Aug
15

Medical-Office Sector Leans on the ‘Master’ Lease

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The medical-office sector is undergoing a broad transformation with the rise of master leases.

In those deals, a large company or organization leases several floors or an entire building, then typically sublets the space to smaller users. Until recently, the sector had relied on myriad small leases backed only by the guarantees of individual physicians and small practices.

Just this summer, construction kicked off on a proposed medical office building south of Houston after hospital operator Memorial Hermann Health System agreed to lease more than one-third of the building. HCP Inc., HCP +1.68% a developer, is building the project on Memorial Hermann’s campus here, where the hospital system already has a master lease for an existing 80,000-square-foot office building.

Marshall Heins, Memorial Hermann’s head of facilities, declined to disclose the terms of the lease or the rent it will pay for the new space. In general, he says, rents are climbing rapidly and property values are eclipsing those of conventional office spaces.

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