One of my favorite listings in the past year was possible because two of the four doctors who owned a beautiful medical office building decided to leave private practice and go work for a hospital or health system. That is a major trend affecting healthcare — and healthcare real estate.
Many doctors dream of having their own private practice, working the hours and days that suit them, seeing patients in convenient locations and keeping the profits for themselves. But recent changes in healthcare due to the Patient Protection and Affordable Care Act (ACA) has forced many independent physicians to leave private practice and go back to being someone else’s employee because their profits have disappeared.
One requirement of the ACA is that hospitals and physicians must invest in new technology and equipment. Electronic medical records (EMR) are part of these requirements, and many doctors have found that it is not economically feasible for their practice. They have also learned that staying on the cutting edge with medical equipment is another high cost of being in the medical field. Hospitals are better suited to these constant costs and will invest in EMRs and other equipment.
Physicians are also experiencing lower reimbursement rates from Medicare and insurance companies. Doctors must work with patients who are learning to shop for lower-cost medical treatments. Consumers use technology to manage and track their own health, taking more responsibility for their related expenses to offset high insurance premiums.
When a doctor owns a medical office building and decides to become an employee of a health system or hospital, that doctor’s building will usually be vacated. The health system may purchase the property and allow the doctor to continue working there, but often the doctor will be relocated to a system-owned property while still having to make payments on his building loan. Usually the vacated building is listed for sale with the intent of selling it to another user.
The seamless replacement tenant is another doctor or group of doctors who need clinical space. However, the vacant medical office building can also be used for typical business offices. Some tenants will remove the sinks and cabinets in the exam rooms, turning the space into normal business offices. Others will leave the sinks and cabinets, and possibly resurface them to be used as the employees’ file cabinets, book cases and wet bars.
The buildings can also be repurposed for different medical uses. With the popularity of urgent care, emergency centers and surgical centers, the well-located building, particularly in the suburbs, may be on the market only a short time before being sold for new medical uses.
One other good option for a well-located property is to lease it to other doctors or businesses. In addition to being ongoing income for the owner-physician who moved out, it could also be sold (once leased) as an investment property to a private investor or REIT. Depending on location, quality, age and the like, an investment offering could result in an excellent sale price.
The best thing a doctor can do when faced with decisions about his or her medical office building and a career change that affects his business location is to hire a broker who specializes in the sale and leasing of medical properties. The options available through well-done marketing can provide a great return on the physician’s former business location.
Beth (CCIM, LEED AP) is a healthcare real estate advisor to health systems with a specialty in the sale of investment properties including hospitals, surgery centers and medical office buildings. She was a former pilot, professional pianist, and dance instructor who co-owned a 25-thousand acre ranch in Wyoming before flipping Texas real estate to fund her early brokerage career.