Pricing medical office rent that repays the landlord's build-out

The deal in three lines: Brentwood Medical II, an 84,000 SF medical office building south of Nashville. Asking $32.5M, which is a 6.25% cap rate on $2.03M of net operating income (NOI, the rent left after operating costs). 92% leased to 11 medical and dental practices.

What the broker's package says:

• Rents average $24/SF, "below a $26 market"
• 3% annual rent bumps
• "Stabilized, clean rent roll"

What the leases and local comps show:

• Three recent leases, about 40,000 SF and roughly half the rent, were signed at $24/SF
• To win those tenants, the landlord spent $4.2M up front building out their suites and paying the leasing brokers (tenant improvements and leasing commissions, or TI/LC)
• Plain, previously occupied medical space nearby, with a normal build-out, leases for about $21/SF
• The broker's $26 "market" is asking rent on brand-new, fully built-out suites

Your job: decide whether the rents are really below market, and what that means for the price.