Medical Office Buildings: The Smart Investor’s Guide

How to Build Wealth with Medical Office Buildings: The Commercial Real Estate Strategy Most Investors Overlook

Most real estate investors spend years grinding through single-family rentals, chasing the next fix-and-flip, or fighting evictions in the middle of the night. Very few ever make the leap into commercial real estate — and even fewer discover the quiet power of medical office buildings.

In this episode of The Real Estate Investing Club, host Gabe Petersen sits down with Stewart Heath, CPA and founder of Harvard Grace Capital, to break down exactly why medical office has become his favorite asset class — and why a hyper-regional focus along the I-65 corridor from Nashville to Birmingham is generating returns most investors only dream about.

Whether you’re tired of residential headaches or simply looking for your next evolution as an investor, this episode is your roadmap.

Quick Answer: How do you build wealth with medical office buildings? Medical office buildings generate long-term, stable cash flow through sticky tenants (doctors and healthcare providers) who sign 10-year leases, self-fund their own build-outs, and rarely relocate. Combined with triple-net lease structures and a focused regional strategy, they offer some of the best risk-adjusted returns in commercial real estate today.

Who Is Stewart Heath — And Why Should You Listen to Him?

Stewart Heath isn’t your typical real estate influencer. He’s a licensed CPA who came up through PricewaterhouseCoopers in the late 1980s, built a tax practice serving real estate clients, and stumbled into investing almost by accident — when he looked up from his desk at 2 a.m. during tax season and realized his clients were building wealth and he wasn’t.

“I’m doing my tax practice in March, late one night, it’s two o’clock in the morning and I’m slaving away and I’m realizing I’m not building any wealth here,” Stewart said. “And I sat there and I look at my clients… none of my clients are paying any taxes and they’re banking six figure profits.”

That wake-up call launched a real estate career that included 200 residential doors, a contractor’s license, his own property management company, and eventually C-level corporate positions before he returned to commercial real estate investing in 2017. Since 2021, his firm Harvard Grace Capital has closed 10 commercial deals in the I-65 corridor between Nashville and Birmingham — all cash-flowing from day one.

He’s also just published a book: Don’t Do What I Did: My 10 Rules for Investing in Commercial Real Estate, available free at harvardgrace.com.

Why Did Stewart Ditch 200 Residential Doors for Commercial Real Estate?

At his peak, Stewart owned 200 residential units — a mix of single-family homes, condos, and duplexes. By most standards, that’s a successful portfolio. But Stewart describes that chapter of his life as “the nearest definition of hell on earth.”

The core problem wasn’t the properties. It was the nature of residential tenancy itself.

“People in their homes, it’s not necessarily a business transaction anymore,” he explained. “I’m just sort of a black and white kind of guy. If you don’t pay your rent, please leave. And that just doesn’t work in the residential world.”

He pointed to the COVID pandemic as validation: “I’m just so glad I wasn’t in that during the COVID pandemic, because look what happened in many states — people just got to squat for a year or more. And nobody ever seemed too concerned about the landlord.”

The shift to commercial meant dealing with business people instead of residents — tenants who understood lease terms, operated within contractual frameworks, and had their own financial incentives to stay current and maintain the space. If you’ve been thinking about making a similar transition, check out our guide on how to transition from residential to commercial real estate.

What Makes Medical Office Buildings Such a Powerful Asset Class?

Of all the commercial asset classes Stewart has explored — suburban office, retail strip centers, self-storage, and multifamily — medical office is his clear favorite. The reasons are structural, and they compound over time.

1. Tenants Sign 10-Year Leases (And Mean It)

Medical and healthcare tenants almost universally sign 10-year leases, and they have a powerful financial reason to honor them. In Stewart’s markets, tenants pay for their own build-outs — often investing $500,000 to $750,000 or more in custom medical fit-outs.

“They don’t want to have to walk away from that at the end of a three-year lease or a five-year lease,” Stewart said. “So they’re doing these beautiful 10-year leases.”

And when those leases expire? Most renew for another 10 years — because their customer base knows exactly where to find them.

2. Tenants Are Customer-Facing — They Can’t Easily Move

Doctors, dentists, optometrists, and healthcare providers build their entire practice around a physical location. Their patients know where to go. Their referral network is built on geography. Relocating means notifying thousands of patients and rebuilding that brand recognition from scratch.

“Do you want to communicate to 2,000 customers that you moved across town?” Stewart asked rhetorically. The answer is almost always no.

3. Medical Tenants Don’t Negotiate on Rent the Way Others Do

When Stewart negotiates with medical tenants, the conversation isn’t about rate. It’s about tenant improvement allowances or other one-time concessions.

“I’ve never had an argument with a medical professional over whether it’s going to be $28 or $29 a square foot,” he said. “We just don’t even negotiate.” This is in sharp contrast to general office or retail tenants who often push hard on rental rates.

4. Cap Rates Are Attractive — Especially in Secondary Markets

Cap rates for medical office vary significantly by market. Stewart cited cap rates in the low 6s for Nashville — but in Birmingham, his most recent acquisition came in at 8.99%, effectively a nine cap on a 100% occupied building.

“I’m borrowing at six and a quarter and it’s like, the positive leverage is tremendous,” he said. “That building is just so strong, 100% full.”

Compare that to self-storage, where Stewart noted he’s seeing cap rates as low as 5.75% — with far less tenant stickiness.

5. Triple-Net Leases Are Increasingly Common

The office world has historically used gross leases, but Stewart is seeing triple-net structures gaining ground in the South. For investors, triple-net means tenants pay property taxes, insurance, and maintenance on top of base rent — significantly reducing landlord exposure and making cash flow more predictable. Want to learn more about this structure? Our guide on retail strip center investing also covers triple-net fundamentals in depth.

What Are the Risks and Downsides of Medical Office Investing?

No asset class is without risk, and Stewart is refreshingly candid about the challenges in medical office.

The primary risk is tenant concentration and conflict. If a single tenant occupies 50% of your building and decides to flex that leverage, you have a problem. And unlike residential tenants who can be evicted in a matter of months, a medical tenant with seven years left on a lease and half a million dollars of build-out isn’t going anywhere easily.

“Sometimes they think they can use that leverage,” Stewart admitted. “The lease is the lease — but it’s harder when you have a problem with a tenant and you’re dealing with seven and a half years left to go on a 10-year lease.”

He recounted a situation where a departing doctor refused to vacate after his lease expired, causing a cascade of problems that ended in a lawsuit. “That does tend to go more with a doctor mentality,” he noted. “But a lot of practices have professional practice managers, and then you’re dealing with business people again.”

The lesson? Tenant vetting matters as much as the numbers. When Stewart’s gut told him something was off with a major tenant in one acquisition, he ignored it — and paid the price when that tenant turned out to be fraudulent. “Trust your gut is what I would say, and do your due diligence,” he emphasized. This also ties directly into the art of solving deal problems before they become crises.

Why Does Regional Investing Beat Chasing Asset Classes Across the Country?

While many commercial investors follow a specific asset class — self-storage, mobile home parks, industrial — wherever the numbers look best, Stewart has deliberately built his entire portfolio within the I-65 corridor between Nashville and Birmingham.

This isn’t a lack of ambition. It’s a strategic choice rooted in a philosophy of deep local knowledge and active management.

“I’m much more comfortable investing in an asset in an area that I have known my entire life,” Stewart said. “I’ve lived from Birmingham to Nashville my entire life and I know these markets.”

Because Harvard Grace Capital self-manages every property they acquire, geographic proximity isn’t optional — it’s a requirement. Stewart can’t effectively manage assets in Phoenix or Dallas from Alabama. But he can dominate a corridor he knows intimately.

The regional approach also gives him a conviction advantage: he’s not relying on broker reports or third-party market analyses to understand local dynamics. He drives the streets. He knows the submarkets. And when he sees a building with potential, he can move fast.

For investors thinking about geographic focus versus asset class focus, our post on diversifying your portfolio across asset classes and the capital stack offers a useful framework for thinking through both dimensions.

Why Is Huntsville, Alabama Stewart’s Top Market Right Now?

When asked to name a single market he’s most excited about today, Stewart didn’t hesitate: Huntsville, Alabama.

The reasons are structural and long-term, driven by federal government presence and a rapidly expanding private sector ecosystem.

“Mainly it’s the federal government,” he explained. “But in the last eight years, there’s also been a massive interest from other corporate types — manufacturing, high-tech manufacturing moving in.”

The roster of companies with a major presence in Huntsville is striking:

NASA — long-established presence and anchor employer
FBI — building a second Quantico-style training facility at Redstone Arsenal
CIA and NSA — undisclosed headcount, but confirmed presence
Blue Origin (Jeff Bezos) — rocket engine manufacturing plant
Facebook/Meta — major data center
Polaris — manufacturing facility
Amazon — was on the shortlist for HQ2; has significant operations in the region

“It’s a diverse but ample labor pool,” Stewart said. “The entirety of Northern Alabama is just ripe for the taking. And it’s going to run this way at least another 20 years.”

For investors tracking emerging markets, this combination of federal anchor tenants and private sector momentum is exactly the kind of structural tailwind that sustains commercial real estate demand through economic cycles. It’s also why Stewart’s storage facility in Huntsville is performing well — which you can read more about in our deep dive on self-storage market dynamics in 2025.

How Does Stewart Find Commercial Real Estate Deals?

Deal flow is the lifeblood of any real estate business. Stewart’s approach combines relationship-driven sourcing with old-fashioned boots-on-the-ground prospecting.

“These days I have a fairly extensive broker network who we have closed deals with and they bring me deals,” he said. But he was quick to note that his preferred source is more tactile: “Some of my favorite quiet time is perusing CoStar and Crexi, just cruising around looking at stuff, or just driving around and following up on something I saw on the side of the road.”

The direct-to-seller approach often results in rejection — “usually we have a door slammed in our face” — but Stewart embraces the process. “The fun is in the hunt,” he said.

This is a consistent theme among sophisticated commercial investors: the best deals often come from direct outreach to owners who aren’t actively marketing their property. For a deeper dive into this strategy, check out our guide on how to find off-market properties and our post on off-market real estate success strategies.

What Hard Lessons Has Stewart Learned the Hard Way?

Two deals stand out as defining learning experiences in Stewart’s career.

The Fraudulent Medical Tenant

Stewart purchased a professional retail building west of Huntsville with a medical facility as the anchor tenant. From their first meeting, something felt wrong about the woman running the operation — but Stewart didn’t act on that instinct.

“I got exactly one rent payment out of her after we bought it,” he said bluntly. What followed was an eviction, a 50% tenant turnover, and a costly reset period.

The building is now performing well — but the lesson cost him. “Your Spidey sense going off, do more due diligence. Check it out. I could have still bought the building, maybe could have gotten as much as a million dollars off the sales price.”

The Accidental Win That Teaches a Different Lesson

On the flip side, one of Stewart’s earliest deals became his favorite through a combination of smart buying and blind luck. He purchased a suburban office building with under-market leases, expecting a long path to market rents.

Then the town imposed a sewer moratorium — no new construction allowed. Suddenly, Stewart owned one of the largest office buildings in a city that couldn’t build new supply.

“Every time we have a renewal, rental rates are $10 a foot more than where we bought it two years later,” he said. Going in at $17.25 per square foot, the building is now leasing at $28 per foot. With a 10-year loan locked at 3.25% (closed in early 2022), the property is delivering roughly 16% cash-on-cash returns.

“Accidental brilliance,” as Stewart calls it. The lesson? Buy right, and sometimes the market rewards you beyond your projections. For more on maximizing your cash-on-cash returns, see our guide on cash flow and wealth building.

Should You Build a Vertically Integrated Business or Stay in Your Lane?

Early in his career, Stewart went deep on vertical integration: he held a contractor’s license, ran his own property management company, and invested simultaneously. It sounds efficient in theory. In practice, he says it spread him dangerously thin.

“I would never do construction again,” he said flatly. “There’s not enough margin in that business. The guys who are good at it are really good because they’re so focused on the details.”

On property management, his rule is clear: he manages his own properties, but he won’t manage for third parties. “You end up with divided loyalties between your third-party customer and yourself,” he said. “You don’t serve either one of them very well.”

His overarching philosophy is one of specialization: “Everybody’s a specialist. Construction is a specialization. There are experts in it, just like there are experts in property management and capital raising and underwriting.”

This aligns with what Gabe has observed across hundreds of interviews: the investors who try to build everything in-house often dilute their focus to the point that nothing operates at its best. If you’re building a property management operation, our guide on starting a property management company walks through the trade-offs in detail.

How Is Stewart Raising Capital Through Syndications and His First Fund?

Harvard Grace Capital has been operating as a syndication business — raising capital on a deal-by-deal basis. Stewart is now launching his first fund, which represents a significant evolution in how the business is structured and how investor relationships are managed.

For capital raising education, Stewart recommends a mastermind called Raise Masters, which he describes as “specifically targeted at learning how to raise capital, primarily for real estate.” He’s about to re-enroll for his fifth consecutive year — a strong endorsement.

For investors interested in the legal and structural side of syndications, our post on the legal structure of real estate syndications is essential reading. And if you’re exploring how to raise from institutional sources, check out our guide on raising capital from family offices.

What Advice Would Stewart Give His Younger Self?

When asked what he’d tell the young CPA at PricewaterhouseCoopers, Stewart gave an answer that surprised Gabe — and runs counter to the “get started early” advice that dominates most investing podcasts.

“Stay a little bit longer,” he said. “You didn’t know what you didn’t know. Learn some of your business lessons on somebody else’s dime.”

It’s a reminder that experience is the most underrated asset in real estate investing — and that sometimes the best returns come from patience rather than speed.

If you’re still building that foundation of experience, our resource on finding a real estate mentor can help you shortcut the learning curve.

Key Takeaways: What Every Investor Should Learn from Stewart Heath

Medical office buildings offer sticky, long-term tenants, triple-net lease potential, and cap rates that can significantly outperform in secondary markets like Birmingham.
Regional focus is a legitimate and powerful investing strategy — especially when you manage your own assets and know your market deeply.
Residential real estate isn’t inherently bad, but commercial investors who make the switch often find the business-to-business dynamic more predictable and scalable.
Vertical integration dilutes focus. Specialize in what you do best and hire experts for everything else.
Trust your gut on due diligence. When something feels off in a deal, investigate further — don’t rationalize past it.
Huntsville, Alabama has multi-decade structural tailwinds driven by defense, tech, and federal investment. Watch this market.
10-year leases with tenant-funded build-outs are one of the most underappreciated advantages in commercial real estate.

Connect with Stewart Heath and Harvard Grace Capital

You can reach Stewart and access his free resources — including his new book Don’t Do What I Did: My 10 Rules for Investing in Commercial Real Estate, a glossary of investment terms, and a guide to questions passive investors should ask their sponsors — at harvardgrace.com. Stewart’s Calendly link is on the site and he personally invites anyone and everyone to book time with him.

Want to Go Deeper on Commercial Real Estate Investing?

This episode is part of an ongoing series on commercial real estate strategies at The Real Estate Investing Club. Here are more posts you’ll want to read next:

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