Capital Markets: Buying a Medical Office Building?
Investors are increasingly turning their attention to medical office buildings in under-valued submarkets like Kendall and North Miami Beach. The good news is these properties are gaining popularity among lenders. National banks are the most active lenders across the medical office sector, providing financing for both private parties and large institutions, according to William E. Hughes, Senior Vice President at Marcus & Millichap Capital Corporation.
Leverage for medical office assets ranges up to 75 percent, with interest rates hovering between 3.75 percent and 4.5 percent depending on terms, strength of borrower, property location and tenancy. If an investor is seeking flexibility, community and regional banks may be the answer because they can provide creative financing options for local borrowers or familiar assets, Hughes said.
Financing through life insurance companies will continue to be a possibility for those investors less concerned about leverage. They are instead pursuing lending agreements with flexible options and longer terms. Hughes states that CMBS originations are lagging other capital sources due to rigid structures that include borrowing entities, prepayment penalties and warm body carve-outs to name a few. Life insurance companies prefer lending on high-quality, trophy medical assets for borrowers who intend to hold for extended periods.