A Midwest medical office building’s value was low due to gross leases. Real estate buyers do not like gross leases, because a lot of the tenant expenses can be controlled by the tenant and they do not have a good gauge of what the go-forward facility expenses will be. Not having fixed costs and unknown future expenses leads to higher risk for the buyers and lower purchase price offers.
ASC Realty Advisors re-negotiated the leases for an ASC/MOB property in the Kansas City area and sold the real estate on behalf of physician ownership for a significantly greater value than previous appraisals and more than 20% higher than the seller’s original expectations.
Original Sale Notice:
SOLD – MIDWEST PHYSICIAN’S SURGERY MEDICAL OFFICE BUILDING – LEE’S SUMMIT, MISSOURI
ASC Realty Advisors and JH Winokur, Inc. are pleased to announce the closing of a healthcare real estate sale and partial leaseback transaction for Midwest Physician’s Surgery Medical Office Building located in Lee’s Summit, Missouri.
The 20,000 square foot medical-office building is 100% leased to three tenants: Midwest Physician’s Surgery Center, Clay Platte Summit Family and Sports Medicine, and Midwest Gastroenterology. The three room surgery center is a partnership between the principals of Midwest Gastroenterology and USPI (Tenet Health). Clay Summit Sports & Medicine is part of the largest medical group in the area. Midwest GI Health consists of board certified gastroenterologists, physician assistants, and nurse practitioners who serve the Kansas City market.
As part of the transaction broker Jason Winokur, EVP of JH Winokur, Inc., renegotiated the Clay Platte Summit Family primary medical clinic lease. Previously the lease had been a gross lease with the landlord being responsible for the tenants’ CAM, taxes and insurance. Successfully modifying the lease provided the buyer pool with the ability to accurately project their net income on a go-forward basis. Winokur also proposed the terms of The Midwest Gastroenterology lease, which was also modified to be a NNN lease under the terms of a sale-leaseback. The lease modifications resulted in a higher NOI and sale price.
“The sellers had previously engaged with local brokers who quoted prices based upon the existing leases. By modifying the terms of the leases, we created a win-win which benefited both the tenants with a number of improved lease terms and the physician owner of the real estate, who achieved a significantly higher sale price,” states Winokur.
Many ASC/MOB owners are considering the sale-leaseback of their ASC real estate to provide liquidity, diversify their assets, help fund renovations or simply to take advantage of the high premium prices medical real estate buyers are paying for quality medical buildings. It is critically important to review the terms of your lease prior to going to market.