Ambulatory surgery center physicians often own the ASC's business and real estate. "Over the last year the stars have aligned so that owners of ASC/medical office building real estate can now sell at a very attractive price, get cash for their real estate, lease back the ASC at market rate rent and realize significant tax advantages," says Jonathan Vick, founder and president of ASCs Inc. Mr. Vick explains why the current climate is favorable for real estate sale and the steps physician-owners can take to complete a smooth transaction.
1. Who's buying? The market for ASC real estate suffered from the economic recession beginning in 2008, but the tides have turned. From the buyers' perspective, financing and favorable interest rates are more readily available; buyers can offer higher prices and meet their necessary profit margins. From the sellers' perspective, there are more buyers and the opportunity to leverage a favorable price from competitive bidders.
Entities interested in acquiring ASC real estate include:
• Individual investors
• Investment firms
• Specialty real estate companies
• Real estate investment trusts
"They are interested, and willing to pay top dollar, because surgery centers represent a very stable, highly profitable business and therefore are ideal tenants," says Mr. Vick.
2. Selecting a time to sell. "It makes sense to sell ASC real estate when the physician-owners want to unlock the value they have tied up in the real estate so they can use the capital more productively," says Mr. Vick. Physician-owners seeking capital on-hand for other investment opportunities will find a market full of eager buyers prepared to offer favorable prices.
3. Lease negotiations. Real estate transactions need not affect the ASC's day-to-day activity. "When ASC real estate is sold, the physician-owners can 'lease back' the property simultaneously with the sale so there is no disruption in operations," says Mr. Vick. Lease terms that tend to yield higher price offers include:
• 10 to 15 year terms with renewal options
• Triple-net
• Market rate rent
• Three percent annual rent increases
• Lease guarantee by the ASC and a corporate and/or hospital partner
"If the sellers are considering partnering with a corporate partner or a hospital, it is almost always better to transact the real estate sale first as this establishes beneficial terms for the sellers so they will get the highest possible price without creating a conflict with their corporate/hospital partner," says Mr. Vick.
4. Keys to success. Here are five keys to a successful ASC real estate transaction, according to Mr. Vick:
• Attractive lease terms
• Market rate rent
• Long (10 to 15 years) terms to attract multiple buyers
• Competitive purchase offers for negotiation leverage
• A broker and an attorney with specific ASC real estate transaction experience
A common mistake owners make is to engage a local commercial real estate broker who does not have buyers for ASC real estate.
5. Benefits to expect. With numerous eager buyers prepared to offer competitive pricing, it's a seller's market. "For example, for a 10,000-square-foot ASC with a 12-year lease and rent of $30 per square foot we are seeing cash offers in the neighborhood of $4 million and higher," says Mr. Vick. Physician-owners are able to lease back their ASC on a long-term basis and treat rent and repairs as deductible expenses.
Jonathan C. Vick, the founder and President of ASCs Inc., has assisted in development, merger, strategic acquisition and real estate sales transactions for over 250 physician-owned ambulatory surgery, endoscopy centers and surgical hospitals since 1984. He has extensive experience in ASC and EC sales, development, business planning, operations, valuations, and strategic mergers & acquisitions. He can be reached at 760-751-0250 or at jonvick2@ascs-inc.com. More information can be obtained at www.ascs-inc.com.
More Articles on Transactions and Valuation Issues:
The Value of Ambulatory Surgery Center Design: An Inside Look at the Architectural Process
A Look at ASC Valuation Through the Eyes of M&D Companies
ASC Ownership Sales: 4 Things to Consider Beforehand