Medical office buildings (MOBs) have quietly become one of the most attractive niche CRE asset classes. The combination of aging demographics, sticky tenants, recession resistance, and recurring healthcare demand makes MOBs a defensive but growing category. Major institutional buyers — from healthcare REITs to pension funds to private equity — have built dedicated MOB portfolios. For active investors, MOBs offer a way to participate in healthcare growth without operating risk.

This lesson covers MOB investing across types, tenant evaluation, and Florida market specifics.

Why MOBs are attractive

MOBs combine several characteristics that make them a defensive but growing asset class.

1. Demographic tailwind

The US population is aging, and aging populations consume more healthcare. The 65+ age cohort uses approximately 3x more healthcare services than younger adults. As Baby Boomers continue aging into peak healthcare years, MOB demand grows.

In Florida specifically, this is compounded by:

Florida has one of the highest median ages in the US
Florida is a top retirement destination
Snowbirds add seasonal healthcare demand
The 65+ population is growing faster than younger cohorts

2. Recession resistance

Healthcare demand is largely inelastic. People need medical care regardless of economic conditions. During the 2008-2009 recession and during COVID, MOB occupancy and rents held remarkably stable while other commercial property suffered.

3. Sticky tenants

Medical tenants are exceptionally slow to relocate:

Patient base — moving disrupts established patient relationships
Build-out investment — medical practices invest $100-$300+/SF in tenant improvements
Equipment — imaging, lab, surgical equipment is expensive to relocate
Licensing and regulatory — change-of-address creates regulatory burden
Staff — practices don't want to lose experienced staff

The result: median MOB tenant tenure exceeds 10 years, much longer than typical office.

4. Long lease terms

Medical leases are typically 10-15 year primary terms with multiple renewal options, longer than typical office (5-10 years).

5. Specialized real estate

Medical office requires specialized buildouts (exam rooms, plumbing, electrical, ADA compliance) that create barriers to conversion. This limits supply and protects existing MOBs.

6. Strong credit

Hospital-affiliated tenants and large medical groups carry strong credit. Even small practices typically have stable income from insurance reimbursements.

7. Institutional appeal

MOBs are well understood by institutional buyers, creating strong exit liquidity. Cap rates are competitive but stable.

MOB types

MOBs come in several categories with different dynamics.

On-campus MOBs

Buildings located on or adjacent to a hospital campus. Often owned by the hospital system or by third-party developers with hospital relationships.

Characteristics:

Tenants: Hospital-affiliated specialists (cardiology, oncology, orthopedics, surgery)
Lease structure: Often hospital is the master tenant or anchor
Credit: Hospital systems typically investment-grade
Cap rates: 5.5-6.5%
Occupancy: Very high (95%+)
Trade area: Hospital campus draws regional patients

Risk: Hospital system financial health is the dominant risk. Healthy hospital = healthy MOB.

Off-campus MOBs

Standalone medical buildings in commercial corridors not adjacent to a hospital.

Characteristics:

Tenants: Independent practices, smaller groups, primary care, dental, physical therapy
Lease structure: Multi-tenant typically
Credit: Mixed — depends on tenant quality
Cap rates: 6.5-7.5%
Occupancy: 90-95% in good locations
Trade area: Convenience-driven, local

Off-campus MOBs trade at higher cap rates but offer growth potential through lease-up and rent push.

Specialty MOBs

Buildings dedicated to specific healthcare uses:

Dialysis centers:

Tenants: DaVita, Fresenius, US Renal Care
Lease structure: NNN, often 10-15 year terms
Credit: Investment-grade operators
Cap rates: 6.0-7.0%
Demand driver: Diabetes prevalence
Sticky tenants: Patients can't easily switch dialysis providers

Urgent care:

Tenants: HCA, AdventHealth, MedExpress, Concentra, FastMed, regional brands
Lease structure: NNN, 10-15 year terms
Cap rates: 6.0-7.5%
Demand driver: Lower-cost alternative to ER for non-emergencies
Often co-located with retail

Ambulatory surgery centers (ASCs):

Tenants: Surgery center operators, often joint ventures with hospitals
Lease structure: Long-term NNN
Cap rates: 6.5-7.5%
Demand driver: Outpatient procedure trend
Specialized buildouts create high barriers to alternative use

Imaging centers:

Tenants: RadNet, Akumin, hospital-affiliated imaging
Specialized equipment (MRI, CT) creates sticky tenancy
Cap rates: 6.5-7.5%

Ambulatory care / clinic facilities:

Larger multi-specialty facilities
Often hospital-affiliated
Cap rates: 6.0-7.0%

Class A institutional MOBs

Large, modern, hospital-system-affiliated MOBs in major markets command institutional pricing:

150,000+ SF
Investment-grade hospital affiliation
95%+ occupancy
10+ year remaining lease term
Cap rates: 5.0-6.0%

These are the MOBs purchased by Healthpeak, Welltower, Ventas, Healthcare Realty, and other healthcare REITs.

Class B/C MOBs

Smaller, older, or off-campus MOBs trade at higher cap rates:

20,000-100,000 SF
Mixed tenant base
85-95% occupancy
Cap rates: 7.0-8.5%

This is where most active investors compete.

MOB tenant evaluation

Evaluating MOB tenants requires healthcare-specific knowledge.

Hospital-affiliated practices

Strong: Owned, operated, or formally affiliated with a major hospital system. Hospital provides referrals, billing infrastructure, malpractice coverage. Credit follows hospital.

Moderate: Loose affiliation (admitting privileges only). Operator credit independent of hospital.

Weak: No hospital relationship. Pure independent practice.

Independent practices

For independent practices:

Years in operation — established practices are stable
Number of providers — multi-provider groups are more resilient
Specialty — some specialties are more stable than others
Financial statements — request if available
Patient volume — sustainable demand
Reimbursement mix — Medicare, Medicaid, commercial insurance
Personal guarantor — owner physician's credit

Specialty considerations

Different medical specialties have different risk profiles:

More stable specialties:

Primary care (high patient volume, recurring visits)
Dental (strong economics, recession-resistant)
Dermatology (cash-pay component, growing demand)
Optometry (regular visits)
Cardiology (aging population, sticky patients)
Oncology (intensive long-term care)
Orthopedics (aging population, surgical demand)
Urgent care (growing alternative to ER)

More variable specialties:

Plastic surgery (cyclical, discretionary)
Cosmetic medicine (cyclical)
Some surgical specialties (volume-dependent)

Lease term remaining

Long remaining term reduces risk:

10+ years remaining: Low risk
5-10 years remaining: Moderate
Under 5 years remaining: Higher risk, evaluate renewal probability

Tenant improvements

Heavy tenant improvements indicate commitment. A practice that just spent $200K on TI is not moving in the next few years.

Underwriting an MOB

For an MOB acquisition:

Property analysis

Building age and condition
Mechanical systems (medical buildings have higher demand on HVAC)
Plumbing (medical buildings need extensive plumbing)
Electrical (medical equipment loads)
ADA compliance
Parking (medical patients need accessible parking)
Visibility and signage

Tenant analysis

Rent roll with all tenants, terms, rents
Lease abstracts for all tenants
Tenant credit information where available
Tenant tenure
Reimbursement risk (Medicare/Medicaid policy changes can affect tenants)

Trade area

Hospital systems in the area
Population demographics (especially 65+ percentage)
Population growth
Competing MOBs within trade area
Insurance demographics (commercial vs Medicare/Medicaid)

Financial underwriting

In-place rents
Market rent comparison (medical rents typically $20-$45/SF)
Vacancy and credit loss assumptions
Operating expenses (medical buildings have higher utility and maintenance)
Reserves for capex
Refresh capex projections for renewal

Cap rates

| MOB type | Typical cap rate | |---|---| | Class A on-campus, hospital system tenant | 5.0-6.0% | | Class A off-campus, strong tenants | 6.0-7.0% | | Class B multi-tenant off-campus | 6.5-7.5% | | Specialty (dialysis, urgent care, ASC) | 6.0-7.5% | | Class C older or weaker tenant base | 7.5-9.0% |

MOB financing

MOB financing options include:

Bank loans

65-75% LTV
Fixed or floating rate
5-10 year balloon
25-year amortization
Recourse common

CMBS

65-75% LTV
10-year fixed
Non-recourse
Best for stabilized properties $5M+ loan

Life company loans

60-70% LTV
Long terms (10-20 years)
Non-recourse
Best for high-quality stabilized assets
Life companies particularly favor MOBs

HUD 232 (specific to senior care)

For nursing homes and senior care facilities (not typical MOBs)
Long amortization
Specialized program

Healthcare specialty lenders

ORIX Healthcare
Capital One Healthcare
First Citizens Healthcare
Berkadia Healthcare

These lenders specialize in healthcare real estate and offer favorable terms.

Major MOB buyers

The MOB buyer pool is institutional:

Healthpeak Properties — large healthcare REIT, MOB-focused
Welltower — diversified healthcare REIT
Ventas — diversified healthcare REIT
Healthcare Realty Trust — pure-play MOB REIT
Physicians Realty Trust (now part of Healthcare Realty) — MOB
Healthcare Trust of America (now Healthcare Realty)
MB Real Estate — private MOB investor
Anchor Health Properties — private MOB
Montecito Medical — private MOB
Davis Healthcare Real Estate — Florida-active
Nuveen, TIAA, life companies — institutional MOB investors

These institutions actively acquire MOBs and create exit liquidity for active investors who can develop, reposition, or aggregate.

Florida MOB market

Florida is one of the strongest MOB markets in the US.

Demand drivers

Aging population — Florida has one of the highest median ages in America
Strong hospital systems — AdventHealth, Orlando Health, Halifax Health, Lakeland Regional, BayCare, Tampa General, Mayo Clinic, Cleveland Clinic, HCA Florida
Population growth — adding new healthcare consumers constantly
Snowbird demand — seasonal residents need year-round care
Tourism medical needs

Major Florida hospital systems

These systems anchor MOB demand:

AdventHealth — large nonprofit system, headquartered in Altamonte Springs (Orlando area)
Orlando Health — Orlando's other major system
Halifax Health — Daytona/Volusia County
BayCare Health System — Tampa Bay
Tampa General Hospital — Tampa
Lakeland Regional Health — Polk County
HCA Florida — multiple locations
Mayo Clinic — Jacksonville
Cleveland Clinic — South Florida
University of Miami Health — South Florida
NCH Healthcare System — Naples

Central Florida MOB opportunities

For active investors in Central Florida:

Off-campus MOBs in growing residential areas (Lake County, Polk County, Volusia County, Brevard County)
Build-to-suit for established practices needing new space
Specialty MOBs (urgent care, imaging, dialysis) on commercial corridors
Multi-tenant medical in growing communities
Retail-to-medical conversions of underperforming retail

Worked example: Off-campus MOB in Lake County

You're considering buying a 30,000 SF off-campus MOB in Clermont, FL.

Property facts

Building: 30,000 SF, 2-story medical building, built 2010
Occupancy: 92% (one 2,400 SF vacant)
Tenants: Primary care group (8,000 SF), dental practice (3,500 SF), physical therapy (4,500 SF), dermatology (3,000 SF), urgent care (4,500 SF), pediatrics (4,100 SF)
Average rent: $24/SF NNN
Market rent: $26/SF NNN
Hospital affiliation: Several tenants admitting privileges at AdventHealth Waterman
Trade area: Clermont/Minneola/Groveland — fast-growing Lake County area
Asking price: $9.5M
Going-in cap rate: 7.0%
Year 1 NOI: $665K

Underwriting

Strong, growing trade area
Diverse tenant mix
Below-market rents at 4 lease rollovers in next 3 years
Vacant space leasing pipeline (urgent care expansion or imaging)
Hospital growth in area drives spillover demand

Year 1-5 plan

Lease vacant 2,400 SF: +$60K
Push rents at rollovers: +$45K over 3 years
Maintain quality and tenant relationships

Returns

Year 1 cash-on-cash: 7%
Stabilized cash-on-cash: 9%
5-year IRR: 12-14%
Equity multiple: 1.6-1.7x

This is a representative active-investor MOB deal: stable tenant base, growing market, modest value-add, institutional exit potential at year 5-7.

Common MOB investing mistakes

Overpaying for short-term tenant base — even strong tenants need to renew
Ignoring hospital system health — bad hospital sinks affiliated MOB
Missing healthcare reimbursement risk — policy changes affect tenant ability to pay
Underestimating capex — MOBs have heavy mechanical systems
Buying without medical real estate experience — operator complexity is real
Wrong market — declining areas don't support healthcare growth
Ignoring parking requirements — medical patients need accessible parking
Underestimating TI for new tenants — medical fit-out is expensive

What to take away

MOBs are a defensive but growing CRE asset class driven by aging demographics
Categories: on-campus, off-campus, specialty (dialysis, urgent care, ASC, imaging)
Tenants are sticky due to patient base, build-out investment, and licensing
Cap rates: 5.0-6.0% institutional Class A; 6.5-8.5% smaller off-campus
Florida is one of the strongest MOB markets due to aging population and strong hospital systems
Major Florida hospital systems anchor MOB demand
Healthcare REITs (Healthpeak, Welltower, Ventas, Healthcare Realty) provide institutional exit liquidity
Active investor opportunities in off-campus, specialty, and value-add MOBs
Underwriting: tenant credit, hospital affiliation, lease term, building condition, trade area
Florida MOB demand will continue to grow as the population ages

Next lesson: sale-leasebacks and creative retail structures — how to source, structure, and execute the deal types that don't fit the standard playbook.

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