Cash flowing medical office next to a distressed hospital

5 Replies

Found a nice garden style medical office building with 10+ tenants, all long term, 140k gross 77NOI, made appt with realtor to view the property this week

After doing some googling I realized that the hospital that is one block away is under distress, facing bankruptcy, looking for partners etc... so this must be why the current owner is looking to sell..

Anyone ever invest in anything like this? I may just cancel my appointment because of the uncertainty around the hospital and move on...

May be worth a look. The hospital may be purchased by a competitor network of hospitals and could turn that office park into a more lucrative opportunity. See about the length of leases and dig to see if any reporters or newspapers have dirt about the failing hospital.

There are a lot of new HHS and Medicare laws that are making it advantageous to contain services within the hospital building or within so many feet of the property (ie. free standing surgery centers).  Imagine who lobbied for those?  For that reason, I have seen a lot of smaller medical buildings near hospitals that are being foreclosed upon.  One would think that they would be full from natural expansion but that is definitely not the case.  Hospital systems are also buying up physician practices then building new medical centers.

One big problem (bubble) is that real estate expenses don't hit non-profit hospital P&L's the same way they would a for profit.  This is one reason why all over the midwest new medical centers are popping up at an unsustainable rate.

I would avoid this building.

Don't just look at current use and income. Look at what could be on the dirt for highest and best use. The area might be transitioning to something else.

I always look at a site from multiple angles and not just existing. 

@John Menton , did you view the property? I work in the medical field and a lot of physicians I work with are moving their practices from the hospital setting to the office setting. In fact, a lot of minimally invasive surgeries that were only offered in hospitals a short time ago can now be done in the office based setting. I would absolutely take a look at this property. A couple of things I would be interested in is what kind of physicians are occupying the space? What is the patient demographic like in the specific area? i.e. is it a much older population, mostly medicare? If you have a hospital on the verge of bankruptcy but still a high demand for physicians, based on patient population, and few competitive hospitals in the area, it may be a great investment. 

thanks everyone, I viewed the property.  Had a blood lab that's been there for 10+ years, also a large pediatric practice, none of the tenants are affiliated with the hospital...BUT,  I'm going to pass on this. 

I'm just not familiar with the area or anything medical.  The fact that the hospital is failing is just a red flag to me, don't feel right about it!