Off-Campus Medical Office Building Financing: Underwriting Guide for 2026

# Off-Campus Medical Office Building Financing in 2026: A Comprehensive Guide for Los Angeles Investors The medical office building (MOB) sector remains one of the most resilient asset classes in commercial real estate. However, not all MOBs are created equal. While on-campus properties tied to major hospital systems benefit from institutional backing and predictable cash flows, off-campus MOBs present a different financing landscape. As we move through 2026, understanding how lenders evaluate off-campus medical office properties, and knowing which financing structures work best, is essential for Los Angeles investors and physicians seeking capital. ## Off-Campus MOB: A Wider Range of Options Off-campus medical office buildings occupy suburban and community locations outside hospital campuses. They serve a vital role in the healthcare ecosystem, housing primary care physicians, specialty practices, urgent care centers, diagnostic imaging facilities, physical therapy clinics, and other ancillary medical services. Unlike on-campus MOBs, which benefit from the hospital's creditworthiness and patient referral network, off-campus properties stand on their own merits. This independence creates both opportunity and complexity. An off-campus MOB in a strong Los Angeles submarket with quality tenants and high occupancy can command competitive rates and terms. Conversely, a single-tenant property occupied by one or two physician practices faces stricter scrutiny. The credit quality of off-campus MOBs ranges widely, from institutional multi-tenant buildings anchored by established medical groups to small owner-occupied practices run by individual physicians. ## How Lenders Evaluate Off-Campus MOBs Lenders take a more detailed approach to off-campus MOB underwriting than they do with on-campus properties. Because these buildings lack the implicit backing of a hospital system, each tenant and the overall property merit individual examination.

Tenant Mix and Stickiness

The composition of tenants is paramount. Lenders strongly prefer multi-tenant properties with three or more established tenants. They also evaluate "stickiness," which refers to how likely tenants are to remain long-term. Specialty practices such as imaging centers, surgical suites, and oncology clinics are viewed favorably because they require significant capital investment in equipment and build-outs. A physician operating an imaging center is less likely to relocate than one running a simple family medicine practice. Similarly, urgent care and occupational health clinics demonstrate strong retention rates.

Primary care practices, while important, are considered moderately sticky. A sole proprietor running a family medicine office faces fewer relocation constraints than a multispecialty group, but individual physicians often own or control adjacent real estate, creating relocation risk if they decide to move their practice. This is a key red flag for lenders in 2026.

Lease Term and Occupancy History

Lenders examine remaining lease terms carefully. Properties where major tenants have less than three years remaining on their leases present renewal risk. A strong occupancy history (preferably 90 percent or higher for at least the past two years) demonstrates market demand. Conversely, turnover or extended vacancies signal underlying property or market issues.

Building Condition and Parking

The physical condition of the building directly affects tenant recruitment and retention. MOBs require adequate parking, with lenders typically expecting at least 3.5 to 4 spaces per 1,000 rentable square feet. Insufficient parking in a competitive market can depress occupancy and rents. Medical tenants also require specific infrastructure, including emergency power, HVAC systems capable of handling diagnostic equipment, and upgraded plumbing for procedure rooms.

## Lender Types and What They Require Different lender types approach off-campus MOBs with varying appetites and requirements.

Community Banks

Community banks often finance off-campus MOBs because these properties serve local medical practices and fit their lending focus. A community bank typically offers LTVs between 65 and 75 percent, depending on tenant credit quality and property strength. They require a DSCR (debt service coverage ratio) of at least 1.25x to 1.35x. Community banks tend to move faster than larger institutions and may offer 10-year fixed-rate terms. However, they are increasingly cautious about single-tenant, physician-owned properties.

CMBS Conduits

Commercial mortgage-backed securities lenders remain active in the off-campus MOB space, particularly for larger, multi-tenant properties in strong markets. CMBS conduits typically target LTVs of 65 to 75 percent with DSCRs of 1.30x or higher. They are more comfortable with institutional operator histories and sophisticated tenant mixes. CMBS loans are competitively priced but involve longer approval timelines and stricter loan-level requirements.

Life Insurance Companies

Life companies take a selective approach to off-campus MOBs. They prefer larger, stabilized assets with creditworthy tenants and strong historical performance. Life company LTVs typically range from 65 to 70 percent, and they require DSCRs of 1.30x or higher. The benefit of life company financing is long-term certainty and favorable prepayment terms. However, life companies rarely finance single-tenant physician-owned properties or those with occupancy below 85 percent.

## SBA 504 for Physician Owner-Occupants For physicians or small medical practices seeking to purchase or refinance their own building, an SBA 504 loan offers distinct advantages. The SBA 504 program allows owner-occupants to finance up to 90 percent LTV, which is significantly higher than conventional financing. The loan structure typically includes a conventional first mortgage (70 to 80 percent LTV) from a bank partnered with an SBA CDC (Certified Development Company), and the CDC provides a second mortgage for the remaining amount. Key advantages include a 25-year fixed amortization, which reduces monthly debt service compared to 15 or 20-year conventional terms. This longer amortization improves cash flow and reduces the DSCR burden. For a physician practice owner in Los Angeles, a 504 loan can mean the difference between ownership and continued leasing. However, SBA 504 loans are only available to owner-occupants using the property for their own practice. Physician-investors seeking to own and lease to other tenants must use conventional financing. ## Current Rates and Underwriting Benchmarks (2026) As of 2026, off-campus MOB cap rates range from 6.0 to 7.5 percent, depending on location, tenant quality, and property type. Multi-tenant properties in prime Los Angeles submarkets may trade closer to 6.0 to 6.5 percent, while single-tenant or secondary-market properties reach 7.0 to 7.5 percent.

LTV: Banks 65 to 75 percent (higher for multi-tenant, lower for physician-owned); CMBS 65 to 75 percent; Life companies 65 to 70 percent (selective)
DSCR: Minimum 1.25x (community banks) to 1.30x to 1.35x (CMBS and life companies)
Terms: 10-year fixed (community banks), 10 to 12-year fixed (CMBS), 10 to 15-year fixed (life companies)

## Positioning Your Off-Campus MOB Deal To maximize financing options and terms, position your off-campus MOB deal strategically.

First, assemble a strong tenant roster. Multi-tenant properties with three or more tenants always outperform single-tenant properties in lender eyes. Specialty practices (imaging, surgical, oncology) are strong anchors. Second, document a clean occupancy history. If you have recent vacancy, address it before seeking financing. Third, ensure the property meets operational standards. Parking, HVAC, and building systems must meet medical practice requirements. Fourth, if you are a physician owner-occupant, explore SBA 504 financing, which offers superior terms compared to conventional loans.

Finally, work with a mortgage broker experienced in medical office lending. Off-campus MOBs require specialized underwriting knowledge, and brokers with relationships across multiple lender types can identify the best fit for your deal.

Contact CLS CRE at 310.708.0690 or loans@clscre.com to discuss financing for your medical office project.

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