CREJ

Page 8

— Health Care Properties Quarterly — July 2017

www.crej.com

Leasing

Pinnacle Eye and Surgery Center

Colorado Springs

We Build:

PHYSICIAN OWNED

Englewood | Steamboat Springs | 303-762-1554 |

calconci.com

ale-leasebacks, transactions

in which business owners sell

and then lease back real estate

assets, have been growing

rapidly in the health care sec-

tor. Performing a sale-leaseback allows

companies to free up equity from real

estate assets, raise capital to reduce

debt, invest in core business and

strengthen balance sheets.These types

of transactions are customary practice

in many commercial real estate indus-

tries and specialties, including health

care.

The benefits of sale-leasebacks:

• Reinvest in the company.

• Retire debt.

• Improve credit rating.

• Increase produc-

tivity.

• Get a better

return on capital

investment.

Health care.

Costs,

related to operat-

ing a medical prac-

tice or health care

facility, continue

to increase while

physicians continue

to be apprehensive

of what the Afford-

able Care Act will

mean to their future.

As a result, they seek other means to

influence their future and this includes

their commercial real estate

investment.

Physicians, or health care

systems, may consider owning

ambulatory surgical centers

or medical office buildings to

provide the flexibility, efficiency

and income they sought to

impact their future.They may

look at owning independently,

with a team of physicians or as

a joint venture with an investor

to purchase land and develop a

medical office building, or buy

an existing asset.

The reality of managing a

property, in addition to a health

care practice, can present chal-

lenges. One option to help

manage these challenges is to

sell the asset and lease it back,

a sale-leaseback. By performing a sale-

leaseback, the physician group can sell

the property and lease back its space

at the same rate it has been paying.

Then the physician group can use the

proceeds for other investments with

higher returns.

Investor interest.

The relatively high

performance and steady cash flows

of MOBs have made them a much

sought-after property type for institu-

tional investors and real estate invest-

ment trusts. Many are seeking an entry

point into the Colorado health care

real estate market and seek off-market

sale-leaseback properties.

Physician-owned buildings are attrac-

tive to investors for three reasons: They

traditionally have strong financials,

the rents are higher and the leases are

long-term.The average cap rate for an

MOB purchase in the United States

is 6.7 percent. Colorado is hovering

around the same cap rate.

ASC real estate is considered less

risky than other investments because

the properties are anchored by medical

tenants and thus are worth a premium

price. Medical facilities with long leases

are trading at historically low cap rates

and thus significantly increasing value.

Risk vs. reward.

During sale-leaseback

transactions, buyers and sellers must

balance risk-reward factors when mak-

ing such decisions.The physician’s risk

lies in a lace of analyzing the entire

package and not fully understanding

how it impacts their business strategy.

When utilizing a real estate team that

specializes in health care real estate,

three factors should be considered:

1)Will the influx of the sales profit

outweigh the rental payments?

2)What is the new lease term and

does it match the business strategy?

Physician-owned MOBs and sale-leasebacks

Cheryle Powell

Vice president,

Rocky Mountain

Commercial

Advisors, Golden

Image from Colliers 2017 Healthcare Marketplace Report

Please see ‘Powell’ Page 23