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5 Steps for ASC Real Estate Monetization

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Brian Howard is the president of Stage Equity Partners in Skokie, Ill. His company is a healthcare real estate investment company that specializes in buying real estate assets from medical practice owners and third party owners.

This process of real estate monetization can be a viable option for many types of physician-owned surgery centers, and allows physicians to maintain ownership and control of their practice without having to also manage the real estate and related risks and expenses.

1. Decide whether monetization is right for you. Physicians may have many reasons to monetize. For instance, if a surgery center owner foresees a hospital acquisition of or investment in the center, monetization can be a worthwhile first step. Including the real estate in the purchase of a practice can be cumbersome, Mr. Howard says, and the hospital system may not want to own the real estate and the practice.

Other ASC owners may solely be looking to eliminate the debt on the property, as well as decrease operating costs through paying only rent rather than the additional capital improvement and management expenses tied to real estate. Time and money are freed up through the sale to be refocused on the practice's clinical side.

"As a physician when you own your building, you are responsible for its management, operation, capital improvements and repairs. It's a time consuming responsibility and might be a distraction," he says. "The trade off is when you sell to a firm such as mine, which only owns and operates medical facilities, we handle everything. For example, when there is a snowstorm and the snow removal guy doesn't show up, you don't have to worry about it. You are able to focus100 percent on your practice and your patients."

2. Build a consensus on your goals going forward. Owners who are interested in selling their building to a third party buyer should first come to a consensus with the other physicians in the practice. All of the physicians with a stake in the surgery center should decide what the best course of action for their collective goals before the process begins to avoid costly hitches.

"If you have to work with competing nations to complete the transaction, you can have deal fatigue or spend a lot of money and not be able to strike a deal," Mr. Howard says. "Then nobody wins."

3. Choose the right business partners. When physicians are looking to monetize their assets, they should choose a partner wisely, he says, to ensure the new real estate owners are experienced with healthcare practices and vested in the surgery center's success.

Equity firms or other buyers accustomed to working with healthcare facilities are more likely to cater to the operation of the medical practice and understand potential practice concerns or issues.

Often surgery center practice owners may seek to increase the value of the real estate by charging a higher rent to the surgery center, which they feel can lead to a higher property value, but which will ultimately increase operating costs that could hurt the practice. A productive partnership will mean reaching a fair middle ground that meets the needs of both parties.

4. Negotiate agreement specifics. The agreement between the physician owner and the real estate buyer should also clearly include the financial terms for collateral for the lease term, which may include a personal guarantee, a security deposit or a letter of credit.

Physician owners looking to get top dollar for their real estate should also be prepared to lock into a long-term lease with the landlord. Surgery centers have specialized uses and often higher rental rates than non-surgical medical practices. As such, the long-term lease provides landlords with additional comfort and security when they acquire a building at a higher price.

"With healthcare tenants, you tend to have tenants that stay in the building and in the facility for a long period of time," Mr. Howard says. "This makes the asset valuable to own over the course of an investment hold period."

Coming to an agreement that is a fair value and middle ground for both parties can be a true art, he says.

When structuring the lease and rental rate, landlords will evaluate the surgery center as a tenant. Physician-owners can expect to answer questions such as:
•    What is the succession plan between junior and senior physicians?
•    What is your financial and operating history?
•    What is your relationship with neighboring and referring hospitals?
•    What is the financial revenue versus the occupancy costs?
•    How secure are the personal guarantees?

5. Take advantage of today's seller's market. It is a good time to be a seller in the current real estate market, Mr. Howard says, because interest rates are lower than several years ago and leverage is increasing, making capital more available to buyers. Lenders are also tending to be bullish on medical buildings because of the high occupancy rates.

More Articles on Transactions and Valuations:
20 Surgery Centers Planned, Opened or Acquired in November 2012
ASC Operator First Surgical Partners Sues Nobis Capital Advisors
University of Colorado Opens $14.M Emergency and Surgery Center


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