Most health systems benefit from owning procedure- and technology-intensive sites (e.g., ASCs and imaging hubs) while leasing standard medical office buildings to preserve capital, accelerate delivery, and maintain flexibility—validated by a 10–15 year, market-specific net present value comparison.

Why it matters

Outpatient volumes are growing 4–6% annually in many markets, with 60–70% of care shifting outside the hospital by 2028 (Kaufman Hall; Advisory Board). At the same time, construction inflation and interest rates have reset the real estate math. Typical medical office building (MOB) core and shell costs are running $300–$450 per square foot (SF) with tenant improvements of $125–$225/SF, while ambulatory surgery centers (ASCs) frequently exceed $600–$1,000/SF due to sterile environments and equipment (RSMeans 2024; industry benchmarks). Capital is scarce, and the cost of delay is real.

Debt and lease costs also converged. Investment-grade tax-exempt hospital bonds have been pricing around 4.5–6.0% since 2023, while stabilized MOB capitalization rates are 6.5–7.5% nationally (Revista, 2024). In fast-growth markets like Middle Tennessee, asking rents of $32–$38 NNN and cap rates of 6.25–6.75% are common for quality MOBs. The decision to own or lease therefore directly affects balance sheet capacity, speed to market, and the true cost per patient encounter.

How it works

Own vs. lease is a capital allocation decision shaped by risk, control, and clinical strategy. Ownership typically fits buildings where clinical integration, high-cost equipment, or brand-critical services create long-term stickiness—think 20,000–60,000 SF ASCs or imaging hubs with MRI/CT, where equipment lead times run 26–40 weeks and parking needs can exceed 6 per 1,000 SF. Leasing often fits 30,000–80,000 SF clinic MOBs, especially multi-tenant buildings with standardized exam modules, where flexibility, speed, and limited medical gas or structural loads reduce the value of ownership.

Common structures include direct ownership, third-party developer delivery with a guaranteed maximum price (GMP, a contractual cap on construction cost), ground leases for 60–99 years to retain site control, and sale-leasebacks to monetize existing equity. Most MOB leases are triple-net (NNN), meaning the tenant pays taxes, insurance, and maintenance in addition to base rent, with 2–3% annual escalations. Under ASC 842 lease accounting, leases sit on the balance sheet, but a sale-leaseback can still unlock 90–100% of the building’s value for redeployment to clinical priorities, as outlined in our healthcare real estate services.

Delivery timelines favor leasing when speed matters. From site control to opening, entitlement can take 6–12 months, design 6–9 months, authority having jurisdiction (AHJ) plan review 8–16 weeks, and construction 12–18 months for a typical MOB. Utility upgrades can add 12–30 weeks depending on transformer availability. Partnering with an experienced developer can compress preconstruction and absorb certain procurement risks, as seen in our advisory approach.

Key considerations

Cost of capital vs. yield spread: If your weighted average cost of capital (WACC) is 5.5–7.0% and you can lease at an implied cap rate of 6.5–7.5%, leasing may be neutral to slightly more expensive on paper but superior when you value speed, TI risk transfer, and optionality. Conversely, when rents push above $40 NNN in constrained submarkets or when you expect very long-term use with specialty buildouts, ownership often wins on 15–20 year net present value (NPV). Always test sensitivity to 10–15% vacancy and 10–15% construction overruns.

Clinical control and resiliency: Own where failure is unacceptable—procedure rooms, sterile processing, high-power imaging, pharmacy clean rooms. These require higher structural loads, specialized mechanical systems, and more rigorous AHJ inspections, and disruptions can be costly. Lease where adaptability matters—primary care, specialty clinics, and backfill-friendly space—so you can right-size panels, follow referral patterns, and exit or expand with less friction.

Balance sheet and ratings: Rating agencies focus on liquidity, leverage, and operations. Sale-leaseback proceeds can improve days cash on hand and fund high-ROI projects, particularly when coupled with defined debt reduction or reinvestment plans (Fitch and Moody’s 2024 medians). However, long leases are fixed commitments; align term with clinical durability. Typical base terms of 10–15 years with one or two 5-year options balance stability and flexibility.

Compliance and fair market value: Physician co-tenancy raises Stark Law and Anti-Kickback Statute issues. Ensure fair market value (FMV) rent validated by a third-party appraisal, commercially reasonable terms, and documented allocation of tenant improvements. For shared services, define service line governance, common area maintenance, and after-hours access to avoid remuneration risks.

Market dynamics: In Middle Tennessee and similar growth hubs, limited entitled sites and robust physician demand compress timelines and elevate rents. Parking ratios of 4–6 per 1,000 SF, traffic counts, and campus adjacency meaningfully affect absorption and renewal probabilities. These micro-factors often swing the own/lease NPV more than a 25 basis point change in discount rate.

Actionable takeaway

Adopt a portfolio rule: own the few, lease the many. Own high-acuity outpatient assets with embedded technology or complex infrastructure; lease standardized clinic MOBs to conserve capital and manage demand volatility. For existing non-core MOBs, evaluate a sale-leaseback at current cap rates of 6.5–7.5% to redeploy proceeds into ASCs, hospital modernization, or digital front door initiatives, and use a ground lease when you must retain land control. To operationalize, build a 10–15 year NPV comparing WACC to all-in lease costs, include 2–3% rent escalators, realistic TI allowances ($60–$120/SF), and a 5–10% downtime reserve at rollover.

Practical tip: Before a board vote, obtain an FMV rent opinion and run a side-by-side schedule of occupancy cost per visit (targeting primary care below $30–$40/visit and specialty below $45–$60/visit, MGMA-adjusted) under both own and lease scenarios. If you need a structured framework or a confidential review of your pipeline, you can explore the approach described in our healthcare real estate services or contact our team for a portfolio consultation.

What is a realistic timeline to deliver a new MOB?

From site control to first patient, plan for 24–36 months: 6–12 months for entitlement and due diligence, 6–9 months for design, 8–16 weeks for AHJ plan review, and 12–18 months for construction depending on complexity. Add 12–30 weeks for utility gear and 26–40 weeks for major imaging equipment, and build 60–90 days for commissioning, IT, and staff onboarding.

How do sale-leasebacks affect my financial statements and ratings?

A sale-leaseback generates cash equal to roughly 90–100% of appraised value net of transaction costs, increases operating lease obligations under ASC 842, and can improve liquidity metrics if proceeds reduce debt or fund strategic capital. Rating agencies generally view the move as neutral to moderately positive when paired with strengthened operations and transparent capital planning, but they will assess lease coverage and fixed-charge ratios.

When does ownership clearly outperform leasing?

Ownership often wins when the building is procedure-heavy, requires specialized infrastructure, or is mission-critical for referrals and brand, and when you expect stable, long-term utilization beyond 15 years. It also excels in markets where land is scarce and rents exceed $40 NNN, making the lease equivalent more expensive than your WACC after factoring in 2–3% escalations and re-leasing risk.

What lease terms should we target for a MOB?

Most health systems negotiate 10–15 year base terms with one or two 5-year options, 2–3% annual escalations, and TI allowances of $60–$120/SF for clinics and higher for imaging. Protect operations with early termination rights tied to regulatory change, expansion rights, right of first offer on adjacent space, and building signage; use a ground lease or ROFR to retain strategic site control when possible.

How do we ensure compliance when leasing to or from physicians?

Use third-party FMV rent opinions, maintain commercially reasonable terms, and avoid any linkage between rent and referral volume or value. Clearly document space usage, shared services, and cost allocations, ensure separate billing and access rights, and audit annually to confirm no inadvertent remuneration; these steps help address Stark and Anti-Kickback Statute requirements.

Bremner Healthcare Real Estate partners with health systems to align real estate strategy with clinical performance and capital efficiency.