

3 reasons why medical building investments are worth your time and money

1. Medical buildings perform well regardless of the state of the economy

Medical office buildings tenants offer services that are recession proof. Whether the economy is slow or booming, everyone – sooner or later – needs to see the doctor. And although medical office buildings do require specialized infrastructure and can be management intensive, the type of tenant tends do vary, allowing investors a wide variety of tenants to choose from.

2. Strong Tenant Retention Is the Norm

The mix of tenants in medical buildings is by no means uniform and can differ widely from one location to another. Finding the right mix of tenants to occupy a medical building depends on several factors, especially since some buildings are specifically commissioned by a hospital or group of doctors, while others are redeveloped industrial or office spaces that have been converted for medical use.

Regardless, once the right tenant mix is achieved, tenants are highly unlikely to leave, since they’ve come to rely on one other in order to provide services to their patients.

3. Medical Buildings Produce Stable Cash Flow

With low supply and high demand, medical office buildings are a premium investment for investors. Moreover, due to the number of seniors requiring health care and the expense and difficulty in relocating, tenants typically sign long-term leases that allow them to remain in one location.

When a physician/owner decides to capitalize on their property’s equity by selling it and leasing it back, they gain additional funds to expand their practice, while the investor reaps the benefits of owning a net lease property.

The long terms leases, regular payments, and higher return of the medical net lease property are ideal for those looking to expand their investment portfolio with an income property which possesses excellent long-term value.

To Sum Up

Since the number of older citizens is consistently growing, the demand for medical buildings (hospitals, senior citizen centers, ambulant diagnostic surgeries, and laboratories) is also increasing. Health and well-being of people are very important, and therefore the need for medical facilities.

If we rely on the recent research and statistics, now it is a great time to invest in healthcare real estate property.

The Healthcare market still remains strong in the US economy, and investors with a large amount of capital, good credit tenants, and Class A properties will certainly face lower CAP rates.

We recommend you to focus on market regions with potential population growth and with affordable housing options.

The Medical facility market has been recently growing and will probably continue to grow as a result of the low vacancy rates.

Regardless of the property type (medical, surgical, or rehab facility), the main idea of many providers is to keep the capital resources in order to provide medical services.

These facilities have a more reliable income due to the insurance compensation and governmental programs. Therefore, tenants may have a much higher income stream.

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