Sale-Leaseback Deals in the Market
In October 2021, Medical Properties Trust Inc. completed a $760 million sale-leaseback transaction for 18 inpatient hospital facilities in the behavioral health segment. This deal also has a stake in the operating company that totals $190 million. A couple of months prior, the same real estate investment trust finalized a $900 million sale-leaseback deal that included five acute hospitals. Why is this significant?
Deals like these prove that sale-leaseback deals are still relevant strategies. Given the current market, now might be a prime opportunity for medical office owners to take advantage of sale-leaseback deals.
What Is a Sale-Leaseback
A sale-leaseback is a real estate transaction in which a building owner sells their property but then leases that property back from the new owner. These deals are a win-win for both the seller and the buyer. The buyer obtains a new asset, and the seller gets to remain as a tenant of the space.
Sale-leasebacks work best when the sellers plan to remain in the building for 10 or more years. Investors prefer to work with revenue-generating practices and fully occupied buildings. For an investor, those types of opportunities are less of a risk. As a seller, the key is to maximize the opportunity for an investor so the investor can maximize their investment.
How Sale-Leasebacks Benefit the Buyer
Sale-leaseback deals create an attractive opportunity for investors for several reasons:
- The immediate draw to this type of transaction is that the purchase of the commercial medical property comes with existing tenants. The new building owner doesn’t have to worry about buying a commercial building with the potential of a long-term vacancy.
- Sale-leaseback transactions come with a promised monthly income. In a sale-leaseback deal, medical tenants might agree to terms of somewhere around 10-20 years. These long lease deals remove the risk associated with the investment and allow the new owner to expect consistent month-to-month income for years to come.
- A sale-leaseback may be more cost-effective than other transactions. In these types of deals, sometimes the buyer can purchase a building at a discount in exchange for using that discounted portion to pay for facility improvements. Ultimately, the buyer can refresh and update the space without paying for all the upgrades out of pocket.
How Sale-Leasebacks Benefit the Seller
In a sale-leaseback deal, the seller also benefits from the transaction in multiple ways:
- The seller earns immediate cash for their building. The income allows them to pay off debt, which benefits their balance sheet.
- A healthcare group or physician can sell their building while still using it for their practice for an agreed-upon term. The medical group can still retain some control of the building and make necessary property upgrades. This benefit is valuable for retiring physicians. It allows them to liquidate their real estate investment, continue to practice in the facility, and then eventually turn over operations to their associates.
- The additional income for the seller would allow them to improve and expand their resources. The sellers could use the money toward increasing their telehealth or digital care options.
The Role of Healthcare Real Estate Advisors in Sale-Leaseback Negotiations
Any physician, medical practice, or investor looking to enter a sale-leaseback deal should consider hiring a healthcare real estate broker to assist with the transaction. These types of commercial advisors solely focus on healthcare real estate. They know what elements create the most attractive value propositions for potential investors.
HBRE is familiar with sale-leaseback deals. We work with the niche medical real estate sector and understand the unique facets of the landlord-tenant relationship within this type of commercial real estate. Our team of advisors has the experience and skills to assist physicians across many specialties. Healthcare professionals and investors can reach out to HBRE with any questions regarding sale-leaseback transactions.
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.
