Guides

Medical Office Investing

Medical office buildings, generally abbreviated MOB in commercial real estate, generally house outpatient healthcare tenants such as physician group practices, dental offices, physical therapy providers, imaging centers, and other clinical uses that do not require the more intensive regulatory and physical infrastructure of a hospital or licensed surgical center. Medical office tenants generally require more extensive tenant improvements than a typical office tenant, including plumbing for exam rooms, specialized electrical and HVAC for imaging or lab equipment, and layout configurations built around patient flow, and because these improvements are generally expensive and specific to the tenant's practice, medical office leases are generally longer term than standard office leases, often ten years or more, and tenants generally exhibit lower turnover once established, since relocating a practice is generally disruptive to both the provider and their existing patient base. Demand for medical office space is generally supported by demographic trends, particularly an aging population that generally requires more frequent outpatient care, and by a broader shift in healthcare delivery toward outpatient settings for procedures that were previously handled in a hospital, which has generally supported steady long term demand growth for well located medical office product. It is generally important to distinguish medical office buildings from hospitals, ambulatory surgical centers, and other higher-acuity healthcare real estate, since those property types generally carry substantially more regulatory complexity, including licensing requirements, certificate of need considerations in some states, and specialized life safety and building code compliance that a standard outpatient medical office building generally does not face to the same degree, meaning medical office is generally a more approachable entry point into healthcare-adjacent real estate for investors without specialized healthcare real estate experience. Medical office leases are generally structured anywhere from full service gross to triple net depending on the property and market, and San Diego, CA's healthcare and life science ecosystem, particularly the concentration of research and clinical activity around the Torrey Pines and University City corridor, generally supports demand for medical office space serving both the broader population and specialized clinical practices tied to that research base. Because of generally durable long term leases and lower tenant turnover, medical office is generally considered by some 1031 exchange investors as an attractive replacement property category, whether through direct ownership or through a DST offering built around medical office assets, though a DST interest may be a security and we do not sell securities, only provide introductions to licensed providers. Educational content only. This is not tax, legal, or investment advice.