Medical Office Development Going Strong

"It's required education to capital providers because they are a lot more expensive to build, finish-out is higher and lease rates are more expensive," Scott Lynn, director and principal of Metropolitan Capital Advisors Ltd. in Dallas, tells GlobeSt.com. Lenders, on a learning curve, still want to see "a synergistic and diversified group of medical providers to make the deal work," he says.

The 52,858-sf Tuscan Professional Building is coming out of the ground at 53% pre-leased, says Ed Schneiders of CB Richard Ellis Inc. in Dallas. The $10-million project's largest tenant is the Texas Digestive Disease Consultants with 7,000 sf. A well-rounded mix of medical providers has reserved taken spaces from 1,700 sf to 7,000 sf, making 10-year commitments across the board, he says. Still at the bargaining table are three deals for another 15,000 sf.

The Houston-based PM Realty Group is the fee developer for the 10-physician partnership, each planning to set up shop in the building. The 3.6-acre project, with a quoted rate of $20 per sf net, is set to deliver in July at 701 Tuscan Dr., within walking distance of the Las Colinas Medical Center. Site work began in December and construction is running about two months ahead of schedule, according to Schneiders.

CF Jordan Inc. of El Paso is the general contractor; Jonathan Bailey Associates of Dallas is the architect. Schneiders and CBRE's John Huff are steering the leasing. It will be fully leased by the ribbon-cutting, Schneiders predicts.

Medical office development, like retail, has lenders' attention these days, but still requires significant pre-leasing and synergy in a quality mix of tenants. Lynn, who arranges financing for health-care developer, Dallas-based Cirrus Group LLC, says the right combination can get loans for as much as 90% of the construction costs. But, that's with pre-leasing at 70% or more.

Lynn along with Metropolitan's Brandon Miller just closed a $4.9-million permanent loan for Hillcrest Medical Park, a 2.9-acre project in Frisco developed last year by Cirrus and EF Properties of Dallas. The 31,703-sf building, now solely owned by EF Properties, is fully leased to a primary care group, pediatricians and dentists, a status that secured a 10-year, fixed-rate mortgage with GE Capital. The $6-million project at 4500 Hillcrest Rd. was 70% pre-leased when the work began.