Cap Rates for Medical Office

[William Yeh]

Hey friends!

I just recently took down a listing on a multi-tenant dental office building in Sacramento that is 85% leased with one vacant unit left, fully renovated, and in a market with barriers to entry. The building is full service with CAM recapture based on a base year methodology. The owners have priced it at a 6% pro forma cap rate assuming the last unit gets leased out at honest current fair market rates ($2.75/sf).

My question to you all is what are you seeing/expecting in terms of trade caps for comparable property in comparable markets? In observing everything that I have about the recent volatility on interest rates and commercial markets, it seems like sellers are buyers are somewhat divergent in their expectations. Are all of you commercial investors our there still doing deals and if so what kinds of terms/numbers are you seeing?

Cheers and thanks in advance for your insights.

[Vic Reddy]

@William Yeh

It’s hard to say if 6% cap works without knowing more details

1) how long are leases? Any rent escalations?

2) Are there corporate lease guarantees or personal?

3) NNN leases? What are landlord responsibilities?

4) How are comparable market rents? Any upside?

Lending expenses have gone up but Investors are still looking for decent deals in TX market.