Latest Insights

Why sell and leaseback your ASC/MOB real estate?

January 26, 2018

Written by Jon Vick, Founder and Managing Partner of ASCs Inc.

Why sell and leaseback your ASC/MOB real estate?

At the Becker’s ASC Review 24th Annual Meeting: The Business and Operations of ASCs, in Chicago on October 26-28, 2017, a seminar on How to maximize the value of your ASC/MOB real estate and defer taxes in a sale/leaseback was presented.  Following are questions and answers from that seminar.

Why sell and leaseback my ASC/MOB real estate? Many physicians who own their ASC/MOB real estate do not realize how much value their real estate represents.  These physicians have significant capital locked up in real estate that could be deployed in higher yielding investments. Take, for example, a group of 5 surgeons in Ohio who developed an MOB/ASC for $3 million 10 years ago, with a $2 million loan. Now the ASC is successful, is paying annual rent of $350,000 and half of the debt is paid off.  The rent they are paying themselves (and paying tax on) makes their real estate worth $5 million, but appreciating only at the rate of 2 percent to 3 percent a year, plus they are paying income tax on the rent. So, after selling and leasing back the real estate (with no increase in rent) and paying off the loan, the physicians have $4 million in cash to invest in higher yielding investments and no longer have to pay tax on the rent income.

How does a sale/leaseback work? An ASC/MOB broker with a network of national buyers will create a marketing package and send to 12 or more qualified buyers (REITS, private investors, family trusts, etc.).  This typically generates 6 to 10 competitive offers for your property. Typically, the buyer that offers the best price and terms will be selected by the sellers, who will receive cash on closing.  The ASC will continue to pay the same rent as before, paid to the new owner instead of to themselves.  The sellers will either pay a capital gains tax on the profits from the sale, which will be significantly less than the income tax they were paying for the rent they received, or they will defer the capital gains tax by buying one or more income-generating properties in a 1031 exchange.  This will also diversify the sellers’ investments.

How to sell and retain control?  Most sale and leasebacks are executed with a triple-net (NNN) lease.  This means that after the sale the sellers will continue to be responsible for the ongoing expenses of the property, including real estate taxes, building insurance, and maintenance, in addition to paying the rent and utilities so that the sellers continue to remain in control of the property.

How to maximize the value of your property:  Common mistakes made by sellers: Mr. Jason Winokur, a Principal of JH Winokur, Inc., a nationally recognized ASC/MOB real estate broker, presented the following mistakes that are commonly made by sellers:

• Rent is too low – should be market rate which is $30/sf to $40/sf.  The higher the rent, the greater the selling price.

• Leases are too short – should be 10 to 15 years, plus renewal options, to get the best price and most offers.

• Selling at the wrong time – sales should be made when interest rates are low as this will yield the highest selling price

• Selecting a local broker who has no buyers.  You should pick a broker who already has buyers for your property.

• Having only one offer to consider – sellers will always get a better price when there is competition among buyers

• Sellers not taking advantage of a 1031 exchange – this will defer taxes and give you tax-free use of the sales proceeds to reinvest in one or more income generating properties.

More Insights

Selling ASC Real Estate: Avoiding Mistakes

Seven Common Mistakes Made by Sellers of ASC/MOB Real Estate Many ASC physician-owners who own their ASC real estate may be considering a sale/leaseback to provide liquidity and a source of capital during the current slowdown. Due to the long-term success and profitability of surgery centers, excellent credit history and rent coverage, and the likelihood that the ASC will remain in the same [...]

May 6th, 2020|Featured Real Estate, Real Estate|

Tips for Maximizing ASC Real Estate Value

Many ASC physician-owners also own the underlying real estate and may not realize how valuable that property has become.  Due to the long-term success and profitability of surgery centers, excellent credit history and rent coverage, and the likelihood that the ASC will remain in the same location for many years to come, ASC real estate has become increasingly attractive to real estate investors.  [...]

January 3rd, 2020|Real Estate|

The ABCs of selling ASCs

For surgery center owners, at some point you will likely consider selling an interest in your practice, ASC and/or real estate. While the motivations are different for everyone, as are the expectations, there are certain aspects of any transaction that are vitally important to consider before you embark on the sales process. A is for AWARE. Be aware that while this is most likely [...]

Meridian ASC/MOB real estate sells for $6.8M

A 21,000-square-foot ASC/MOB property in Meridian, Miss., recently sold for a premium value of $6.8 million. Pain Concepts of Meridian, MS sold their property consisting of a freestanding Medicare certified two-operating room surgery center and medical office space to a Real Estate Investment Trust - in an all-cash transaction. The property, known as Total Pain Care, is the only free-standing surgical center dedicated [...]

March 29th, 2019|Real Estate|

Sale & Leasebacks of ASC/MOB Real Estate

At the Becker’s ASC Review 25th Annual Meeting: The Business and Operations of ASCs, a seminar on How to maximize the value of your ASC/MOB real estate and defer taxes in a sale/leaseback was presented.  Following are questions and answers from that seminar. Why sell and leaseback my ASC/MOB real estate? Many physicians who own their ASC/MOB real estate do not realize how [...]

February 20th, 2019|Real Estate|

Helping Physician-owners Sell Their ASC business

Given that many physicians who have sold their ASCs to a strategic partner (ASC management company, hospital or private equity firm) have done so by themselves, physician-owners of ASCs may be interested in better understanding what goes into a successful transaction and what to look out for. Here, Jon Vick, founder and president of ASCs Inc., and Jim Freund, partner at ASCs Inc., [...]

February 14th, 2019|Strategic Partnering|