‘MEDICAL OFFICE REAL ESTATE INVESTING OFFERS A NEW AREA OF WEALTH CREATION FOR PHYSICIANS’

Physicians have a great opportunity to create additional personal wealth and it lies within their medical office lease. Historically, physicians have been satisfied with finding office space and executing a lease for such space. This represented a “cost of doing business”. In the past, physicians may not have realized that their lease had value in the real estate marketplace. This is why today, more than ever before, physicians are investing in medical office buildings, especially in the building where they lease space. A good medical office project can generate annual cash returns of between 12% and 17%. In addition to these annual returns, the appreciated value of medical office real estate can create significant appreciation value upon sale. The demand by purchasers for medical office buildings that are fully leased (90% or higher) has grown significantly creating a real opportunity for a physician to “cash in” on their need to lease space. How can a physician pursue this opportunity? In today’s market, any physician looking for medical office space should always inquire with the developer or owner if investment opportunities exist. There is an excellent chance that if the medical office building is a new development, the opportunity for a tenant to invest is very good. Developers today have several different investment programs and levels to encourage such investment. The reason the developer is willing to offer this investment is simple…a physician who invests in the building where they practice is more likely to stay in the building for a long period of time. Hospitals have also been very receptive to opening up on-campus medical office ownership to physician tenants for similar reasons. These hospital on-campus investments even became more valuable because of the relationship with the hospital. What to watch for … Since there is so much demand by investors, and healthcare real estate investment trusts (REIT) are so aggressive in pursuing medical office investments, physicians need to be certain that the cost of investment does not become inflated. Physicians, when exploring new facility investment with third party developers, should pay attention to the legal structure, the financial exposure, control and management as well as a solid understanding of the ultimate exit strategy. Also in reviewing financial pro-forma (projected) information, they should be certain that reasonable rental rates exist, the vacancy rate used is reflective of the local market and assure the reasonableness of any projected sale price. More important than the projected sale price at some future date is the projected annual cash flow which supports a solid investment return. If properly structured, the ownership of medical office real estate in today’s market offers an excellent opportunity to increase wealth. This is done by leveraging the same tenant lease that is an operational expense to a physician practice. Contributed by Denny Freudman, President Healthplex Solutions