Leasing vs. Buying Healthcare Real Estate
Commercial real estate can be challenging to navigate, specifically a niche industry such as healthcare real estate. The list of questions surrounding the property search grows longer as you navigate the market and property availability. But determining the answer to one major question might help alleviate some of the challenges in finding a healthcare property: “Should I lease or buy healthcare real estate?”
The Benefits of Buying Healthcare Real Estate
Any piece of real estate is a significant investment, but when someone decides to purchase a commercial space, the cost and the stakes increase. The property has to be worth the investment and must offer attractive features for its tenants. But if a buyer can find a winning property for their portfolio for the right price, they can earn a substantial return on investment.
Healthcare real estate is one of the best types of commercial properties to purchase. It is more recession-proof than other types of commercial spaces. Medical treatments and procedures often require brick-and-mortar facilities. This makes healthcare real estate less susceptible to large-scale economic issues.
Healthcare real estate tenants also tend to sign longer lease terms. The high cost of the buildout due to the unique structural requirements of their facilities causes medical tenants to stay for about 10-20 years at a time. Due to this, landlords have a greater chance to earn guaranteed monthly income through their medical properties.
However, owning a healthcare property can have its downsides. For example, not every medical practice can afford to purchase or maintain a commercial space. Once a commercial space is vacant, that vacancy can also last awhile. Prospective property owners should weigh their options before making a decision to purchase a medical property.
The Benefits of Leasing Healthcare Real Estate
There are several positive aspects of leasing a healthcare space. A tenant who leases a healthcare property isn’t responsible for property management. They don’t handle major building upgrades outside of the buildout, and they don’t have to worry about finding new tenants for a vacancy. The landlord oversees all of those tasks. A medical practice that leases their space solely focuses on their practice and their side of the landlord-tenant relationship.
Tenants who lease a healthcare facility can still have a custom facility without the price tag that comes with owning it. They can negotiate a buildout that works for their practice, or they can lease a brand new building through a build-to-suit transaction. In this transaction, an investor will build a custom facility to the tenant’s exact specifications. The investor foots the bill with the promise of a reputable, long-term medical tenant.
There are several types of leases a tenant can select, and they can also negotiate multiple facets of their lease. However, tenants sometimes struggle to find a facility that fits their budget in a specific market. They also usually incur annual rent increases and occasionally need to negotiate rent relief. Healthcare real estate advisors can guide tenants through these challenges.
The Sale-Leaseback
A sale-leaseback allows the healthcare professional to cash in their real estate asset while remaining in the facility as a tenant. This type of transaction has made a resurgence in recent years, and provides a great solution for physicians needing the additional cash to pay off debt. It’s also an appropriate option for practices that can’t afford major building repairs but would like to continue to practice in the building.
This is a creative option for those who currently own healthcare properties but want to transition into tenancy. A healthcare real estate advisor can review the property information and help the owner decide if this type of transaction is right for the property owner.
Whether leasing or buying healthcare properties, healthcare professionals have to weigh the pros and cons. HBRE is a full-service healthcare real estate practice skilled in assisting landlords and tenants with all aspects of their real estate assets. Medical professionals deciding whether to lease or buy a healthcare property can trust our team to offer exceptional service as we guide them through their decision.
About HBRE
Headquartered in Nashville, Tennessee, HBRE is a full-service commercial real estate firm specializing in healthcare real estate. With over 50 years of combined industry experience serving 28 states across the U.S., we deliver exclusive healthcare solutions so you can provide the best patient care.
If you have any questions about leasing, buying, or selling a commercial property in Nashville or beyond, connect with our team today.
