The rollover math on a two-tenant medical building won't sit still

$40/sf is low for a medical re-tenant and it's not close. Plumbing to new operatory locations, med gas if they want it, sinks in every exam room, upgraded HVAC because the old unit was sized for the old layout. I've seen quotes from $85 to $150/sf for a full second generation medical fit out depending on how much of the existing plumbing lines up. If the next podiatrist takes the space roughly as is, you might get away with $25 to $35/sf in cosmetics and a new floor. Those are two completely different outcomes and your model has to hold both.

On the compressor and vacuum: ask for it in writing during diligence. In dental suites it's usually tenant owned equipment, and if it is, it walks out the door when they do and the next dentist wants a new one at your expense or theirs. Get the answer before you're arguing about it at renewal.

The roof and structure carve out is doing more work than you think. Building is 1998, so you're at or past the end of a typical membrane life. Get a roof consultant, not just the general inspector, and get a remaining life number in years with a replacement estimate. On 6,200 sf you're maybe $60k to $90k depending on the market and the system. That's most of a year's NOI and it does not care what your cap rate is.

The land floor argument is the part I'd push on. Your downside floor only exists if you can actually sell the site to a pad buyer, and to do that you'd be demolishing an occupied building. So the floor is land value minus demo minus whatever it costs to get vacant. That's a real number, just a smaller one than $9 to $11 a foot times 39,000 sf.

arbor, how deep is the tenant pool in that submarket? Where I look, a mile from the hospital means something, but three miles means the building sits. Count the independent practices within a fifteen minute drive and see how many are still independent versus already bought up by a system. If the system owns everything, your next tenant conversation is with a real estate committee that has its own building.

Small portfolio person here and the thing that got me in a two tenant building was concentration. You have 42% of your income leaving in 24 months. In my small multifamily, one vacancy is 12% of income. Yours is 42%. Price the LOI as if that suite goes dark for nine months plus $70/sf of work, and see what's left of the 7 cap. If it still clears your hurdle you have a deal. If it only works assuming renewal, you're not buying real estate, you're buying an opinion about a podiatrist.

I closed on something similar in shape last year and the single most useful thing I did was ask both tenants, directly, in a scheduled call during diligence, what their plans were. Not the broker. The doctors. One of mine told me he was three years from selling his practice, which changed how I read his lease term entirely. Sellers sometimes resist tenant interviews. I made it a condition and got them.