Accessing the value of your medical real estate through a sale-leaseback.

Key points: How to optimize the timing of a real estate transaction, maximize the value, attract qualified buyers, and avoid common pitfalls in a sale-leaseback transaction.

What is a sale-leaseback?

In a sale-leaseback, you sell your ASC/MOB real estate to an investor for cash and simultaneously enter into a long-term lease. In doing so, you extract 100% of your property’s value and convert an otherwise illiquid asset into cash.

Some of the benefits of a sale-leaseback are:

• Immediate access to capital
• Capital to pay down debt
• Maintain operational control
• Real Estate buyer can pay for expansion or renovation
• Tax benefits

Optimize timing: Typically, your annual ROI on your real estate is only the 2% to 3% annual increase in rent. From an investment perspective it does not make financial sense to continue to own the real estate when you can make a significantly higher ROI from other investments. Whether or not you are considering a strategic transaction, you want to sell your real estate at maximum value while you still have 100% control of the lease, and when you can sign a 10-year or longer NNN lease. Once you sell a majority interest in your practice or ASC you no longer will control your lease, and it is the terms of the lease that control the value of your property. Thus, it is always preferable to sell your real estate before you enter into a transaction to sell your ASC or practice.

To obtain maximum value, you need to:

1. Control your lease so you can adjust rent and other terms to make the property attractive to buyers.
2. Adjust rent to market rate. Your real estate will sell at a multiple range of 13-to- 17 times base rent, so you want to maximize the rent while keeping it at fair market value.
3. Sell when you are able to agree to a 10-year or longer NNN lease.
4. Obtain competitive offers from a large pool of qualified buyers. We have a national buyer pool of hundreds of buyers who will compete to buy your property.
5. Use a broker who will negotiate on your behalf with this national buyer pool.
6. The buyer pool consists of institutional buyers (i.e., REITS), PE backed funds, private investors, family foundations, etc. that we have developed since 1976.

Your medical real estate is valued by dividing the annual rent by the current CAP rate, the buyer’s rate of return on capital invested. For example, if your rent is $500,000 per year and the current average CAP rate is 7%, your property will be valued at $7.1 M.

Avoid common pitfalls: We offer a free review of your lease and will provide you with recommendations to maximize the value of your property and avoid common pitfalls.

Physician-owners and administrators can obtain more information about sale-leasebacks of ASC and MOB real estate and capital for expansion by contacting Jon Vick at 760-291-7745 or Jason Winokur at 914-216-3574.

Since 1998 we have advised ASC physician-owners on development, merger, and strategic acquisition transactions for over 300 physician-owned ASCs, endoscopy centers and surgical hospitals. ASC/MOB real estate expert and broker JH Winokur, Inc. specializes in ASC, MOB and Surgical Hospital real estate sales and sale-leasebacks, sources of expansion capital, property valuations and 1031 exchanges. More information can be obtained by contacting: jvick@ascrealty.com or jwinokur@ascrealty.com. Their website is: www.ascrealtyadvisors.com