Real Estate Investor · Champaign, IL · Member since 2017 · 57 posts · 6 votes
I need some help, there is a medical office guaranteed by large hospital (nearly a 700 million in revenue) for 20 years. Its a NNN ground lease for sale for 3.3 million with a 6% cap rate. The problem I have is it is in a small town of about 5 thousand people. My concern is that if this hospital leaves after 20 years there is no way this will be worth any thing.
I will put 50% down and will about about 5 % cash on cash
Investor · Miami, FL · Member since 2017 · 30 posts · 6 votes
9y
Write stronger lease with a guarantee from the hospital to pay more or cover the cost of the building in full if they decide to leave.
Also hospital hardly ever pack up and go anywhere and 5,000 people could be 50,000 in 10 years.
The other thing I don't like with this deal is your margins seems tight to me unless that's normal for properties in the health industry.
Real Estate Investor · Champaign, IL · Member since 2017 · 57 posts · 6 votes
9y
Thanks Brian Halstead, The lease is fixed and what I am hoping for is that every 3 years there is a 6% increase in rent so my cash on cash will increase. The population of this town has been steady at the 5 thousand...
Real Estate Agent · Biddeford, ME · Member since 2017 · 213 posts · 150 votes
9y
@A.R Shakir I would make sure that I structure any debt against this purchase with a 20 year term to make sure that I came out of the lease period with the debt being fully repaid so you aren't worried about debt service without a tenant. Does the lease have any renewal options in it? Could you renegotiate with the hospital tenant and add renewal options or buy out provisions in the case they leave? In my experience with tenants in the medical fields, @Brian Halstead is right and they don't move very often. They tend to like long, stable lease terms and don't move because their cost of moving is so much higher than a standard tenant, not to mention finding medical quality space with enough parking is not easy in most markets.
Real Estate Investor · Champaign, IL · Member since 2017 · 57 posts · 6 votes
9y
@Harrison Smith
Yes the lease has 4, 5 year options with again 6% increase in each 5 year period. The lease is a 20 year NNN lease. So unless the hospital goes under then I am in trouble. My concern is after 20 years I should come out on top with my investment, but if they leave I will end of with a dud of a investment because of the small town.