Physician Investors and Medical Office Buildings
Large, corporate health systems or third-party investors are not the only ones who own medical office buildings. In some cases, a practicing physician will invest in a property and run their practice out of that facility. And if a property has more space than one practice can fill, the physician may host other healthcare tenants. Sometimes, the physician investor will even retire but hold on to their medical office building, incurring rent revenue from the other tenants. In all of these cases, a physician wears the hat of both medical professional and investor, financially benefiting from their real estate.
Reasons Why a Physician Investor Would Sell Their Medical Office Building
There comes a time when a physician investor chooses to sell their medical office building. The reasons vary but typically include one or more of the following:
- The physician is too busy to manage the property and maintain healthy landlord-tenant relationships.
- The physician does not have time to market vacancies and review prospective new tenants.
- The physician is focused on their practice and cannot keep up with financial reporting associated with hosting tenants.
- The physician investor wants to cash out and use the sale of the property to fund other investments or retirement. If the physician is still practicing, they may want to consider a sale-leaseback transaction (discussed below).
- The medical office building is fully depreciated and can no longer provide a tax benefit to the physician investor.
In the current market, building expenses are increasing. Physician investors may want to opt-out of owning their properties, and take advantage of the favorable market conditions for selling the property.
Favorable Market Conditions for Selling a Medical Office Building
Right now, in 2021, the market conditions are extremely favorable for sellers of commercial real estate (CRE). HBRE Partner Chris Huskey said the “time is now” for those who have considered selling their medical office building. Investors are currently taking a long-term approach to their property investments and purchasing buildings with record-low cap rates. Properties are selling at higher price points as buyers are capitalizing on the lower interest rates. The 2021 market is one of the best-case scenario markets in recent years for the physician investor interested in selling their medical office building.
On the flip side, a physician investor should be cautious of unfavorable market conditions. While the United States is experiencing a favorable market overall, individual markets may be less suitable for a sale. Physicians should be leery about selling their medical buildings if there is an overabundance of other local medical properties on the market. If there are too many medical properties on the market, they may need to lower their sales price. The physician investor should also note whether their community is in the process of improvements and growth. In these cases, they may want to hold on to their property until the market value increases. Generally, a physician investor should hold on to their property during an average market. They would be better off allowing the building to appreciate while they wait for better market conditions.
Sale Leaseback vs. Selling Outright
Some physician investors would prefer to pursue sale-leasebacks rather than selling outright. If the practice needs to relieve its balance sheet of a costly asset, a sale-leaseback might be the right option. In these cases, a buyer would typically want the physician to sign a longer-term lease, such as for 10+ years, to have less risk associated with their investment.
HBRE and Healthcare Real Estate
Whether a physician chooses a sale-leaseback or to sell their medical office building, they should reach out to a medical real estate team. Unlike other CRE firms, HBRE is solely focused on medical real estate.
They offer specialized resources for medical professionals. HBRE’s relationships with institutional investors and other healthcare investment firms even allow them to make off-market sales.
In addition to these benefits, HBRE can also offer guidance for increasing property value or preparing documents for prospective buyers. Physician investors interested in selling their medical office building can reach out to HBRE for assistance with their property sales—[email protected].
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.
