Many buyers of medical real estate allow physician-owners of real estate to sell for market value and re-invest back into the real estate as minority owners. This can be a great solution when some physician-owners of the real estate want to cash out while others want to remain invested in the real estate.
In situations where some older physician owners of the real estate want to sell and younger or new physicians want to buy in, there can be a significant gap in perceived valuations. Legacy physician owners of the real estate seek to value shares at market CAP rate values, while new physicians want to buy shares into the real estate at discounted rates and at lower owner/user appraisals.
This could potentially lead to disagreements and also lead to new physicans believing the buy-in is the best deal they can get. When selling the real estate at market value to a real estate company that allows for re-investment, the legacy physicians can receive full market value for their shares and younger or new physicians can buy in at a lower equity level and cost with the same percentage of ownership. In many cases, physicians have been able to receive the same percentage of equity in the real estate for roughly 1/3 of the cash than if they had purchased directly from other physician partners.
Original Case Study: 2023
Surgery and Pain Center Sold
ASC Realty Advisors is pleased to announce the sale-leaseback of a multi-specialty (Orthopedic & Pain) outpatient surgery located in Halfmoon, NY, serving the Albany/Schenectady region. The single-tenant ASC consists of 10,000 rentable square feet that is 100% leased and occupied by the 6 physician-partners.
Accredited by AAAHC, Medicare certified, and licensed by the NY DOH, the Northway Surgery and Pain Center offers a patient-friendly and cost effective alternative for outpatient surgery with advanced equipment, experienced staff and physicians, and access to the area’s leading orthopedic surgeons and surgical procedures in a convenient location.
The ASC consists of three (3) class B operating rooms and one (1) class C OR that are supported by 8 pre-op and 8 post-op bays for a total of 16 beds.
The property was sold under the terms of a 15-year absolute NNN lease with the physicians maintaining a minority ownership interest in the real estate. This allowed for the physician real estate owners to receive maximum value for the property, while retaining equity in the real estate at a discounted buy-in cost.
The benefits of the sale-leaseback include:
- Upon closing, sellers received cash to invest in other investments
- Sellers will maintain full operating control over the property
- Sellers can pay down existing debt and remove loan guarantees
- Eliminates personal income tax on rent received
- Rental payments are deductible against the ASC’s taxable income
- Lowered rent and increased EBITDA
- Makes it easier to add new partners
- Provides capital to modernize or expand facility
ASC Realty Advisors and JH Winokur, Inc. have advised ASC physician-owners of over 300 physician-owned ASCs, endoscopy centers, MOBs, and surgical hospitals on development, merger, strategic and real estate transactions.