Thanks to its utterly bonkers forward dividend yield of 13.8%, Medical Properties Trust (MPW -1.10%) is a stock that's thick with temptations for investors -- not to mention plenty of danger for those who dare to hold it. Between rumblings in the commercial real estate markets and the company's own ongoing issues, it's reasonable for newcomers to be hesitant about investing in the stock.

But is the frailty of the commercial market really relevant to a decision about whether to buy or sell MPT? Let's answer that question by figuring out in more detail what's likely to happen in the commercial real estate sector in the next couple of years, and why that might make some investors skittish about MPT.

What's the situation?

The pandemic prompted a mass transition to working from home. That means many office buildings and other commercial real estate spaces are sitting empty. And when businesses are paying to rent floor space that they aren't using, there's a big incentive to cut costs by not renewing their leases for office space.

But how much space are we even talking about? In 2022, the leases for 243 million square feet of office space expired in the U.S., which equates to 11% of the total space available for rent. But that's peanuts compared to the leases for 900 million square feet of space that are slated to expire before 2025. Per a report by Green Street, an investment advisor, demand for office space will dip by 15% over the coming years, and it might not recover.

With so many leases expiring and lower demand, rents are likely to fall as landlords try to attract corporate tenants. Many commercial office real estate investment trusts (CREITs) could go under, or be forced to sell off their properties at fire-sale prices. And given the fact that Medical Properties Trust's quarterly cash from operations (CFO) has been flat over the last three years, and that it's continuing to sell off some of its properties so that it can afford to make its debt payments coming due in the next couple of years, it's understandable that shareholders are wondering if things are about to get a lot worse.

The risks are mostly indirect, but other risks remain 

First off, let's be clear that the problems in the commercial real estate market do not directly threaten the value of Medical Properties Trust's shares. As a hospital REIT, MPT makes money by leasing clinical and hospital floor space to healthcare companies. Some of that space is office space, but when's the last time you heard of a surgeon performing an operation over an online video conference? 

In other words, the risk that telework poses to the demand for hospital floor space pales in comparison to that faced by office REITs. Even if the entire commercial real estate sector melts down, and it might, hospital companies will still be providing most of their core services in-person, so MPT is overwhelmingly insulated from the fallout. 

Still, that doesn't mean you should buy or continue to hold its stock. One of the economic factors that could harm the commercial real estate sector is all but guaranteed to hurt this business, too.

To control inflation, the Federal Reserve is hiking the interest rate that determines how expensive it is to borrow money. Let's say a company took out $535.2 million in fresh debt due in 2025 at an interest rate of 3.3% to finance a purchase of real estate, like Medical Properties Trust did. It then calculates the monthly rent to charge to its tenants such that it gets a higher annual return on its investment than the cost to service the debt it took out to make the investment. 

The higher the interest rate it borrows at, the higher the rent needs to be to break even, and the more expensive it is to acquire new properties. And since the overwhelming majority of the assets in MPT's portfolio were procured at lower interest rates than the ones it's facing now and for the foreseeable future, its growth is going to crater. Over the last year, its quarterly revenue fell by 4.9% to reach $380.5 million, so this problem is already happening.

In sum, this REIT isn't going to get taken down by problems in the commercial real estate market, but it's still experiencing severe headwinds thanks to the same underlying causes of those problems. Steer clear.