Does anyone actually stress test the lease term against a physician group's retirement horizon

The lease is the asset here, and the question you should be pulling the answer to before anything else is whether the lease obligates the physician group as a legal entity or the individual doctors personally. A group entity lease survives individual retirements unless the lease has a co-tenancy or early termination clause tied to practice headcount or ownership change, so the retirement math only becomes your math if the lease lets it become your math.

The document you want is the lease itself, specifically any clauses around assignment, change of control, and permitted early termination. If the practice sells to a hospital system or merges into a larger group before 2031, that entity steps into the lease, which actually reduces your retirement risk. If the clause says the lease terminates or converts to month-to-month on a triggering ownership event, that is where your three-year thesis lives on paper, not just in your head.

What is the entity structure on the lease, a professional corporation, an LLC, or the doctors named individually?

The assumption doing the most work in your underwriting is that the lease entity and the practice are the same risk. They are not necessarily. If the lease is signed by the professional corporation, not the individual physicians, renewal obligation sits with the entity. That matters if the practice brings in a successor physician before 2028, which small internal medicine groups do when they have an established patient panel and a physical plant worth keeping. The building being occupied since 2011 is actually relevant here: a 13-year-old practice has embedded referral relationships and patient flow that has real value to any acquirer or new partner coming in. That is not a reason to wave off your concern, it is a variable you can get better data on.

What you are missing is the succession document. Ask the seller's broker for the practice's professional corporation structure and whether there is a buy-sell agreement among the four physicians. Some physician groups have explicit succession plans tied to their lease obligations. You will not always get it, but asking surfaces how organized they are about continuity.

Also worth modeling: what is the building worth to a health system as a feeder clinic if the practice dissolves? Hospital systems and regional health networks have been acquiring outpatient footprint aggressively in secondary markets including East Tennessee. If the building is on a traffic corridor with parking and a functional clinical fit-out, your vacancy scenario may have a faster resolution path than raw vacancy math suggests. Confirm the specific zoning, TI costs for re-tenanting, and local health system presence with a broker who works that submarket, not a generalist.

The risk you did not name is lease guaranty. If those four physicians signed personal guarantees in addition to the corporate guarantee, retirement alone does not sever their obligation. That document exists somewhere in the deal package.

Is the lease corporate-guaranteed only, or are there personal guarantees from any of the four physicians?

The paper term and the practice's operational continuity are two different things, and the gap between them is what you actually own. A physician group lease with three late-fifties doctors is structurally closer to a lease with a 2028 soft expiration than a 2031 hard one, and pricing that correctly means treating the difference as a vacancy reserve, not a footnote. Say the building nets $80k a year and re-tenanting a 9,200 sf medical office takes 18 months of downtime plus $25 to $40 per sf in tenant improvement money for the next group. That is somewhere between $110k and $145k in a scenario that the rent roll does not warn you about at all.

What I would focus on that has not come up yet is the lease's assignment and subletting language. If the group winds down or merges into a larger health system, does the lease permit assignment to that successor without your consent, and does the guaranty travel with the assignment or dissolve? A four-physician independent practice acquired by, say, a regional health system in year three is actually a credit upgrade, but only if the assignment clause keeps you in the room. If the clause lets the practice assign freely and the guaranty was personal to the original four doctors, you could end up holding a lease guaranteed by people who no longer practice there.

What does the lease say about assignment, and is there a personal guaranty from the physicians individually or only an entity guaranty from the practice?

The retirement math is exactly right to flag, but the assumption doing the most work is that retirement ends the lease obligation rather than triggering a succession or buyout inside the group.

Pull the actual lease and find the assignment and subletting clause, because physician groups frequently sell to hospital systems or private equity roll-ups, and the acquiring entity assumes the lease as a condition of the transaction. If the clause requires landlord consent but cannot be unreasonably withheld, your exposure on a mid-lease collapse is smaller than it looks, because a PE-backed acquirer has every reason to honor the term. What you are actually pricing is the probability that the group dissolves without a successor rather than the probability that three doctors retire, and those are very different numbers in a market like Maryville where hospital system consolidation has been active.

The piece you did not ask about is what the building does without a medical tenant. Medical office buildout, the plumbing, the exam room configuration, the ADA compliance depth, is expensive to convert and deeply discounts the pool of replacement tenants. Your fallback is another medical or behavioral health group, not a general office user, so your vacancy stress test needs to be priced against medical tenant re-leasing timelines, which run longer than standard office.

What does the lease say about assignment on a practice sale?