1. Current market presents opportunities. Lt. Col. Bright says while the economy has battered the stock market, those changes may help his sector of the industry.
“Hospitals and health systems are more interested now in deriving cash value from their bricks and mortar. It’s the same thing for ambulatory surgery centers and medical office buildings,” he says. “When capital needs go up, real estate offers an opportunity to put money back into their core businesses. The return on investment (ROI) of capital in a surgery center or hospital is always higher than the ROI for bricks and mortar real estate. They can monetize real estate and take that money and pump it back into use into for equipment, staff or services.”
2. Add cash to balance sheet. He says hospital CEOs are not focused on maximizing their real estate investments.
“They’re in the “caring for patients business,” he says. “And they have lots of capital tied up in real estate that isn’t delivering for them. Remember that adding cash to the balance sheet while preserving debt capacity is always good.”
3. Greater credit. Lt. Col. Bright says analysts assign greater credit to cash than to property plants and equipment combined with debt.
“If you have cash on balance sheet, credit writing agencies will always assign greater credit,” he says.
4. Breakdown barriers. Selling the medical office building resolves uncomfortable conflicts that arise when hospitals act as landlords to physician tenants. Lt. Col. Bright says relations improve when physicians and hospitals focus on clinical and patient relationships and don’t allow touchy financial connections to impinge on those crucial relations.
5. Avoid legal ramifications. He says selling the property eliminates potential Stark law issues.
“I don’t have Stark liability, but hospitals and doctors do. Physicians and hospitals can never refer me any patients,” Lt. Col. Bright says.
6. Maintain control. Lt. Col. Bright reassures healthcare providers that their greatest fear in selling medical real estate — that competitors will locate on their campus and steal their patients as soon as they sell — is highly unlikely.
“The sellers can maintain control of their facilities and include prohibitions against renting or selling to competitors,” he says.
7. Remove personal debt guarantees. He says that monetizing real estates also can eliminate personal debt guarantees associated with real estate mortgages, freeing doctors to practice medicine without committing their homes and property to back guarantees.
8. Dispute resolution. Lt. Col. Bright says selling healthcare real estate assets can resolve problems between physician real estate owners in ASCs, clinics and medical office buildings and their non-participating physician business co-owners.
“Inevitably there are disputes when some of the partners are writing rent checks out to other partners, usually older ones,” he says. “Selling the property obviates those disputes.”
Lt. Col. Bright (bbright@sanderstrust.com), a former Marine fighter pilot and infantryman, is an expert in commercial and investment real estate for The Sanders Trust, a national medical real estate investment firm. Learn more about The Sanders Trust.
