Today, healthcare workers are facing an increasing number of stressors due to the pandemic, economic downturn, and ongoing labor shortages. For independent physicians that own the building in which they practice, running a business on top of being a medical doctor can contribute to added stress.
“With 63% of physicians reporting burnout symptoms, chances are physicians in your private practice likely spend way too much time on nonpatient-facing tasks,” according to the AMA.
As healthcare real estate experts, we’re seeing more and more physicians who own their medical offices opting for a sale-leaseback structure. Here are the biggest considerations for doctors exploring this option.
A Case for Sale-Leasebacks
For context, a sale-leaseback is “a transaction type that occurs across most commercial real estate sectors, including retail, industrial, office, and more.” In this structure, the owner sells their property to a third party and then rents back the space under agreed-upon terms.
“One of the main reasons physicians may choose to go this route is the positive financial impact. Selling the real estate asset increases a practice’s liquidity, flooding it with cash that can be used for several business-critical moves”
One of the main reasons physicians may choose to go this route is the positive financial impact. Selling the real estate asset increases a practice’s liquidity, flooding it with cash that can be used for several business-critical moves, such as: hiring personnel, purchasing new medical equipment, adding new services or investing in new opportunities.
Not only does selling free up significant funds for the business, but it also frees up hours of time spent managing a property. Maintenance, taxes, renovations – these aspects of ownership can eat up time spent on the medical practice.
Leasing the property back from the new owner means there’s no disruption to operations by looking for new spaces and moving to a different office.
Skipping the Leaseback
For some, simply selling the medical office without the leaseback portion is the best decision for their practice. This could be the case for several scenarios, such as physicians selling to become an employee of a health system, a trend that is on the rise.
As of a 2019 report from AMA, employed physicians outnumber self-employed, and about 108,700 physicians have left private practice since January 2019 per Becker’s Healthcare. Sale-leasebacks or simply selling the real estate may be
Other reasons a leaseback may not be a fit include relocating to a hospital-provided suite and retirement planning.
Other Factors to Consider
Between administrative duties, people management, payroll, caring for patients – and more – overseeing the maintenance and financials for an entire property can take its toll.
According to Constellation, building owners spend an average of $2.15 per square foot on repairs and maintenance. Selling a medical office can lower costs by removing related costs such as maintenance, repairs, insurance, and taxes.
Property value is another important consideration. As the building ages, more maintenance is required, meaning the property manager/physician must spend more time handling these issues and costs. If deterred, this can decrease the property’s value down the line when looking to sell.
Today’s market conditions are another aspect to take into account. Although interest rates are higher, it’s a seller’s market. Medical offices are a highly attractive asset class, offering recession-proof stability, amid the current economic volatility and a potential recession.
There are fewer medical properties for sale in comparison to the large number of buyers looking to invest in healthcare assets, creating a competitive environment for available buildings. Selling the real estate, whether as a sale-leaseback or pure sale, may be the solution to reducing stress, increasing income, and having more time to focus on the business of being a physician.