When a medical office tenant goes dark but keeps paying rent, the model looks fine and the asset is dying
A paying dark tenant is one of the cleaner traps in this property type, because nothing in the rent roll signals the problem. Rent posts, the NOI holds, and the cap rate math looks stable right up until the lease expires and the space comes back at a market where no one wants second generation clinical buildout at that configuration. The vacancy was always there, just invisible to the income statement.
The number that actually matters in that window is replacement cost per rentable square foot against the recovery period. Say a 4,000 square foot suite goes dark with three years left on the lease. Rent continues at $28 a foot, so the landlord collects roughly $336,000 before the space comes back. Re-leasing that suite at current TI levels, say $80 a foot for clinical work plus six months of free rent at $28, puts the total re-leasing cost at around $376,000 before any broker fee. The three years of paid rent barely covers the turnover. If the dark tenant was anchoring referrals to other suites, the damage runs further than that single line item.
The thing the rent roll cannot show is what the dark suite means to the tenants who are still open. A specialist practice that relied on primary care traffic from the dark suite may already be looking at its own renewal differently. That referral erosion shows up in co-tenancy risk, and co-tenancy language in medical leases is worth pulling before assuming the occupied suites are stable.
The harder question for anyone holding this situation is whether to negotiate an early termination with the dark tenant now, take the certain loss, and start the re-leasing clock early, or run out the lease and treat the remaining payments as a re-leasing reserve. That calculation turns almost entirely on how many months of downtime the replacement lease will realistically require in that submarket. What does your current market look like for second generation clinical absorption?
