Off-campus MOB with second generation space, and half of that means nothing

Question

I've been reading a flyer for a 14,000 sf building leased to a dermatology practice and a physical therapy group. It's described as an off-campus MOB, mostly second generation space, and the broker keeps saying medical is recession proof so the vacancy risk is low.

I think MOB means medical office building, and I gathered off-campus just means it isn't next to a hospital. Second generation I genuinely don't know. Somebody in another thread said it means the plumbing is already in the walls, which sounded too simple to be the whole answer. And does recession proof actually mean anything or is that just flyer language? I'd rather ask than nod along.

marcus_hale41 · Answer

Taking those in order. MOB is medical office building, though the term people use in reports now is medical outpatient building, same thing. On-campus strictly means the building sits on or immediately adjacent to a hospital campus, very often on ground leased from the health system, which changes your exit because you're selling a leasehold with a fixed remaining term. Off-campus is everything else, freestanding clinics, retail-adjacent urgent care, suburban multi-tenant. Second generation space means space that a previous medical tenant already built out, so exam room sinks, casework, vacuum and gas lines where applicable are in place. Your other thread wasn't wrong, it was just partial. First generation means raw shell you build from scratch.

Loose usage to watch for: brokers will call any suburban office building with a chiropractor and a dentist a MOB. The market usage is fuzzy, the underwriting isn't. Look at what share of rent comes from actual clinical tenants.

tylerbrooks9 · Answer

Recession proof isn't a thing. People go to the doctor in a downturn, so the demand side holds up better than most, and that's real. Your specific tenant can still lose a payer contract or get bought and moved. Two of those in a four tenant building and your "defensive" income has a hole in it.

renee_dubois · Answer

The number that surprised me when I started reading about this category: medical buildout runs a lot heavier than plain office. Exam room plumbing, extra HVAC, sinks in every room. So second generation space isn't marketing fluff, it can be the difference between spending $40 a foot to re-let and $150. It's the closest thing to a real asset in the deal after the roof.

laurenkim53 · Answer

Off-campus in a metro means suburban clinic. Off-campus where I look means a two doctor family practice in a town of 4,000, forty minutes from the nearest hospital, and there is no second tenant to backfill with if they retire. Sale prices around here often aren't even public, my state is one of the non-disclosure ones, so I'm reconstructing comps from assessor data and asking rents. Cheap entry price, very thin buyer pool later.

brandonlee36 · Answer

One correction on the second generation idea, since it can lull you. Space built for dermatology doesn't necessarily suit the next tenant. An imaging user cares about floor loading and shielding, an oral surgery suite needs different gas and a recovery layout, primary care wants more small rooms per thousand feet. I've looked at suites where the prior buildout got demolished anyway. Ask the broker which specialty the space was built for and what the existing tenant's exclusive use clause blocks you from leasing to, because that clause narrows your replacement pool more than the layout does.

Off-campus MOB with second generation space, and half of that means nothing

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