August 1, 2018
The Solution When Both Answers are the RIGHT Answer
It’s a great time to be a physician-owner of the medical property housing your group, ASC or hospital. The continued creditworthiness of healthcare tenants has translated into aggressive purchase offers for those properties and the perpetual question – do we hold or do we sell?
Unfortunately, there generally is not a clear-cut answer because what may be the proper decision for one partner may be the wrong decision for another. Here is what is generally known.
- SELL - If a partner is going to be leaving the real estate entity within the next 3 to 4 years, it may be best to sell because further upside is limited in that short time frame and this could be a missed opportunity if the market turns.
- HOLD – If a partner is going to be in the real estate another 7 years, it is generally better to keep ownership, taking continued cash flows, as the returns would not be able to be matched outside the closely held investment.
Those in the middle might find reasons to go either way. Unfortunately, the building, much like the baby in the story of King Solomon, can’t be divided with half being sold and the other retained… or perhaps it can?
The continued low interest rate and high loan-to-value environment have enabled the creation of unique financing structures that can provide assurance of a buyout at the offered price while retaining ownership for the remaining members at returns that continue to eclipse other like investment options. As important, the management of the property continues under the sole discretion of the practice partners to be run for the benefit of the practice.
The price is generally set in accordance with the agreed cap rate of the bona fide offer, making sure that the lease terms are within market. The buyout can come immediately or at a date set in the future and at an agreed price that is in line with the current offer, and the financing is structured to accommodate the terms of the buyouts.