Investing in commercial real estate (medical building)

5 Replies

I am a member of a large surgical specialty group. When the group expands its office space, the funding typically comes from the partners of the group. A new office building is being proposed and everyone in the group has an opportunity to invest. I'm relatively early on in my career and don't want to go "all in" but I do have some cash set aside for a small interest in the project. These real estate funds are a separate LLC from the group's partnership. The good news is that as soon as the new office building is finished it will be fully occupied by physicians in my group and ancillary services that we own. Regardless of the number of occupying physicians, the overall lease amount paid is the same (their individual overhead just varies depending on occupancy). That said, if the lease is set at a fair market value then the cash-on-cash return on the investment is targeted at about 8%. Plus when I retire or change jobs I'll get a check for whatever my initial investment is worth at the time. The locations have been aggressively researched to ensure there is a market for the services we provide. It seems like a fairly safe investment overall, but I wanted to see what others would have to say about it? Thanks

@Kurt D. my wife is a physician and she was part of a large physician group at one time that did a similar thing, develop their own properties and then rent them back to themselves. She wasn't with them long enough to participate but if she was I would have jumped right on it. Long-term, stable, occupied medical space is very valuable, much more than the cost to develop it. 

In the case of the company she worked for, they sold it for a very nice profit to a REIT a couple of years ago.

In a way it's like McDonald's in that you can make very nice money operating the business but it gets even better when you add in the profits from the real estate. Not to mention the tax advantages they should pass on to you if you can use them.

IMHO you will not find a better investment for your money.

@Kurt D. Medical space would be a great idea to get into. I’m sure you know, but if you can find a medical tenant to re-use the space, they are the strongest tenants you can get. Depending on the area where the building is, you could do very well.

Definitely hire your own lawyer, don't rely on the LLC lawyer to consider your best interests.

Good investment rare opportunity for sure.

@Kurt D. what you are proposing is a medical building investor's dream. There is a niche buyer for these types of sale lease backs because they are relatively risk adverse. For example, Delta Dental buys these buildings when they have dental tenants.

Thanks for all of the comments/advice. I think it sounds like a solid opportunity. We've had other opportunities like this come and go and people who invested in the prior ones are happy. This is the first one I've had the opportunity to invest in. The only real "downside" to it I can see is that part of the contract is a non-compete clause of greater radius than my current one. But I don't intend to leave my job any time soon.