The Science of Real Estate:

The retail sector continues to face competition from E-commerce, with many big box stores closing and sitting vacant. Medical office, however, will remain an investment favorite as superior healthcare real estate performance makes them attractive for equity investors.

So, what do these two trends have in common?

Scott Mason who heads the Health Care Group at Cushman and Wakefield said in an interview that improvements must be made in the physical backbone of health care. One way would be eliminating the traditional but inefficient office building with lots of doctors in their individual offices, each with their own receptionist and billing person. For one health care system this meant putting their doctors in abandoned supermarkets with plenty of free at-grade parking or hospitals leasing entire office buildings.

Hmm interesting. That got me thinking, what would the due diligence look like for repurposing an abandoned supermarket into medical office space? Lets look at the acquisition due diligence process.

Zoning Study and ALTA Survey

I think the first trigger point is that there will be a change in use of the property. Therefore the impact on zoning requirements should be the first issue to be investigated. If there are zoning issues that cant be resolved, the deal may be undoable. A Zoning Study should be commissioned.

Parking is a primary concern, so lets use the parking requirements for the two uses in the Indianapolis Zoning Code I assume it will probably be similar to many metropolitan areas. Im going to assume a 50,000 square foot building which is not unusual for a free standing supermarket according to available data.

A survey is the best way to verify the parking count and the buyer will always do his own, but the seller may be agreeable to provide a copy if he has one. Hopefully it will show parking space or list the total. If one isnt available, a survey just to confirm site parking count is not expensive and the buyer needs that data. As a last resort, one can spend a few hours at the site counting the spaces. Once into the acquisition process the buyer should get a complete ALTA (American Land Title Association) Survey.

According to the Zoning Code (Section 732-211 Table 2.10-A Minimum Numbers of Off-Street Parking Spaces Required by Use) a retail space is required to have 3.5 spaces per 1,000 gross square leasable area. A stand-alone supermarket will probably have leasable area equal to gross area so there needs to be parking for 175 cars.

Parking requirements for medical office space is one space for every 200 square feet of gross area. So if the entire building area is devoted to medical, dental, optometrists and clinics there has to be 250 spaces.

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