We are evaluating more medical office building loans today than ever before, which may shed light on the need for the health care sector. The finance options and potential deal structures vary greatly based on such factors as loan amount, owner occupied or investment, strength of owner, cash flow, liquidity, etc. In addition, the type of structure, and the property it sits, dictates available options as well.
Other than in 2009, our findings in loan to value restrictions range widely for medical professionals, from 50% to 120%. For example, conventional loans (bank loans not backed by the government) are normally capped at 75% on a rate and term refinances and 65% loan to value on cash out refinances. With the backing of government programs such as the SBA, 90% financing is available on refinances. It is no doubt that we all have to become experienced in working with SBA loans as well as the USDA B & I loan program.
We are becoming more aware that several lenders are back in lending business and will bring finance level above that of a traditional real estate/purchase prices. These programs are only available to medical practitioners.
As for physician loans, the debt service coverage ratio (DSCR) restrictions are typically set at 1.2 for doctors. To explain what this means, for every $1.20 of net income (income after all expenses, taxes, insurance, miscellaneous fees) that the property and/or practice produces, the mortgage payment may not exceed $1.00. So, after all expenses and the mortgage has been paid, the owner will need to net $.20 over the mortgage amount to qualify.
Many exceptions can be made with this rule for medical professionals. For example, projection loans are common within this sector, which can offset any negative trends or lack of current cash-flow. Also note that SBA 7a loans will allow projections as well as DSCR as low as .8 for every $1.00, a riskier loan (through the government).
The market value of a medical office building is very important and will be evaluated and compared to similar properties in the area and sector. Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered.
As for physician creditworthiness, everything about the borrower will be scrutinized. 680 credit score is normally the minimum for the best physician loan programs. Exceptions can be made on this as well with some conventional lenders considering scores as low as 640. SBA loans can go below 600 as well. The overall strength of the borrower, cash flow, liquidity, and LTV can offset concerns on low credit scores.
As stated before, we have never been so diligent in working with financing for this sector’s need. Please contact us for direction. We are also open to other financing alternatives, with necessary history for our clients, and loan packages that will be highly scrutinized.
