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MOB Mentality

By Tracy Altemus, CCIM

Summer 2022

Medical office buildings are interesting investment opportunities with some unique considerations for developers.

Every area of every market in commercial real estate is subject to changing trends large and small — from a small tweak in how people can order retail, for instance, or the complete upheaval of a business model thanks to a global pandemic. But medical office buildings (MOB) are an especially interesting opportunity for developers because of their long-term stability.

We will always need medical space. Demographics tell us baby boomers are continuing to enter retirement years, which will require an even greater need for medical services. Even with the widespread adoption of telehealth in the wake of COVID-19, increased consumer demand still trickles down to office visits.

The Case for MOB

For our hypothetical case study, let’s assume Larry Pass, MD, is an internist and Mary Peach, MD, is an orthopedic surgeon. They’re both on staff at a few local hospitals, but Health Co. Hospital has communicated that it would like to bring them aboard in a more meaningful way. Health Co. has excess land on its major campus, meaning a MOB could be built on-site with the two doctors potentially having ownership. For the doctors, the idea is appealing because they are tired of paying rent, and they’re both familiar with other doctors greatly benefiting from owning real estate.

One of the nuances in a MOB development is understanding unique medical concerns such as Medicare rules and the so-called Stark Law, which aims at prohibiting doctors from realizing non-market benefits from a hospital to discourage self-referrals. In addition to helping them navigate the regulatory dos and don’ts, your role as a skilled CRE professional in this area includes helping Peach and Pass get a better understanding of what’s feasible for two professionals in their situation. One of the first questions for the doctors is pretty simple: Would it be better to lease the space or own it?

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