Medical office building financing covers the loan products used to acquire, construct, refinance, or reposition medical office properties. The U.S. healthcare real estate market was valued at $1.32 trillion in 2024 and is growing at a 6.2% annual rate, fueled by an aging population and rising outpatient volumes (source: Grand View Research). Medical office buildings, or MOBs, stand out as one of the most lender-friendly commercial property types because of their long lease terms, creditworthy tenants, and recession-resistant demand.
Whether you are a physician group looking to own your practice space, an investor acquiring a multi-tenant medical complex, or a developer planning a new healthcare facility, this guide covers every financing option, what lenders require, and how to position your deal for the best terms in 2026.
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Why Do Lenders Favor Medical Office Buildings?
Medical office buildings consistently rank among the most attractive commercial real estate asset classes for lenders. Several structural advantages set MOBs apart from traditional office, retail, and other property types.
Recession-resistant demand. Healthcare is a non-discretionary spending category. People need medical care regardless of economic conditions, which means MOB occupancy holds steady during downturns when traditional office vacancy spikes. During the 2020 pandemic disruption, MOB occupancy remained above 90% while general office vacancy climbed past 17% (source: CBRE 2025 Healthcare Real Estate Outlook).
Long lease terms with built-in escalations. Medical office leases average 7 to 15 years, compared to 3 to 7 years for traditional office tenants. Most MOB leases also include annual rent escalations of 2-3%, which protects against inflation.
Creditworthy tenants. Many MOB tenants are hospital systems, large physician groups, or health networks with investment-grade credit ratings. When a hospital system signs a 10-year lease, lenders view that income stream almost like a bond payment.
High tenant retention. Medical tenants renew at rates averaging 82.3%, well above the 65% retention rate for traditional office (source: Pantheon Investments). Medical buildouts are expensive and highly customized, making it far more cost-effective for a practice to renew than to relocate.
Strong occupancy fundamentals. MOB occupancy reached 93% in 2025 across the top 100 U.S. metro areas, with 42 markets reporting occupancy at or above 95% (source: SkyView Advisors Q3 2025). Compare that to traditional office, which still struggles with vacancy above 18%.
What Are the Best Loan Options for Medical Office Buildings?
The right financing depends on whether you are an owner-occupant, a passive investor, or a developer. Here is a breakdown of each major loan type available for MOB properties.
SBA 504 Loans (Best for Owner-Occupants)
The SBA 504 program is the go-to financing option for physicians, medical groups, and healthcare businesses that will occupy at least 51% of the building. Key features include:
- Loan amounts up to $5.5 million
- Down payments as low as 10% of the total project cost
- Fixed interest rates on the CDC portion for 20-25 years
- Eligible uses include acquisition, construction, renovation, and medical equipment
The SBA 504 structure splits financing three ways: a bank provides 50%, a Certified Development Company (CDC) provides up to 40% backed by an SBA-guaranteed debenture, and the borrower contributes 10%. SBA 504 loans can also finance specialized medical equipment such as MRI machines, CT scanners, and surgical equipment as part of the same loan package.
Conventional Bank Loans
Traditional commercial mortgages work well for stabilized, multi-tenant medical office buildings with strong occupancy. In 2026, expect:
- Loan amounts from $1 million to $25 million+
- LTV of 65-75%
- Terms of 5-10 years with 25-30 year amortization
- Interest rates from 6.25% to 7.75%
- DSCR requirement of 1.25x to 1.35x minimum
Bank loans offer faster closings than SBA loans (typically 30-60 days) and work for both owner-occupied and investment properties. The tradeoff is a larger down payment, usually 25-35%. For a deeper look at permanent loan structures, see our dedicated guide.
CMBS Loans
Conduit loans are non-recourse financing products ideal for larger medical office acquisitions and portfolios. CMBS loans offer loan amounts from $2 million to $50 million+, LTV up to 75%, fixed rates from 6.5% to 8.0%, and terms of 5-10 years. CMBS lenders place heavy emphasis on tenant credit and remaining lease term. A MOB leased to a hospital system with 8+ years remaining will qualify for better terms than a multi-tenant building with shorter leases.
Bridge Loans
Bridge loans provide short-term capital for MOB acquisitions that need repositioning, lease-up, or renovation before qualifying for permanent financing. Bridge loans carry higher rates (8-12%) and shorter terms (12-36 months), but they offer speed and flexible underwriting that permanent lenders cannot match.
Life Insurance Company Loans
Life companies provide some of the lowest rates available for premium medical office assets, targeting stabilized MOBs with 90%+ occupancy, investment-grade tenants, and long weighted average lease terms. Life company loans typically offer LTVs of 60-65% with rates 25-50 basis points below conventional bank pricing.
How Much Does It Cost to Build or Buy a Medical Office Building?
MOBs are more expensive to build than traditional office buildings because of the specialized mechanical, electrical, and plumbing (MEP) systems required for healthcare use.
Basic Clinical Space (Primary Care): $375 to $498 per square foot. These spaces require standard exam rooms, waiting areas, and moderate HVAC capacity.
Specialty Clinic (Cardiology, Orthopedics): $425 to $600 per square foot. Specialty practices need additional plumbing, electrical capacity, and sometimes procedure rooms.
Ambulatory Surgery Center: $500 to $750 per square foot. ASCs require operating room-grade HVAC, medical gas systems, and backup power.
Imaging Center (MRI, CT, X-Ray): $550 to $800+ per square foot. Imaging facilities need reinforced floors, lead-lined walls for radiation shielding, and dedicated electrical infrastructure.
Tenant Interior Buildout: $150 to $300 per square foot for converting shell space to medical use (source: Matthews Real Estate).
For investors purchasing existing medical office buildings, pricing in 2026 is roughly $350 to $500+ per square foot for Class A (hospital-anchored), $200 to $350 for Class B, and $100 to $200 for Class C properties. Average NNN rent is $25.35 per square foot across the top 100 metro areas (source: SkyView Advisors). Do not forget closing costs, which typically run 2-5% of the loan amount.
What Are Current Medical Office Building Loan Rates?
Medical office building loan rates in 2026 reflect a stabilizing interest rate environment. Here are the current rate ranges by loan type:
- SBA 504 (CDC portion): 6.5% to 7.5% fixed for 20 years
- Conventional bank loans: 6.25% to 7.75%
- CMBS loans: 6.5% to 8.0% fixed
- Life insurance company loans: 5.75% to 7.0%
- Bridge loans: 8% to 12%
Rates change frequently based on Treasury yields, borrower creditworthiness, and lease structure. To estimate your monthly payment and debt service coverage, use our commercial mortgage calculator or DSCR calculator.
What Do Lenders Analyze When Underwriting an MOB Loan?
Medical office building underwriting is more nuanced than standard office underwriting because lenders evaluate healthcare-specific risk factors.
Tenant Credit Analysis
Tenant creditworthiness is often the most important underwriting factor. Lenders categorize tenants into tiers: investment-grade health systems (rated BBB- or above) receive the most favorable treatment, large physician groups with 10+ providers are viewed as moderate-to-strong credit, and solo practitioners represent higher risk because income depends on a single provider.
Lease Structure and Rollover Risk
Lenders examine the weighted average lease term (WALT) across all tenants. A building with a 9-year WALT is far more attractive than one with a 3-year WALT. Key lease factors include remaining term, renewal options, rent escalation structure, and lease type (NNN, modified gross, or full service).
Property Cash Flow (DSCR)
Most MOB lenders require a minimum DSCR of 1.25x, meaning the property generates at least 25% more net operating income than needed to cover annual debt payments. Use our DSCR calculator to check your numbers.
How Does Medical Office Compare to Other CRE Investments?
MOB cap rates averaged 6.5-7.0% in 2025, with portfolio transactions compressing to the mid-6% range for institutional-quality assets (source: Cushman and Wakefield). The spread between medical and general office cap rates reached a record 50 basis points in 2024, reflecting investors' strong preference for healthcare income streams.
For context, a MOB generating $500,000 in net operating income at a 6.75% cap rate would be valued at approximately $7.4 million.
MOBs outperform traditional office on nearly every key metric, including vacancy (7% vs. 18.5%), lease duration (7-15 years vs. 3-7 years), and tenant retention (82% vs. 65%). Transaction volume in the MOB sector totaled $3.5 billion in the first half of 2025, and investor activity is expected to accelerate through 2026 (source: Cushman and Wakefield).
What Is Driving Demand for Medical Office Space?
Several powerful demographic and industry trends are fueling demand for medical office buildings.
The Aging Population
By 2030, the entire baby boomer generation will have reached retirement age, pushing Americans aged 65+ to 20% of the population, roughly 70 million people (source: CBRE). Healthcare spending increases dramatically with age: Americans under 64 spend an average of $8,000 per year on healthcare, while those aged 65-84 spend $20,000, and those over 85 spend more than $35,000 annually.
The Outpatient Shift
Healthcare delivery is moving out of hospitals and into outpatient settings. JLL projects that U.S. outpatient volumes will grow 10.6% over the next five years. Procedures that once required hospital stays are now routinely performed in ambulatory surgery centers and outpatient clinics, creating sustained demand for medical office space.
Supply Constraints
New MOB construction has slowed as building costs have risen. Demand has outpaced new supply for four consecutive years, with 18 million square feet of positive net absorption in 2024 alone (source: CBRE).
How Should Owner-Occupant Physicians Approach MOB Financing?
Physicians and medical groups who currently lease space have a compelling financial case for purchasing their own building. Owning your practice space builds equity, locks in occupancy costs, and provides tax advantages through depreciation and mortgage interest deductions.
The SBA 504 program is tailor-made for physician groups. With only 10% down and a 20-year fixed rate on the CDC portion, the monthly payment on an owned building is often comparable to current lease payments. The 51% owner-occupancy requirement means you can lease out up to 49% of the building to other healthcare tenants, creating additional income to offset your mortgage.
Steps to transition from leasing to owning:
- Evaluate your current lease obligations and identify the earliest exit window
- Assess your practice financials to confirm SBA eligibility (minimum 2 years in business, adequate cash flow)
- Identify target properties or land for new construction
- Engage a commercial mortgage broker to compare SBA 504, conventional, and other loan options
- Complete due diligence including appraisal, environmental assessment, and zoning review
Contact our team to discuss whether the SBA 504 or another loan program is the right fit for your practice.
What Should Investors Know About MOB Tenant Mix?
The composition of tenants in a medical office building directly impacts financing terms and property valuation. Lenders evaluate tenant mix carefully because different practice types carry different risk profiles.
Hospital system outpatient clinics are the gold standard, bringing investment-grade credit and long lease commitments. Multi-specialty physician groups with diversified revenue streams reduce single-provider risk. Urgent care and walk-in clinics operated by national chains provide strong credit and predictable performance.
Lenders prefer buildings where no single tenant represents more than 30-40% of total rental income unless that tenant has investment-grade credit. A well-diversified MOB might include a primary care anchor (20-25% of space), specialty practices (30-40%), and ancillary services like imaging, pharmacy, or physical therapy (20-30%). This diversification creates a healthcare ecosystem where tenants benefit from patient referrals to each other, further strengthening retention.
What Are the Biggest Risks in Medical Office Building Financing?
While MOBs are among the most stable commercial property types, lenders and investors should understand the key risk factors.
Specialized buildout risk. If a large imaging center or surgical tenant vacates, the space may require $150-$300 per square foot in re-tenanting investment.
Regulatory and reimbursement risk. Changes in Medicare and Medicaid reimbursement rates can affect tenant profitability, particularly for practices that depend heavily on government payers.
Single-tenant concentration. A building where one tenant occupies 70%+ of the space creates binary risk. Lenders mitigate this by requiring longer lease terms and higher DSCR for single-tenant deals.
Parking and ADA compliance. Medical buildings require more parking per square foot than traditional office due to patient volume. Insufficient parking or ADA non-compliance can affect both operations and financing.
How Do You Apply for Medical Office Building Financing?
The MOB loan application process takes 30 to 90 days depending on the loan type. Here is what to prepare.
Property Documents: Current rent roll with lease terms and tenant credit information, trailing 12-month operating statements, property condition report, Environmental Phase I assessment, and purchase agreement or letter of intent.
Borrower Documents: Personal financial statement and 3 years of tax returns, entity formation documents, experience resume, and bank statements showing 6-12 months of debt service liquidity.
For SBA Applications: Business plan with 3-year projections, business tax returns (2-3 years), equipment list and vendor quotes (if applicable), and proof of 51%+ occupancy.
Ready to explore your financing options? Contact our team for a free consultation on medical office building loans.
Frequently Asked Questions About Medical Office Building Financing
What DSCR do lenders require for medical office building loans?
Most MOB lenders require a minimum debt service coverage ratio of 1.25x, meaning the property must generate at least 25% more net operating income than needed to cover annual debt payments. Life insurance companies may require 1.30x-1.40x, while SBA loans may accept 1.15x-1.25x. Use our DSCR calculator to check your numbers.
Can a physician practice use an SBA loan to buy a medical office building?
Yes, the SBA 504 program is specifically designed for owner-occupants like physician practices. You need to occupy at least 51% of the building (60% for new construction). The program offers up to 90% financing with only 10% down. Learn more about SBA loan programs for commercial real estate.
What makes medical office buildings attractive to lenders compared to traditional office?
MOBs offer higher occupancy (93% vs. 81.5% for traditional office), longer lease terms (7-15 years vs. 3-7 years), and higher tenant retention (82% vs. 65%). Healthcare demand is non-discretionary and growing, while traditional office faces structural headwinds from remote work.
What cap rate should I expect for a medical office building?
MOB cap rates in 2026 range from the mid-6% range for institutional-quality, hospital-anchored assets to 7.5%+ for Class B and C properties. By comparison, traditional office cap rates run 7.5-8.5%.
How much down payment is needed for a medical office building loan?
SBA 504 loans require as little as 10% for owner-occupants. Conventional bank loans typically require 25-35%. CMBS loans require 25-30%. Life insurance company loans require 35-40%.
Are medical office buildings recession-proof?
While no asset class is completely recession-proof, MOBs are among the most recession-resistant commercial property types. During the 2020 pandemic, MOB occupancy remained above 90% while traditional office vacancy surged. Healthcare demand is driven by demographics and medical necessity, not economic cycles.
What is the typical lease term for medical office tenants?
Medical office leases typically range from 7 to 15 years, with 10-year terms being the most common for established practices and health systems. Most MOB leases include annual rent escalations of 2-3% and multiple renewal options.
How long does it take to close a medical office building loan?
Conventional bank loans typically close in 30-60 days. Bridge loans can close in 2-3 weeks. CMBS and life company loans take 45-90 days. SBA 504 loans require 60-90 days due to government processing.
Have questions about financing a medical office building? Schedule a free consultation with our commercial lending advisors to discuss your project and explore your options.
Clearhouse Lending specializes in commercial real estate financing for medical and office properties across the country. With access to SBA, conventional, CMBS, and bridge lending sources, we help physicians, investors, and developers secure optimal financing for medical office acquisitions, construction, and refinancing. Get in touch today to learn how we can help with your next medical office building project.