The phrases “medical practice” and “medical facility” are not one and the same. A physician or team of physicians may practice within a medical building, but that doesn’t mean they own the facility. Similarly, health systems may not own every building in which their physicians practice. Each medical real estate deal is as unique as the health system or medical practice that uses the facility. But, in the case that a physician owns both their practice and building, they may ask themselves, “What should I do with my facility after selling my medical practice?”
Medical Real Estate Differs from Other Sectors of Commercial Real Estate
Medical facility owners are likely aware of the idiosyncratic details of owning medical real estate. The medical field requires a unique set of facility features and legal guidelines that don’t apply to other sectors. Stark Law and the Anti-Kickback Statute are examples of the restrictions that landlords and tenants have to consider when it comes to leasing their buildings. And patient privacy, location factors, and specific structural requirements are also at play when leasing, selling, or buying a medical building. So when it’s time for a physician to retire or sell their medical practice, they may feel a little overwhelmed by the complexities.
Before selling or leasing a facility, we strongly advise hiring a commercial real estate (CRE) advisor to handle the specific details of a contract. Advisors who are specifically skilled in medical real estate are familiar with the needs of medical tenants or landlords. They will have the resources and experience to walk their clients through the deal that best fits all parties.
Option 1: Sell the Medical Facility
If the owner of a medical practice chooses to sell their practice, they may also be interested in selling their facility to the new practice owner. In that case, the seller is able to detach themselves from the commercial property altogether. They can liquidate that asset and/or pay off the remaining debt on the facility.
But if the new owner of the medical practice is not interested in purchasing the facility, the owner of the medical building can market their facility to sell to a different interested investor. However, before marketing the facility, the seller should consider upgrading a few of the building features to improve the property value. And since the building is already structurally suitable for a medical practice, the seller should consider marketing the property to other medical groups.
Option 2: Lease the Medical Facility
If the individual or health system who is selling a medical practice would like to hold onto their real estate, then leasing the facility is the ideal route. Leasing the facility to a new tenant does not have to be complicated and burdensome for the building owner. In fact, CRE owners who prefer a more hands-off approach typically hire property managers to handle the day-to-day tenant and facility tasks.
Regardless of who manages the tenancy, there may be some work to do leading into the lease deal. Building owners may have to perform upgrades specific to the incoming tenant. These fall under the category of tenant improvements (TI), which is usually paid for by the landlord. These improvements could include extra cabinets, additional water lines, or even changes to the interior structure to add patient rooms. But medical tenants tend to stay longer than other types of tenants. So medical tenants are beneficial for earning consistent cash flow over a longer time frame.
Real estate is one of the most valuable physical assets an investor can own. And medical real estate is one of the most necessary property types, especially in the current market landscape. So whether a medical facility owner chooses to sell or lease their space, they can be confident in their opportunity to receive a strong return on their investment.
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
