Health Care Property Loans – MOB Financing

Medical practices evaluating the purchase of a medical office building will have many finance options available in the market.  While this is a broad category, finance options/potential structures will vary widely based on such factors as loan amount, owner occupied or investment, strength of owner, cash flow, liquidity, etc. In addition, the type of medical office building dictates options. A commercial condo loan will differ from a single tenant and/or multi-tenant medical office building.

MOB Financing – Underwriting Criteria

Though each situation will differ there are specific underwriting criteria found with medical office building loans that will be addressed.

Criteria based on Loan to value restrictions range widely. Conventional loans and commercial loans provided by life insurance capital are normally capped at 80% on a rate and term refinances and 75% loan to value on cash out refinances. However, higher LTV’s are commonly available, with the ability to roll in equipment and lines of credit/working capital.

On purchase transactions LTV restriction will be as high as 90% financing with both Small Business Association as well as non SBA options. There are several lenders that can bring finance level to above real estate/purchase price. SBA 7a Loan program is a reliable program and with the recent government stimulus packages many programs are available specifically to medical practitioners.

Debt Service Coverage Ratio restrictions are typically set at 1.2 for both investors and owner occupants of medical office properties. Meaning that for every $1.20 of net income (income after all expenses, taxes, insurance etc have been paid) the property/practice produces, the mortgage payment can not exceed $1.00. After all expenses and mortgage payments, the owner will need to net $.20 to qualify.

Many exceptions are made with this rule for medical practitioners. For example, projection loans are common within this segment, that can off set any negatives trends or lack of current cash-flow. Some SBA loans will allow for future year projections and a DSCR ratio of 1.0 or less

Property Analysis

Market value and market rent is very important and will be evaluated and compared to the subject property. Age, appearance, location, accessibility, and local market conditions will be factored. Three estimates of value based on recent comparable sales, current capitalization rates and replacement costs including land, materials and labor will be used as benchmarks.

Credit Worthiness

The personal credit worthiness of the borrower will be scrutinized. 680 credit score is normally the minimum for the best finance options. Exceptions can be made on this as well with some conventional lenders considering scores as low as 640. SBA loans can be approved with a score below 600. The overall strength of the borrower, cash flow, liquidity, and LTV can offset concerns on low credit scores.

Financing Options

Even in current market conditions there are some advantageous medical financing loan options available. Contact your local bank and/or mortgage broker for further advice.