Commercial real estate is an interesting and active market, and now is an especially valuable time to be an owner. Ambulatory surgery centers are prime investments, and physicians are increasingly purchasing ownership in their ASC real estate.
Since 2009, commercial real estate value has doubled since 2009 and is 20 percent higher than peak levels reached in 2007, Jon Vick, president of ASCs Inc., said at Becker's 22nd Annual Meeting. According to Mr. Vick, now is a terrific time to sell.
Why sell now?
First, there are currently more buyers in the market than sellers and high prices due to low cost of capital. Additionally cap rates are at 6.75 percent, which yield higher values for the seller. However, those cap rates are subject to increase when the interest rate rises.
Who are the buyers?
Real estate investment companies, individuals seeking long-term income, Real Estate Investment Trusts and family foundations are all seeking such investments, as ASCs are highly profitable, stable business with long-term "horizons," according to Jason Winokur, vice president of Winokur, Inc.
ASC sales are highly competitive. An ASC that is fairly priced to the market typically has five to 10 offers and the majority are sold to private investors, according to Mr. Winokur.
What are the buyers looking for?
Buyers have several main criterion when shopping for an ASC, according to Mr. Winokur. First and foremost, they want an ASC with a track record of profitability and a proven ability to pay rent. They also typically want a 2 percent to 3 percent annual rent increase. Third, they often don't want to have landlord responsibilities.
Importantly, they want a long-term lease. "Buyers want to see long-term commitment. Twelve or 15 years is good," said Mr. Winokur. There are also benefits to this as a seller. "As a seller, the longer the term you're willing to give, the longer you can get proceeds from the sale."
Mr. Winokur added buyers are often dissuaded by personal lease guarantees, and instead prefer the lease be guaranteed by the ASC entity.
How is value determined and maximized?
The value of an ASC as real estate is determined by rent — the higher the rent, the higher the sale price, according to Mr. Winokur. "If the tenant is able to pay a higher rent than they're paying, [the seller] can raise the rent," said Mr. Winokur. The sale price is also influenced by the cap rate, he added.