MSO medical service organization investing

[Mostafa Koperly]

There is an opportunity to acquire a medical building ( owner is MD who sold business to a Hugo MSO two years ago and still working part time ) at 8 cap NNN lease. Lease expire in 5 yrs but I don't see a renewal option offered to the MSO group.

They bought this place 2 yrs ago. They are very big on east coast but started to expand into the west coast.

Also after searching more about them they bought over 10 more locations ( business only no RE) however they aren’t changing the name.

Does MSO tend to stay same location like DSO groups? My only thing is why they didn’t enforce a renewal option on their contract.

It’s in SoCal and not in a rural area and close to many regional hospitals like memorial and Kaiser.

It's on off MLS listing.

[Ivan Terrero]

@Mostafa Koperly

MSO's like DSO's look for opportunities to exploit nationwide because they are backed by PE.

[Mostafa Koperly]

thank you 

[Mostafa Koperly]

Quote from @Ivan Terrero:

@Mostafa Koperly

MSO's like DSO's look for opportunities to exploit nationwide because they are backed by PE.

That’s correct. DSO expanding like crazy. 

[Mostafa Koperly]

Quote from @Bernard Hickson:

Hi Mostafa,

The medical building opportunity at an 8% cap rate with an NNN lease sounds promising, especially given its proximity to major hospitals like Memorial and Kaiser. Here are some key considerations:

The Tenant Stability

• MSO Growth: The MSO is expanding westward and has acquired multiple businesses, which suggests growth. However, the absence of a renewal option in the lease could indicate uncertainty or strategic flexibility.
• MSO vs. DSO Trends: Like DSOs, MSOs often prefer continuity for patient retention, but they may be more flexible depending on market dynamics. Assessing how critical this location is to their expansion plans is essential.

The Investment Considerations

• Lease Expiry: With five years left on the lease, your strategy should account for potential vacancy risk. It could be worth engaging with the MSO or the owner to explore adding a renewal option or gauging the MSO’s future plans.
• Due Diligence: Investigate the MSO’s financial health and west coast strategy to better understand your risk exposure.

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Let me know if you’d like to discuss this further or have any questions!

Bernard Hickson

919.928.2093

www.OxfordBizCapital.net

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Thank you  for the detailed explanation.

In the same city they have 5 more locations ( bought after this one ). They didn’t change the name and kept same owners to work for a bit.
the building for sale the owner was the doctor too. So he sold his business to them and signed a lease contract with them and now selling the building.

They are cash flow positive and have over 1B in assets ( net is close to 350million )

I’m only thinking that the seller wanted to make it attractive to sell his building having no renewal option which can give some leverage to new owner.

Out of all the 6 locations they have in this city, this building the the newest one and looks great. They even built offices for memorial’s hospital pediatricians to see patients outside the hospital.

They also get financial help from the city since they help to see low income patients.

[Michael K Gallagher]

@Mostafa Koperly what is the underlying property asset like?  is it in a high visibility area?  part of a current medical campus?  is med basically its only use case for filling with new tenants?  What kind of exclusives in the area does the current tenant have?  

In my experience strictly med buildings are generally developed in the same way as part of a campus or off the path a bit from the main retail corridor, so it really is only suited for that use.  We do Urgent cares all over the county and get pitched med office spaces all the time, and none fit our profile for visibility, for our use at least, only because we follow a more "retail" modeled approach to site selection, given the business type.  

My point being, whats the plan for after the current tenant leaves?  whats other use cases, if any?  Those are going to be my biggest questions when looking for something like this on or off the market.

[Mostafa Koperly]

Quote from @Michael K Gallagher:

@Mostafa Koperly what is the underlying property asset like?  is it in a high visibility area?  part of a current medical campus?  is med basically its only use case for filling with new tenants?  What kind of exclusives in the area does the current tenant have?  

In my experience strictly med buildings are generally developed in the same way as part of a campus or off the path a bit from the main retail corridor, so it really is only suited for that use.  We do Urgent cares all over the county and get pitched med office spaces all the time, and none fit our profile for visibility, for our use at least, only because we follow a more "retail" modeled approach to site selection, given the business type.  

My point being, whats the plan for after the current tenant leaves?  whats other use cases, if any?  Those are going to be my biggest questions when looking for something like this on or off the market.

Thank you for the input. 
previous business owner and building owner has been practicing for a while and built this office for medical office ( receptionist and exam rooms ) with nice decorations. Building was built 2016 and it was named by the major of the city as one of the best cosmetically appealing medical offices. 

Now what will be the plan after they move out ( if they decide to) is probably lease to a medical corps too since the close proximity to the big hospital. It’s not like next to it but about 0.5 mile from memorial hospital.

[Michael K Gallagher]

@Mostafa Koperly sounds like a good plan for the building! 

[Joel Owens]

I buy blend and extends for cash nationally where I can extend the lease or backfill.

I buy at 10 cap rate or higher. I don't touch 8 caps with low years remaining on the lease.