Blog
DSCR Loans on Medical Office Net-Lease Properties
By Jason Taken · Principal
MOB DSCR underwriting — physician vs hospital tenancy, build-out, and parking ratio requirements.
MOB DSCR files stress tenant retention and build-out obsolescence. In-place rent on long physician leases may support 85% LTV purchase on qualified files.
Submit rent roll and lease abstracts early for term sheet speed.
MOB DSCR — tenant retention risk
| Risk | Lender response |
|---|---|
| Single physician tenant | Shorter max amortization |
| Hospital-affiliated | Better LTV if master lease |
| Build-out obsolescence | CapEx reserve requirement |
| Parking deficiency | Appraisal adjustment |
In-place rent on long physician leases may support 85% LTV purchase on qualified files at 5.75%–10.5%.
File submission checklist
- Rent roll with lease abstracts
- Tenant financials (if required)
- ALTA survey
- Environmental Phase I
- Certificate of occupancy matching medical use
Submit early for ~14 business day DSCR close. DSCR calculator · commercial hub
Physician vs hospital tenancy
| Tenant type | Lease term | LTV |
|---|---|---|
| Hospital system | 10–20 yr | Highest |
| Multi-physician group | 7–15 yr | Medium |
| Single physician | 3–5 yr | Lower |
Single physician rollover risk = lower max LTV at 5.75%–10.5% from Jaken Finance Group.
Parking ratio — appraisal killer
MOB often requires 4–5 spaces per 1,000 sf. Deficient parking = value write-down — verify before DSCR close. MOB bridge · commercial hub
Healthcare tenant credit — what lenders review
| Factor | Source |
|---|---|
| Payor mix | Tenant financials |
| Specialty obsolescence | Market demand |
| Competition | Radius study |
| Build-out age | Property condition report |
Long physician lease with annual escalation supports forward DSCR at 5.75%–10.5% from Jaken Finance Group — flat rent does not.
Worked example — multi-physician group, off-campus MOB
| Line | Value |
|---|---|
| Purchase | $2,100,000 |
| WALT | 11.2 years |
| In-place rent (NNN) | $168,000/yr |
| DSCR at 80% LTV | $1,680,000 |
| PITIA at 7.5% | ~$141,000/yr |
| Day-one DSCR | ~1.19 |
| Parking | 4.2 spaces / 1,000 sf |
An 80% LTV file clears when WALT exceeds 10 years and parking meets local code. A single-physician tenant on a five-year lease at the same cap rate would likely cap at 65%–70% LTV regardless of day-one coverage.
Specialty obsolescence — imaging vs primary care
Lenders segment MOB by specialty durability:
| Specialty | Build-out cost | Obsolescence risk | Typical max LTV |
|---|---|---|---|
| Primary care / pediatrics | Moderate | Low | 75%–85% |
| Orthopedics / PT | High | Medium | 70%–80% |
| Imaging (MRI/CT) | Very high | High if equipment ages | 65%–75% |
| Dental | Moderate | Medium — equipment turnover | 70%–75% |
Imaging suites with $1M+ equipment inside the tenant space create re-leasing friction if the operator leaves. Budget a TI reserve equal to one year of rent when WALT falls below seven years.
Hospital system merger — tenant credit can change mid-loan
Health system consolidation affects MOB DSCR when your hospital-affiliated tenant merges or divestitures a campus:
| Event | Lender response |
|---|---|
| Tenant acquired by larger system | Often neutral or positive if master lease assigned |
| Campus closure announced | Immediate LTV review; reserve increase |
| Practice spun to physician-owned entity | Re-underwrite as local operator — LTV drop |
Request change-of-control clauses and assignment rights in the lease abstract. A hospital master lease with automatic assignment on merger supports forward DSCR; a loose affiliation letter does not.
MACRA and reimbursement — forward rent stress
Medicare reimbursement under MACRA/MIPS scoring affects physician group profitability — and rollover risk on off-campus MOB:
| Payor concentration | Forward DSCR treatment |
|---|---|
| Under 30% Medicare | In-place rent at face value |
| 30%–50% Medicare | 3%–5% haircut on year-5 rent projection |
| Over 50% Medicare + Medicaid | 5%–10% haircut; shorter max amortization |
This is not a reason to decline strong MOB — but a 12-year WALT with a geriatric-heavy practice may underwrite like a seven-year WALT on LTV caps. Pair specialty diligence with the MOB investor financing guide before you lock rate.
Worked example — hospital master lease, on-campus MOB
| Line | Value |
|---|---|
| Purchase | $4,200,000 |
| Hospital system master lease | 15 years remaining |
| In-place rent (absolute NNN) | $294,000/yr |
| DSCR at 82% LTV | $3,444,000 |
| PITIA at 6.95% | ~$272,000/yr |
| Day-one DSCR | ~1.08 |
| Parking | 5.1 spaces / 1,000 sf |
Master lease files often clear 80%–85% LTV despite a 1.08 day-one DSCR because tenant credit substitutes for coverage margin. A single-physician off-campus file at the same DSCR would cap near 70% LTV — tenant quality dominates MOB permanent debt more than industrial NNN.
On-campus vs off-campus — hospital affiliation nuance
On-campus MOB tied to a hospital system often carries master lease or right-of-first-refusal language that helps permanent debt sizing. Off-campus MOB competes on location and payor mix — request the tenant’s Medicare/Medicaid percentage when credit is not investment-grade. A group heavy on Medicaid may still cash-flow while carrying higher rollover risk than a hospital-employed practice.
Certificate of need states — competition moat or refi drag
In certificate-of-need (CON) states, new competing MOB supply is restricted — supporting rent durability on existing buildings. In non-CON Sun Belt markets, oversupply of off-campus MOB can compress rents within a three-mile radius. Pull a competition map showing licensed beds and physician offices before you size DSCR at top-of-band LTV — a 6.5% cap in Dallas behaves differently than a 6.5% cap in Rochester. Telehealth adoption also shifts demand for exam-room count — a 12-room suite built for in-person volume may re-lease at lower rent per sf if the next tenant runs a hybrid model.
TI allowance at renewal — landlord reserve sizing
When WALT falls below seven years, budget a TI reserve for physician rollover even on NNN paper — many MOB leases shift TI obligation to landlord at renewal:
| Renewal scenario | Landlord TI cost | Reserve (months rent) |
|---|---|---|
| Same specialty, vanilla refresh | $25–$40/sf | 6 months |
| Specialty change (PT to primary care) | $50–$80/sf | 12 months |
| Imaging equipment turnover | $100+/sf | 12–18 months |
Permanent lenders escrow 6–12 months rent when WALT is short — factor that into your equity return, not just day-one DSCR at 5.75%–10.5%.
MOB net lease — long-hold DSCR underwriting
Physician tenancy, hospital affiliation, and parking ratios drive MOB DSCR more than generic office metrics. Lenders weight WALT, specialty build-out, and tenant retention when sizing 75%–85% LTV at 5.75%–10.5%. If the asset is still in transition — new anchor tenant, partial vacancy, or pending TI — use bridge loans for medical office acquisitions until the rent roll stabilizes. The broader MOB investor financing guide walks through ADA, HIPAA-ready build-out, and subtypes that affect appraisal. Special-use commercial property loans explain why MOB rarely fits standard office buckets at banks. Submit lease abstracts, tenant financials where available, and parking counts with your DSCR file — missing specialty diligence is the most common reason MOB refis stall at ~14 business days on paper but stretch to 30+ in practice.