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Commercial Real Estate Loans for Medical Buildings

Katie DuncanAugust 24, 2023

Reviewed By: Amplify

Ready to make your next big real estate investment? You might want to consider the opportunities that medical parks and medical office buildings can provide!

According to the United States Bureau of Labor Statistics, employment in healthcare occupations is projected to grow 16% by 2030, adding about 2.6 million new jobs. This is faster than the average job growth rate—overall, healthcare is projected to add more jobs than any other industry.

There are a number of reasons for this expanding industry. Because of the aging population of the United States, there is an ever-increasing demand for medical services. More people are receiving insurance coverage through the Affordable Care Act each year, increasing the need for healthcare professionals and services. The diverse healthcare needs of today’s population— from traditional doctor’s offices to mental health services— are providing ample opportunities and niches for health care professionals to fill.

With all of this activity, today’s health care providers need more space to establish and expand their practices. Here’s what you need to know about medical parks and how real estate investors can benefit from the growing need for medical buildings.

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Benefits to Investing in a Medical Office Building

Aside from the positive outlook on the medical industry, there are several reasons why investing in this type of real estate is popular right now.

1. Medical buildings are largely resistant to changes in the economy.

People need medical care, regardless of the condition of the economy. This makes medical buildings largely resistant to changes in the economy.

In fact, when market downturns occur, medical facilities outside of large hospitals may see more business. In these times of economic hardship, many opt for smaller outpatient clinics and convenient locations close to home instead of costly emergency room visits further away.

2. There are many uses for medical office buildings.

Medical office buildings aren’t just limited to family health care practices. There’s a wide array of medical related services that need more than a typical office space to practice, including:

  • Full-service urgent care centers
  • Specialty physician services
  • Mental health care centers
  • Out-patient surgery centers
  • Diagnostic imaging and laboratory services

This versatility ensures demand for medical office buildings and that investors can find suitable tenants for their lease space.

3. Medical centers have high occupancy rates.

The shift away from centralized hospital systems towards suburban clinics, urgent care facilities, and shopping-center style medical parks has proven successful in the past decade. This has led to favorable occupancy rates.

At the end of 2020, the vacancy rate for medical office buildings in the United States sat at 8.6%— a number lower than the overall office sector’s vacancy rate of 13.2%.

4. Medical offices provide a predictable revenue stream.

In addition to high occupancy rates and resistance to economic changes, medical office buildings also provide stability. Unlike other industries, like retail, where tenants may change from lease to lease, health care practice owners tend to stay in the same place for long periods of time. For investors, this means predictable revenue streams.

Commercial Loans for a Medical Office Building

Most likely, your ticket to investing in medical office buildings will lie in medical office loans. Here are the loans that you or the investment group will likely be considering.

Construction and Development Loans

commercial construction loan is the type of loan typically used to develop a medical park from the ground up. Using the right lender is especially important with this kind of project. A lender that has existing relationships with third parties can help the builder with everything from project pre-development to permitting.

Commercial Term Loan

A commercial term loan is another option for developing or acquiring health care commercial real estate. These types of loans typically include:

  • A set loan term in which you must repay what you borrowed, which is usually one to five years but can be longer or shorter
  • A fixed or variable interest rate
  • Few restrictions on what the money can be used for

If there are different types of expenses required, like purchasing an existing building and also converting it to suitable medical office spaces, this flexible commercial loan can be a huge asset. And just like the other loans we’ve mentioned, term loans can be crafted to meet your investment needs.

Getting Started with Medical Office Building Investing

Medical office buildings are popular with today’s real estate investors for good reason. Medical real estate is an asset class with a positive future outlook, it’s typically resistant to economic change, has high occupancy rates, and provides ample opportunities for generating revenue. And, perhaps best of all, investing in a medical office building is not too different from other types of commercial real estate. It all starts with a business plan and a flexible lender that knows the local market.

You Have Options

Amplify’s commercial lending team can help you find the right solution for your business.

Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.