The 'sure thing' investment ASC owners should capitalize on

With the U.S. stock market tanking in recent weeks, many investors' portfolios have taken a hit. But those with ASC real estate ownership may not have much to worry about.

Becker's ASC Review spoke with eight experts and ASC leaders on the value of ASC real estate as a component to an investment portfolio.

Editor's note: Responses have been lightly edited for clarity and brevity.

Why is ASC real estate investment so hot? What makes it a good deal?

Susan K. Feigenbaum, PhD. Professor of Economics at the University of Missouri-St. Louis and Practice Administrator at Pepose Vision Institute (St. Louis): Medical real estate that houses an ASC has been in extremely high demand. An added reason is the risk associated with other types of commercial real estate investments, such as retail and office space, whose occupancy and rental rates have been severely impacted by COVID-19. It is unclear the extent to which these real estate investments will bounce back once the necessity of online buying and remote work subsides.

John Brock. Director of Progressive Healthcare (Brentwood, Tenn.): Surgery center real estate opportunities can make a lot of sense when there is a long-term lease and quality tenant. Additionally, some surgery center real estate partnerships have opportunities to sell their real estate to a real estate investment trust, which can result in substantial financial gains for the investors.

Bo Neichoy, MD. Panhandle Weight Loss Center (Amarillo, Texas): ASC real estate is a great investment because of the growth in the market. As consumers and insurance providers become more aware of the cost of delivering care, more procedures are being shifted to the ASC setting. Being that this ship is now showing signs of turning, being on the ground floor of the real estate investment is a great opportunity. Some markets are flooded with ASCs, but the majority are not. If you partner with the right ASC operations (contributing surgeons and staff), it's an easy investment. Most, if not all, are triple-net leases, meaning that the operational structure — not the real estate owner — is responsible for paying the lease and all other incurred costs such as taxes, facility upgrades and signage. 

The right partners give you a guaranteed payment for a known period of time. In addition, the value of the baseline investment increases with the demand for the facility. Just like any other sector, the demand will grow to group these investments and pass on to private equity firms and publicly traded companies, so the potential to sell is always on the table. If your appetite diminishes for guaranteed long-term gains and you look more to current payouts, the opportunity is there — something we do not always get with the built-up value of a medical practice.

Earl Kilbride, MD. Surgeon at Austin (Texas) Orthopedic Institute: Profitable ASCs are a nice low-risk stream of income. In turn, the real estate — land and building — can offer additional income. Here in Austin, Texas, real estate is a safe decision for two reasons. First, land is becoming scarce, which makes the investment more appealing; and second, the Austin region has been very lucky and has remained in the bubble since 2008, when many cities struggled with bankrupt businesses and forfeited loans. Real estate remains stable here and is protected from things like malpractice claims and surgeon partners retiring.

James Hays, MD. Ophthalmologist at Woolfson Eye Institute (Atlanta): ASC real estate is, I've thought, always a pretty good investment. If you have a nice, upscale, successful office, it likely is located in a nice, upscale, successful community. There is only so much easy access space in those communities. Plus, there is a lot of money floating around looking for an investment home right now. It is hard to perceive losing money on real estate of any ilk right now. 

Cherokee Gonzalez, BSN, RN. Surveyor for AAAHC and Regional Director of ASCs at Florida Medical Clinic (Zephyrhills, Fla.): ASCs are a "sure thing" for the future. Payers have been gradually moving inpatient cases to outpatient as technology and incision sizes change, and ASCs are the environment they are looking for.

Collin Hart. CEO and Managing Director at ERE Healthcare Real Estate Advisors (Costa Mesa, Calif.): In the same line of thinking as investing in an ASC operation, why not buy into the real estate? It's essentially owning your "work home." Even further, owning your ASC real estate allows you to control the destiny of your operation. Now you control both sides of the equation — the operation and real estate — therefore eliminating risks and uncertainties associated with leasing (unpredictable rental increases, expiring leases, poorly managed buildings, etc). You can pay yourself more rent, generating a nice return on investment, or ratchet that rent down in hard times. Of course, just as a physician must know when to buy into or build a building, it's equally important to time the sale, but that's a different discussion.

From a corporate or private-equity perspective, ASC real estate has become an attractive investment class in the real estate world over the last 10 years. That trend was accelerated by the global pandemic. Closed retail stores shifted shopping online, hurting retail real estate. In the multifamily space, eviction moratoriums made landlords rethink their investments: "If a tenant doesn't pay their rent, I can't kick them out?" 

With challenges in several real estate asset classes, investors ventured to find stability. Aside from telehealth, you can't buy healthcare services online, certainly not surgical procedures. So ASC real estate became a beneficiary of that realization. While healthcare is changing, generally speaking, we anticipate it will remain an "in-person" activity that requires a physical presence. As such, ASC real estate has become an essential part of many real estate investors' strategies.

Babak Azizzadeh, MD. Founder and Director of the Facial Paralysis Institute (Beverly Hills, Calif.): If I'm an owner in an ASC, why wouldn't I also want to take advantage of the real estate opportunity? It goes back to creating a cogwheel with you as the operator. You know you'll have a fairly robust business that's low risk of going out of business.

But it depends on geography. I'm in Beverly Hills, and it's really hard to find the real estate that makes sense financially to operate a surgery center, because ASCs in Beverly Hills are getting similar [reimbursement] rates to a small midwestern town where the real estate cost is significantly lower. In certain markets like Manhattan and Los Angeles, it doesn't make sense. Outside of those areas, it makes a lot of sense.

Another thing to consider: If you occupy more than 50 percent of the building, you can get [Small Business Administration] loans that are very attractive versus traditional real estate.

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