Term, TI, and honesty
Office & medical
Suburban office, medical office and single-tenant office, underwritten conservatively and openly.
Office is the asset class where a lender has to be most candid. Capital is available, but at lower leverage, with larger reserves, and with far more weight on weighted-average lease term than on last year’s NOI. Medical office underwrites differently from general office and is treated separately here.
What this programme covers
- Suburban and small urban office, medical office, single-tenant office
- Weighted-average lease term drives leverage more than any other single input
- Tenant improvement and leasing-commission reserves are sized generously
- Medical office with practice ownership and built-out suites is treated as its own class
Debt yield binds nearly every office deal at current levels, and it binds by a wide margin.
Test it on your numbersWhat underwriting actually reads
Weighted-average lease term
Lease term remaining, weighted by rentable area. WALT shorter than the loan term is priced and reserved for, not ignored.
Rollover inside the term
Space expiring before maturity is underwritten with downtime, a market rent and a full TI package.
Physical plant
Age of HVAC, roof, elevators and life-safety. Deferred maintenance in office turns into a reserve, not a discount.
Medical specifics
Suite build-out cost, practice ownership of the tenant entity, referral proximity to a hospital campus, and whether the imaging equipment is the tenant’s or the landlord’s.
Who it suits
- Owner-users buying their own suite
- Medical practices with long-tenured occupancy
- Sponsors refinancing well-leased suburban product
- Not this programme: Speculative office with heavy near-term rollover and no capital plan.
Illustrative scenarios in this class
- S-04 — illustrativeMedical office, three practices$4,933,000 · Debt yield bindsA 12% debt yield floor holds the loan to 66.7% of value even though the coverage test would have supported more. This is the single clearest illustration of why office leverage sits where it does.
Questions on this programme
Why is office leverage so much lower?
Because the debt yield floor is higher. At a 12% floor, a million dollars of NOI supports roughly $8.3M of debt; at 8% it supports $12.5M. Nothing else in the file moves the number that far.
Does medical office really price differently?
It is underwritten differently — longer tenure, higher tenant switching cost, and practice-owned build-out. Whether that produces different pricing depends on the file.