Stand Out from the Medical Office Crowd With the Right Tenant Mix

SCOTTSDALE, AZ—While many asset classes underperformed during the pandemic, the medical office sector proved to be an outlier with many experts considering medical office to be a stable asset. As the medical office continues to show resilience, investors are showing an increasing desire to invest in this space but will this continue to be a long-term trend? Panelists at the recent GlobeSt. Healthcare Real Estate national conference tackled that question and dove deeper into the medical office sector and reviewed areas of growth and potential stumbling blocks.

According to Matthew Bear, CEO of Bear Real Estate Advisors, some of the interest in medical office was that office and retail were off the table for investors for a while, and if they weren’t getting into industrial, medical office was the next best option. But he noted that it isn’t the buildings themselves that are resilient in the space, it is the tenants that are occupying the space. 

Panelist Rus Gydnyy, SVP of investments at Montecito Medical Real Estate, has seen transformational growth over the past 18 months. The firm has had long standing JV relationships, and has formed new partnerships with new capital that wants exposure in healthcare real estate because of the resiliency to the tenancy of the product type. But having synergy in the building between medical tenants is key to success, he said.

Bettina Hunt, SVP of leasing at Healthcare Management of America Inc., agreed, noting that a good tenant mix is important to a successful building and the way to improve that tenant mix is to communicate. “Go back to the basics. Pound the pavement and pick up the phone…that is how you get them,” she said. “You need them to see your passion and let them know you care about them and want them to continue to grow.”

Hunt also points out that adding tenant mix in a space starts with conversations with existing tenants. Ask them who do they refer to, she said. “Where do your patients go? Would it make sense if they were your next door neighbor?” she said. “Get your leads and go from there. The tenants have to all work well together.” 

Setting appropriate rents in a facility is also important to keep your tenant there long term, added Gydnyy. “If a physician reinvests with us, post-closing, you have a tenant that has aligned interest with you,” he said. “If they are going to be your partner long term, it is important that they have market rents.”