Medical Office Building in North East

[Kristy Oshita]

Hi I'm a multi family investor looking to move to investing in medical office buildings.

I'm looking at a package of 2 100% leased stand alone medical office buildings that has a terrific cap rate, north of 10%. They are both leased to the same tenant.

It seems the owner has paid for a million plus renovation for one of the buildings and in return the medical office signed a long lease at a high cost per sq foot. 

There are a lot of pros, but there are some risks I'm trying to figure out how to assess such as the tenant and if the cost per sq foot is inflated. 

I was wondering if anyone had advice evaluating a MOB for these risks?

Here are the pros

• Tenant has been at the buildings 5+ years and pay their rent
• The building is in great shape
• It's a NN, so it has some expenses but they are small costs
• I believe the recently renovated building has 10 years left on their lease.
• The 2nd building is undergoing a million plus renovation, paid by the tenants.  I believe there is 5 years left on their lease.

The Risks/Concerns

• The medical practice has been sold to a larger new company maybe 1.5 years ago.  The acquiring company seems to be aggressively expanding & has credible founders & board of directors.  It seems like a risk and a benefit.
  
• I was told that the seller is NOT related to the ownership of the medical practice.  Perhaps this is true now post sale.  However from my google'n I think that the owner of the building, was the owner of the medical practices before it was sold. 
• I believe he is now part of the new company.
• A medical lease back is common, I'm just not sure why they would lie about the owners relationship (but perhaps I'm wrong).
• The buildings are near a medium sized city, in the suburbs about 25 min to downtown.  Does it matter that the towns they are not high income areas, median house hold income is $45-50k?  The buildings are located off a main road in a retail strip.

• Is it normal to get some type of verification that a medical practice tenant is credit worthy and their operational income supports their rental payments?  If so, is there a company to get this report or do I ask the broker for tax returns or P&Ls of the practice?
  
• Is it normal that a renovated MOB could rent for $34-$38/sq foot, while retail rent is more around $15/sq foot in that area? 
• I tried to find medical leasing comps but couldn't find similar buildouts.  Nationally I saw renovated space for more like $22-$25/sq foot I think? 
• MOBs and Commercial RE are based on it's income, but how much do you take into account the area?

• Is there anything else I should be looking out for regarding MOB investments?
  
  Thank you in advance.