Blog
Financing Medical Office Buildings for Investors
By Jason Taken · Principal
Medical office building financing — specialty use, tenant mix, and bridge or DSCR structures for MOB investors.
Medical office buildings (MOB) require tenant specialty analysis and often ** longer lease terms**. Investors use bridge for acquisition and DSCR or CMBS for stabilized hold.
Special-use commercial property loans · commercial financing hub.
MOB acquisition — specialty diligence
| Factor | Investor action |
|---|---|
| Tenant specialty | Physician vs hospital system vs dental |
| Build-out obsolescence | ADA, HIPAA-ready floor plans |
| Parking ratio | Often 4–5 spaces per 1,000 sf |
| Environmental | Phase I minimum; Phase II if prior use |
| Lease term | 10+ years preferred for permanent debt |
Bridge at 8.99%–13.5% IO for acquisition; DSCR or CMBS at 5.75%–10.5% on stabilized MOB.
MOB vs standard office — financing difference
| Asset | Typical day-one | Exit |
|---|---|---|
| Medical office | Bridge | DSCR / CMBS |
| General office | Bridge (distressed) | Value-add then refi |
| Special-use surgery center | Bridge + higher reserves | Specialized lenders |
Special-use commercial · commercial financing hub · MOB bridge
MOB vs standard office — cap rate band
| Asset | Cap rate range (2026) |
|---|---|
| MOB — physician tenant | 6%–8% |
| MOB — hospital-affiliated | 5.5%–7% |
| General office | 7%–10% |
Lower cap = higher price per sf — bridge LTV adjusts accordingly at 8.99%–13.5% IO.
ADA and HIPAA-ready build-out
Medical build-out runs $80–$150/sf vs $40–$60/sf standard office. Under-budget = lease-up delay. MOB DSCR · special-use loans
MOB subtypes — financing fit
| MOB type | Tenant | Bridge fit |
|---|---|---|
| On-campus hospital | Hospital system | Strong |
| Off-campus physician | Group practice | Standard |
| Urgent care / imaging | Operator | Verify reimbursement |
| Dental / veterinary | Local | Shorter lease — lower LTV |
Specialty use requires specialty diligence — environmental, ADA, parking. Jaken Finance Group bridge 8.99%–13.5% IO.
Reimbursement risk — payor mix diligence
MOB cash flow ties to third-party reimbursement, not just lease abstract language. When underwriting a physician group tenant, request:
- Payor mix (% Medicare, Medicaid, commercial)
- Years in practice at location
- Non-compete radius in lease
A dermatology group with 70% commercial payors presents different rollover risk than a primary care clinic at 45% Medicaid — even at identical rent and lease term.
On-campus hospital MOB — ground lease vs fee simple
Hospital-adjacent MOB often sits on hospital-owned land with a ground lease:
| Ownership | Financing impact |
|---|---|
| Fee simple | Standard bridge / DSCR |
| Ground lease (hospital) | Lender reviews ground lease term vs loan term |
| Condominium unit | HOA docs, special assessment history |
Ground lease remaining term must exceed loan amortization by a cushion — typically 10+ years beyond loan maturity — or permanent debt caps early.
Worked example — off-campus MOB acquisition
| Line | Value |
|---|---|
| Purchase | $1,850,000 |
| Occupancy | 88% (one suite dark) |
| In-place NOI | $132,000 |
| Bridge at 68% LTV | $1,258,000 |
| TI to backfill suite | $95,000 |
| Stabilized NOI target | $168,000 |
| DSCR refi at 75% on $2.1M | $1,575,000 |
Bridge funds acquisition plus holdback for suite TI. Permanent DSCR waits until the dark suite is leased and 90-day rent history is documented.
Ambulatory shift — why MOB demand outpaces general office
Hospital systems continue shifting procedures off campus to lower-cost MOB settings — supporting rent durability in suburban nodes with aging populations:
| Procedure type | Hospital campus cost | Off-campus MOB cost | MOB demand signal |
|---|---|---|---|
| Colonoscopy / endoscopy | High facility fee | Lower ASC rate | Strong |
| Orthopedic consult | Moderate | Moderate | Stable |
| Primary care | Overhead heavy | Efficient | Strong in growth markets |
Investors buying MOB in healthcare-shortage counties (per HRSA designations) may see faster lease-up on dark suites — but verify the designation maps to actual physician recruitment, not just demographic charts.
LOI contingencies — MOB-specific language
Standard commercial LOI language misses MOB risk. Add contingencies your bridge lender expects in the file:
| Contingency | Purpose |
|---|---|
| Phase I satisfactory | Environmental clearance |
| ADA survey acceptable | CapEx sizing |
| Parking ratio confirmation | Appraisal support |
| Tenant estoppel delivery | Refi path clear |
| Certificate of occupancy matches medical use | Zoning compliance |
A 21-day inspection period without parallel Phase I ordering is the most common MOB LOI mistake — environmental alone consumes 14–21 days. How to apply for a commercial real estate loan lists entity and lease docs to gather while diligence runs.
MOB vs MOB-REIT pricing — where your deal competes
Public MOB REITs (Healthpeak, Physicians Realty successors, etc.) compete for the same on-campus and hospital-affiliated assets at 5.5%–6.5% cap. Private investors win off-campus physician MOB at 6.5%–8% cap where REITs lack scale:
| Buyer type | Sweet spot | Financing |
|---|---|---|
| MOB REIT | $10M+, hospital-affiliated | CMBS / corporate debt |
| Private investor | $1M–$8M off-campus | Bridge → DSCR |
| Owner-user physician group | Single suite | SBA or conventional |
If your LOI competes against a REIT, speed matters — bridge at 7–10 business days beats a 60-day CMBS process. If you compete against local physicians buying for occupancy, price on replacement rent, not cap rate alone.
Seller financing and earnout — hybrid structures on MOB
Some MOB sellers offer seller carry on 10%–20% of purchase price — useful when bridge LTV caps below your target:
| Structure | Bridge impact | Permanent exit |
|---|---|---|
| 80% bridge + 10% seller note | Lower cash equity | Refi pays seller note at DSCR |
| Earnout on suite lease-up | Reduces day-one price | True-up at refi |
| Master leaseback (seller tenant) | Transition risk | Short bridge only |
Seller notes must be subordinate to bridge with clear intercreditor terms — unrecorded seller financing kills refi when the permanent lender discovers it in title.
Urgent care and imaging — shorter WALT, higher TI
Urgent care and imaging center MOB often carry 5–7 year initial terms with heavy equipment inside the suite. Permanent DSCR on these assets caps at 65%–70% LTV unless the operator is hospital-affiliated. Budget $100–$150/sf to re-tenant an imaging bay if the operator leaves — equipment removal alone can run $40K+. Ambulatory surgery center (ASC) MOB sits in a specialized lender bucket — confirm Jaken Finance Group asset-class fit before LOI if the tenant performs procedures requiring certificate-of-need or state licensure transfer on sale. ASC build-out often includes lead-lined walls and procedure-room HVAC that add six figures to re-tenant cost.
MOB financing — pick bridge or DSCR by hold plan
Medical office is specialty commercial: environmental, ADA, parking ratios, and tenant mix matter as much as cap rate. Acquisition with incomplete diligence or partial vacancy usually needs bridge loans for medical office acquisitions at 8.99%–13.5% IO; stabilized net lease MOB with long WALT fits DSCR on medical office net lease at 5.75%–10.5%. Review how to apply for a commercial real estate loan for entity docs and lease submission standards banks and private lenders both expect. Special-use commercial property loans explain why MOB rarely qualifies through generic office channels. Match product to your exit — sale to a REIT, hold for cash flow, or value-add TI — before you sign an LOI with a 21-day inspection window that environmental cannot meet.