$9,500,000 Medical Office Building (MOB), Encino / Sherman Oaks, Los Angeles, CA

Medical office buildings continue to attract strong lender interest in 2024, with specialty healthcare lenders often pricing more aggressively than traditional CMBS execution. We recently closed a $9.5 million permanent refinance on a multi-tenant MOB in Encino, where a national life insurance company's dedicated medical real estate desk delivered pricing that beat the broader capital markets by 25 basis points.

The Deal

The borrower needed to refinance an existing loan on a stabilized medical office building in the Encino/Sherman Oaks submarket of Los Angeles. The 45,000 square foot property houses a diverse mix of specialty healthcare tenants, including dental practices, outpatient surgery centers, and specialty medical practices. The asset was 92% leased with a weighted average lease term of 6.2 years and built-in annual escalations averaging 2.5%.

The sponsor had initially approached their existing relationship bank for the refinance but was quoted pricing at 275 basis points over the 10-year Treasury with a 25-year amortization schedule. While the rate was acceptable, the borrower wanted to explore whether the medical nature of the asset could command better execution in the current market.

The Challenge

The primary challenge was timing. The existing loan matured in 90 days, and the borrower had already spent six weeks in preliminary discussions with their bank. Most CMBS lenders require 75-90 days for execution, making that channel unrealistic given the timeline constraints.

Additionally, while the property was well-leased, three of the largest tenants were single-practitioner dental offices without significant corporate backing. Traditional commercial lenders typically view these as credit risks, despite the stability that medical tenants generally provide. The asset's 1978 vintage also raised questions about deferred maintenance and compliance with current medical facility codes.

The Solution

Within 48 hours of engagement, we identified a national life insurance company with a dedicated medical office building platform. Their underwriting team specialized in healthcare real estate and had specific expertise in evaluating tenant credit quality beyond traditional financial metrics.

The life company's MOB desk understood that dental practices, while individually owned, typically generate consistent cash flows and have high renewal rates due to patient relationships and the specialized nature of dental suites. They also had extensive experience with medical building compliance and valued the property's proximity to Encino Hospital and the broader medical corridor.

We structured the financing as a 10-year fixed-rate loan with a 25-year amortization schedule. The life company was comfortable proceeding at 70% loan-to-value based on their appraisal, which came in at $13.6 million. Their medical real estate team moved quickly through underwriting, completing their analysis in three weeks rather than the typical six-week timeline.

The Outcome

The life insurance company closed the loan at 250 basis points over the 10-year Treasury, representing a 25 basis point improvement over the borrower's existing bank quote. More importantly, they completed the transaction in 60 days from application to closing, meeting the borrower's maturity deadline with two weeks to spare.

The final loan structure included a 10-year fixed rate at 6.85% (based on prevailing rates at closing), $9.5 million loan amount at 70% LTV, and standard recourse carve-outs rather than full recourse. The life company also included a provision for future additional advances up to $500,000 for tenant improvements, recognizing the ongoing capital requirements in medical office properties.

The transaction highlighted how specialty lenders can deliver superior execution when the asset fits their investment criteria. The life company's medical real estate team understood the tenant profile and lease structure in ways that traditional commercial lenders did not, resulting in both better pricing and faster execution. For medical office building owners, this reinforces the importance of working with capital markets advisors who understand which lenders actively target healthcare real estate and can position deals accordingly.