Case Study · North Carolina · Medical Office & ASC · SBA 504
Medical Office & ASC Feasibility Study, North Carolina — An SBA 504 Worked Case
This is how our independent feasibility study company and consultant team analyzed an owner-occupied medical office building with an ambulatory surgery center, underwritten to an SBA 504 credit, from outpatient trade-area demand and North Carolina’s Certificate of Need gate through the global debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set in a fast-growing metro submarket in North Carolina.
An owner-occupied medical building with a surgery center inside it.
A physician group came to our feasibility study company with a ground-up, owner-occupied project and an SBA 504 lender that needed the projected cash flow independently tested before it would commit. The subject is a roughly 15,000-square-foot medical office building (MOB) on a growing suburban health corridor in a major North Carolina metro. The group’s multi-physician practice and its physician-owned ambulatory surgery center (ASC) occupy about 60 percent of the building — satisfying SBA owner-occupancy for new construction — with the remaining roughly 40 percent leased to complementary physician tenants.5
This asset class is the one that straddles two valuation bases, and the discipline of the study is to keep them separate. The practice and ASC are a going concern, valued on cash flow; the building is income-producing real estate, valued on rent, tenant credit, and a cap rate.1011 Because the loan sits on an owner-occupied building financed through a CDC debenture, the lender’s question is not merely “what would the shell lease for” but “can this practice and this surgery center generate the global cash flow to service this specific loan.” And in North Carolina one gate precedes all of it: an ASC is a Certificate of Need facility, so surgical capacity is not built on demand alone — it is permitted.2 Our scope was the independent demand, competition, CON, and global debt-service analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, corridor, and parties are composited, not a real named borrower, address, or completed transaction.
Outpatient trade-area demand, not a leased-square-foot forecast.
The demand read starts with people, age, and where surgery is actually performed, not a fixed rent per square foot. North Carolina reached 11,197,968 residents as of July 1, 2025, growing about 1.3 percent a year and ranking third nationally in growth rate, and the subject submarket is growing faster than the state.
The master demand driver is demographic and structural. U.S. national health expenditure was $5.3 trillion in 2024, 18.0 percent of GDP and $15,474 per person, and is projected to grow about 5.8 percent a year — faster than the economy.7 Per-capita health spending rises steeply with age, from roughly $8,000 under 64 to about $20,000 for ages 65 to 84, and the older cohorts are growing fastest: the AAMC projects the 65-plus population up 34.1 percent and the 75-plus up 54.7 percent between 2021 and 2036.12 Care is migrating with those patients from the hospital to the outpatient setting: inpatient admissions per 1,000 population fell 32.2 percent from 1970 to 2023 while hospital outpatient admissions per 1,000 rose 272.2 percent.8 The surgical piece of that shift is the ASC: the U.S. ambulatory surgery center market reached roughly $45.7 billion in 2024, across 6,394 Medicare-certified centers, of which about 68 percent are physician-owned.9 On the trade-area population, its age curve, and a defensible per-provider case load, the model supports a stabilized surgical volume near 2,900 cases a year and a clinic practice at stabilized collections, with a graded ramp rather than day-one maturity.
| Demand driver | Basis | Supported figure |
|---|---|---|
| Trade-area population | Growing NC metro submarket; +1.3%/yr state, faster locally1 | Rising captive base |
| Age structure | 65+ cohort +34.1% and 75+ +54.7% nationally, 2021–203612 | Outpatient demand tailwind |
| Outpatient shift | Inpatient −32.2% vs outpatient +272.2% per 1,000, 1970–20238 | Migration to the ASC setting |
| Stabilized ASC volume | Multi-specialty ORs; ~$45.7B U.S. ASC market, ~68% physician-owned9 | ≈ 2,900 cases/yr |
| Practice & tenant demand | Physician collections + physician-tenant leasing, 7–15-yr terms11 | Stabilized clinic + rent roll |
Volume and outpatient-migration logic grounded in CMS/Trilliant, Fortune Business Insights, ASCA, and AAMC data; see sources 7–9 and 12. Figures are illustrative of the engagement type.
A permit-gated surgical market with aging office stock.
Six relevant sites sit within the trade area, but the read that matters is not just how many — it is that surgical capacity in North Carolina is gated by Certificate of Need. New operating rooms are not added on demand; they are approved. That constrains competitor entry and it gates the subject.
| Competitor | Type | Scale | Distance | Read |
|---|---|---|---|---|
| Competitor A | Hospital-affiliated MOB (on-campus) | ~60,000 sf | 3.5 mi | Credit-anchored, full, higher rent |
| Competitor B | Independent multi-tenant MOB | ~25,000 sf | 2.1 mi | Aging stock, some vacancy |
| Competitor C | Hospital outpatient department (HOPD) | Surgical | 4.0 mi | Higher-cost site of care |
| Competitor D | Existing multi-specialty ASC | ~3 ORs | 5.2 mi | CON holder, near capacity |
| Competitor E | Single-specialty ASC | ~2 ORs | 6.0 mi | Narrow case mix, not head-to-head |
| Competitor F | Urgent care / retail clinic | ~4,000 sf | 1.2 mi | Non-surgical, different demand |
Competitive set surveyed for the engagement; anonymized. The scan covered CON-approved and pending surgical capacity, not just the standing set, because in a CON state the pipeline is a matter of public record and it governs supply.
The nearest true surgical competitor (Competitor D) sits more than five miles away and is running near capacity; the closest single-specialty ASC does not compete for the subject’s multi-specialty case mix. The high-cost hospital outpatient department is exactly the site of care that payers and patients are trying to migrate away from — the structural tailwind under the ASC. And on the real-estate side, the competing office stock within two miles is aging, consistent with a national medical-office vacancy near 9.57 percent that nonetheless hides a shortage of modern, purpose-built surgical space.10 A rigorous feasibility study does not stop at counting buildings: in North Carolina it verifies the CON status of every surgical competitor and of the subject itself, because a study that assumes operating rooms can simply be built on demand has misread the market. Competitors who state that North Carolina has no Certificate of Need regime are not merely imprecise; they are wrong, and a pro forma built on that error is not bankable.2
North Carolina macro: growth behind a permit gate.
The state backdrop is a tailwind for outpatient care, disciplined by one of the strictest Certificate of Need regimes in the country. North Carolina is a fast-growing Sun Belt market on the demand side and a supply-constrained one on the surgical side, which is a favorable combination for a CON-approved ASC.
North Carolina held 11,197,968 residents as of July 1, 2025, adding about 145,907 people in a year, roughly 1.3 percent, third nationally in growth rate, with net domestic in-migration near 84,000.1 That rooftop and population growth is the demand engine outpatient care needs, and the medical-office market reads as a high-growth Sun Belt archetype where development is racing population rather than a saturated one. The tax backdrop is turning favorable too: North Carolina’s corporate income tax is phasing down — 2.0 percent as of January 1, 2026, on a path to zero by 2030 — with a flat 3.99 percent personal rate for 2026, easing the after-tax math for a physician-owned enterprise.13
The decisive difference from a national study is Certificate of Need. North Carolina runs one of the broadest full-CON regimes in the country, administered by the NC DHHS Division of Health Service Regulation under NCGS Chapter 131E, Article 9, and it covers ambulatory surgical facilities and operating rooms directly. House Bill 76 (Session Law 2023-7) raised some thresholds and phased in limited exemptions, and the Singleton v. NCDHHS constitutional challenge was rejected by a Wake County three-judge panel in December 2025 and is on appeal, but CON stands.2 For a feasibility study this cuts both ways: it is a moat that limits new surgical competitors, and it is a precondition the subject must satisfy. The study treats the CON authority for the subject’s operating rooms — whether a new determination or the relocation of existing licensed capacity — as a gating assumption to be verified, not waved through. The funding channel behind it is deep: the SBA North Carolina District Office in Charlotte covers all 100 counties, and Wilmington’s Live Oak Bank was the number-one national SBA 7(a) lender in fiscal 2025 at about $2.8 billion, so North Carolina lenders see feasibility-supported healthcare credits routinely.3
Why the corridor supports the surgery center.
Age structure, household income, and provider access all point the same direction, and the site’s position on a growing suburban health corridor converts that demand into cases and clinic visits.
The trade area carries a rising 65-plus share — the cohort that drives outpatient surgical demand — layered over above-median household income and commercial-payer depth, the payer mix that underwrites tighter than a Medicaid-heavy one.12 The submarket is growing faster than the state’s 1.3 percent, so trailing counts understate the captive base, a common high-growth distortion a careful study corrects for rather than extrapolates.1 Care is also migrating toward lower-cost settings, and a physician-owned ASC is the low-cost surgical site the hospital outpatient department is losing volume to.8
The building program does the rest. A purpose-built, roughly 15,000-square-foot facility places the practice, the surgical suites, and leasable physician-tenant space on one growing corridor with the visibility and parking outpatient volume needs. Owner-occupancy is the structural point: the practice and ASC anchor about 60 percent of the building, which both satisfies SBA new-construction occupancy and stabilizes the rent roll, while the remaining space is leased to complementary physicians on the 7-to-15-year terms medical tenants sign, with renewal rates commonly above 80 percent.511 The nearest competing office stock is older and non-surgical, which is why the model credits the subject with a modern, CON-backed surgical position rather than an average leasing one.
The SBA 504 structure.
Total project cost lands at $9.60 million. The 504 program is purpose-built for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed-rate CDC debenture, and a 10 percent equity injection — which is why an owner-occupied medical building routes here rather than to a leased-fee MOB loan.
| Cost component | Amount |
|---|---|
| Land (~2.0-acre corridor pad) | $1.20M |
| Building shell & core (15,000 sf) | $3.90M |
| Medical & ASC fit-out (surgical suites, MEP, shielding) | $2.40M |
| Site work & utilities | $0.60M |
| Major medical equipment & FF&E | $0.75M |
| Soft costs, CON / permitting & contingency | $0.55M |
| Working capital & financing fees | $0.20M |
| Total project cost | $9.60M |
Blended building cost consistent with purpose-built medical space near $498/sf; specialized surgical fit-out is the reason MOB build cost runs well above generic office. See source 10.
| Item | Figure |
|---|---|
| Bank first mortgage (50%) | $4.80M |
| CDC / SBA 504 debenture (40%) | $3.84M |
| Borrower equity injection (10%) | $0.96M |
| Bank term / amortization | 25-year amortization / ~9.5% |
| Debenture term / rate | 25-year / ~6.5% fixed |
| Annual debt service (blended) | ≈ $814k |
Structure per SBA 504 conventions under SOP 50 10 8; owner-occupancy 60% for new construction; combined 7(a)-plus-504 ceiling raised to $10M effective July 4, 2026. See sources 4, 5, and 6.
The 504’s 50/40/10 split does the work here: a bank first mortgage at 50 percent, a fixed-rate CDC debenture at 40 percent, and a 10 percent equity injection. In North Carolina the debenture routes through a statewide Certified Development Company such as BEFCOR or Carolina Business Capital.4 On a 25-year amortization, the bank tranche at an illustrative 9.5 percent carries about $503,000 a year and the debenture at roughly 6.5 percent fixed about $311,000, for blended annual debt service near $814,000 — the number the projected coverage has to clear.5 At $9.60 million total the deal also sits within the combined 7(a)-plus-504 ceiling that rose to $10 million in mid-2026, so the structure works without straining the program cap.6
Why 504 and not a leased-fee MOB loan is the analytically important point, and it flows from the two-bases discipline. Purpose-built medical space costs roughly $498 per square foot to build, while even new, purpose-built medical space asks around $33 per square foot triple-net and trades near a 7.0 percent cap rate.10 Capitalize the building on a pure leased-fee basis — roughly $0.47 million of market NOI at 7.0 percent — and its real-estate value lands near $6.7 million, well below the $9.60 million it costs to build. That gap is not a red flag; it is the structural reason a specialized surgical building is underwritten as an owner-occupied going concern on global cash flow, through a 504, rather than as a leased-fee MOB on shell rent alone. The study exists to support exactly that: the global debt-service coverage the lender must document, tested against an independent read of demand rather than the sponsor’s own projection.
Feasible and bankable, on global coverage the credit can document.
The stabilized model builds global cash flow from three engines — the surgery center, the physician practice, and third-party tenant rent — nets operating expense, and carries the coverage to the SBA floor and beyond.
| Line | Basis | Amount |
|---|---|---|
| ASC facility revenue (net) | ~2,900 cases × ~$1,240 blended net facility fee9 | ≈ $3.60M |
| Physician practice collections (net) | Multi-provider clinic, stabilized | ≈ $2.60M |
| Third-party medical tenant rent | ~6,000 sf leased, NNN, market terms11 | ≈ $0.16M |
| Total net revenue | ASC + practice + tenant rent | ≈ $6.36M |
| Operating expenses | Clinical labor, supplies/implants, associate comp, admin, malpractice, property opex | ≈ ($5.14M) |
| Global cash flow available for debt service | Going concern, before building debt service | ≈ $1.22M |
ASC revenue reflects a multi-specialty case mix at a blended net facility fee; margins are through-cycle, after a market physician compensation load, consistent with SBA global-cash-flow convention. See sources 5, 9, and 11.
| Year | Stage | Global cash flow | Debt-service basis | DSCR |
|---|---|---|---|---|
| Year 1 | ASC ramp / credentialing & payer lag | ~$0.94M | Fully amortizing ~$814k | 1.15 |
| Year 2 | Case volume building | ~$1.10M | Fully amortizing ~$814k | 1.35 |
| Year 3 | Stabilized | ~$1.22M | Fully amortizing ~$814k | 1.50 |
DSCR computed as global cash flow available for debt service divided by the period debt-service obligation. See source 5 for the ~1.15x coverage convention.
The stabilized 1.50x global coverage is the figure the lender documents, and it clears the SBA’s roughly 1.15x floor with real headroom.5 The ramp is deliberately graded: a new surgery center does not stabilize on day one. A start-up practice line ramps over two to four years, and new providers incur 90 to 180 days of credentialing before insurance payments flow, so Year 1 sits at 1.15x, Year 2 builds to 1.35x as case volume and payer contracts mature, and Year 3 reaches 1.50x.11 Modeling mature-ASC throughput and best-in-class payer mix on opening day is one of the most common ways healthcare pro formas fail review; the ramp here is built to the credentialing and volume reality instead.
On the equity side, the $0.96 million injection earns a return that must be read on the real-estate basis, not by capitalizing the whole practice — netting a going-concern surgical multiple against a real-estate cap rate is precisely the error the discipline forbids. The owner-occupier’s levered return builds from amortization (the debenture and bank principal steadily convert debt into owned equity), from holding a modern, CON-backed asset in a growing metro, and from the occupancy-cost advantage of owning rather than leasing. Valuing the stabilized, owner-occupied enterprise at exit near its replacement basis — about $9.5 million, net of roughly 3 percent selling cost and an outstanding balance near $7.0 million after ten years of amortization — implies roughly $2.2 million of net equity, against the $0.96 million injected.10 Blended with modest interim distributions and held flat on value rather than assuming appreciation, the result is an illustrative levered equity IRR of about 16 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived outpatient demand, a verified CON position, a stabilized 1.50x global DSCR, and a ~16% levered equity IRR, the projections support the SBA 504 credit.
Independent demand, CON, competition, and a stressed global DSCR.
The engagement was scoped the way a credit committee reads it. As an independent feasibility consultant, our role is to test the sponsor’s projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We derived surgical volume from trade-area age structure, provider access, and the competitive set, then placed it on a defensible per-provider case load rather than a mature-center assumption. Practice collections and physician-tenant rent were modeled on a graded ramp at through-cycle margins, and the two valuation bases were kept strictly separate: the going-concern practice and ASC on cash flow, the building on rent and tenant credit, never netted.10
The coverage analysis was then stress-tested. We ran the global debt-service coverage against case-volume and reimbursement downside — the two variables an ASC is most exposed to — to confirm the credit still holds when volume or payer mix compresses. Two scope boundaries are worth stating plainly: the CON authority for the operating rooms is treated as a verified gating precondition rather than assumed, because in North Carolina surgical capacity is permitted, not built on demand; and, as the feasibility consultant, we reference but do not perform the Phase I environmental site assessment, which is a separate environmental professional’s engagement that runs in parallel.2 That combination — independent demand, a verified CON position, competition, and a stressed global DSCR — is what lets the lender rely on the file.
Representative engagement
This is an anonymized, illustrative worked example of our methodology, built on market data current to 2026; figures are representative of a typical engagement of this type and do not depict a specific client, site, or completed transaction.
Underwriting a North Carolina medical office or ASC for an SBA 504 loan? Start with the feasibility study.
Feasibility Study Company prepares independent medical office and ASC feasibility studies for SBA 504 and 7(a) credits, built to the global-coverage standard your lender must document and to North Carolina’s Certificate of Need reality. A methodology briefing walks through the outpatient demand, CON, competition, and DSCR analysis behind a case like this one, calibrated to your metro and case mix.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing North Carolina, Medical Office & ASC, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- U.S. Census Bureau, Vintage 2025 Population Estimates, and NC Office of State Budget and Management / State Demographer: North Carolina population 11,197,968 as of July 1, 2025 (+145,907, or 1.3 percent; third nationally in growth rate; net domestic migration about +84,000), as compiled in the firm’s North Carolina market analysis.
- North Carolina DHHS, Division of Health Service Regulation, Healthcare Planning and Certificate of Need Section; N.C. Gen. Stat. Chapter 131E, Article 9 (ambulatory surgical facilities and operating rooms are CON-regulated); House Bill 76 (Session Law 2023-7, signed March 27, 2023) raising thresholds and phasing limited exemptions; Singleton v. NCDHHS, Wake County three-judge panel ruling (December 19, 2025), on appeal.
- U.S. Small Business Administration, North Carolina District Office directory, Charlotte (all 100 counties; Wilmington presence); Live Oak Bank press release (October 6, 2025) and Coleman Report FY2025 rankings: number-one national SBA 7(a) lender at about $2.8 billion across 2,280 loans.
- BEFCOR, Carolina Business Capital, 504 Capital Corporation, and Self-Help public disclosures; SBA 504 Certified Development Company data via data.sba.gov (statewide North Carolina CDC coverage for the 504 debenture).
- U.S. Small Business Administration SOP 50 10 8 (effective June 1, 2025) and 13 CFR 120.160(b): a feasibility study is discretionary but expected for special-purpose properties and ground-up projects; owner-occupancy of 51 percent (existing) or 60 percent (new construction); 504 finances owner-occupied real estate and long-life equipment via a fixed-rate CDC debenture; SBA/504 global DSCR convention of roughly 1.15x or higher.
- U.S. Small Business Administration, Policy Notice 5000-879058: combined 7(a)-plus-504 loan cap raised to $10 million effective July 4, 2026.
- CMS Office of the Actuary / Health Affairs, National Health Expenditure Projections 2024–33 (June 25, 2025): U.S. NHE $5.3 trillion in 2024 (18.0% of GDP, $15,474 per capita); projected 5.8% average annual growth versus 4.3% GDP. CMS figures beyond 2024 are projections.
- Trilliant Health analysis of CMS National Health Expenditure data (2024): U.S. inpatient admissions per 1,000 population fell 32.2% while hospital outpatient admissions per 1,000 rose 272.2%, 1970–2023.
- Fortune Business Insights (2024): U.S. ambulatory surgery center (ASC) market ~$45.7 billion in 2024; Ambulatory Surgery Center Association (ASCA, September 2024): 6,394 Medicare-certified ASCs; BH Sales Group (Q2 2024): ~68% of ASCs physician-owned.
- CBRE, U.S. Medical Outpatient Buildings Figures (Q3 2024) and 2025–Q1 2026 updates: national MOB vacancy 9.57% (Q3 2024); triple-net asking rent $25.40/sq ft (Q1 2026); single-asset cap rate 6.9–7.0%; new purpose-built NNN rent ~$33.06/sq ft versus ~$24.78 existing; medical office building construction cost roughly $498/sq ft versus $313 suburban office.
- JLL (Q4 2025) and Revista via PwC/ULI Emerging Trends in Real Estate 2026: medical leases run 7–15 years with renewal rates commonly above 80%; MOB occupancy ~92.7–92.8% (top-100 universe); tenant credit, weighted-average lease term, and rollover drive MOB value.
- CBRE Research / U.S. Census / CMS and AAMC, “The Complexities of Physician Supply and Demand: Projections From 2021 to 2036” (March 21, 2024): per-capita health spend ~$8,000 (under 64), ~$20,000 (65–84), >$35,000 (85+); U.S. population aged 65+ +34.1% and 75+ +54.7% (2021–2036). Projections, not actuals.
- Tax Foundation (2026) and NC Office of State Budget and Management (May 2026): North Carolina corporate income-tax phase-out (2.0 percent January 1, 2026; path to zero by 2030) and personal flat rate (3.99 percent for 2026).