Oftentimes, an ASC project is essentially two deals happening at once: that of the ASC operating business and the underlying real estate. That overlap can complicate timelines, financing and compliance, according to a March 5 article from law firm McDonald Hopkins posted on JDSupra.
Success depends on structuring both sides correctly on a realistic timeline and with independent counsel, the law firm said.
Here are 10 points to consider, as laid out in the article:
1. Two transactions with two sets of issues. The business side covers ownership, governance, contracts, payer relationships, licensure, accreditation and compliance. The real estate side covers site selection, buy vs. lease, construction or renovation scope, financing, and who bears long-term building risks and rewards.
2. Real estate can drive the project more than physicians expect. Physicians often start with the care model, but the real estate transaction can ultimately determine cost, timing and future exit options.
3. Many deals separate the operating company from the property owner. A common approach is to have one entity for ASC operations and another for real estate ownership to separate risk, allow different investor groups, and create clearer financial reporting.
4. Rent needs to be handled carefully and at fair market value. Having the ASC pay rent to a real estate entity helps distinguish operating profits from building income and appreciation, but rent and related payments must be set at fair market value to avoid compliance issues.
5. New builds vs. acquisitions require different workstreams.
- De novo: Lock in the site, form the entities, sign property agreements, coordinate construction with licensing and payer enrollment.
- Acquisition: Validate performance, confirm licensure/accreditation transferability, and scrutinize lease terms, or the building purchase.
6. Final real estate timelines often exceed what teams plan for. The typical sequence is planning, term sheet, purchase agreement, due diligence (title, survey, environmental, zoning, etc.) and then closing. The article cites rough ranges of 1 to 3 weeks for a term sheet, 2 to 4 weeks for a purchase agreement, and 60 to 90 days from signing to closing.
7. Developers can help, but they might not be neutral. If a developer is involved, McDonald Hopkins recommends that physicians or investors use independent counsel to negotiate terms and ensure the real estate structure aligns with regulatory obligations.
8. In de novo projects, an early fork in the road is own vs. lease. One of the most consequential decisions is whether physicians will own the building or lease from a third-party landlord.
9. Facility requirements can change cost and timing. The amount of structural and mechanical work needed to meet ASC code standards can materially shift budgets and schedules.
10. Lease terms and approvals can make or break acquisitions. The firm flagged the importance of fair-market-value rent and whether the lease remains financially viable post-close. It also noted that change-of-ownership approvals (licenses, certificate of need, provider numbers) can add months — so rushing due diligence to “win the deal” can backfire, especially when physicians are guaranteeing debt or relying on approvals that don’t match the real estate timeline.
