healthcare real estate seminar

HEALTHCARE Realty & Development Services

Building Foundations for the Future

Medical Practice Real Estate Strategies


Real Estate Strategies

There are 3 components to medical real estate-

OperationsLocationDesign & Construction


We discussed “Operations” in Part 1:

Operations determines the physical function of the proposed facility and location.

Three Components

Location Design

Operations


Real Estate is an investment?

Your “plant” is an investment that you investmoney in every month in the form of:

Rent or mortgage paymentsUtilitiesMaintenance & repairsManagementTaxes & InsuranceCapital improvementsTime


Maximize your investment through analysis!

Location & SiteDemographicsCompetitionAccess to servicesAccess to referralsFinancial FeasibilityOwnership


Location, Location, Location …

• A good location provides:• Transportation Access• Easy site accessibility• Visibility & Signage• Adequate Parking• Utilities


Here is a recent example:


Demographics:

Age of local populationPopulation densityEmploymentPayor mixIncidence of diseaseCompetitorsPotential referral partnersPotential services partnersComplementary services


Financial Feasibility

Own or leaseEquity & Debt requiredOperating expensesStartup expensesStaffingIncome projectionsAppreciation/depreciationTax consequencesCredit and borrowing capacityExit strategy


Some basic questions:

How much space do you need?Do you prefer to own or rent?In what general area would you like to locate?When do you need it?How much do you want to spend?What length of term, if lease?Will you pay for improvements if needed?


How much space do you need?

How much space do you have?Where does it hurt?Are you adding services?Are you adding physicians or extenders?Prepare a Program of Spaces


Helpful planning hints:Physician % 1,500 sfWaiting % 18 sf/per patientReception / Intake 75 sf for first, 50 sf for each additionalExam room % 100 sfMD office % 150 % 180 sfProcedure room % 160 sfBathrooms % 60 sfNurse station % 40 sf per personStorage % 80 sf / 1,000 sfParking % 7 spaces/ 1,000 sfParking lot % 400 sf/parking space


Ownership

Advantages:

Appreciation in valueDebt reduction %pay downprinciple each paymentTax benefitsControl over property & useStable occupancy costs

Disadvantages:

Long term debt (20 % 30 years)

Significant down payment(25%)Less flexibility- react tomarket conditionsDisposition- specialized bydesign


Leasing

Advantages:

Equity - very little cash is requiredDebt - a lease is a financial obligation but does not require long term debt. This cash can be used to invest elsewhereTerm - leases tend to offer greater flexibility due to the shortness of the term

Disadvantages:

Cost - leased space costs more to provide a return on investment to the ownersFlexibility - less flexibility - may be required to relocate within buildingTenant Improvements - approval required for improvements to the spaceControl % less control over other occupants and uses


How to find space:

Word of mouthAdvertisements(Craigslist, newspaper,flyer)LWDA (not MBWA)Internet searchSolicitationsHire a real estate agent


How much space are you getting?


How much space are you REALLY getting?


A word about Brokers:

Commercial vs residentialLarge companies vs smallHow are they paid Benefits of using a healthcare brokerWhat to expectIncreasing broker effectiveness


Leasing Real Estate

The nuts and bolts of protecting yourself!!


Know how much space you are getting!


What is included in rent?

UtilitiesSuite MaintenanceCommon area chargesAmortized tenant improvementsReal estate taxesProperty insuranceManagement feeCapital repairs & replacement (HVAC)


What are lease terms?

Length of leaseAnnual escalationsDeposits requiredRenewal termsTenant improvement allowanceTax treatment of improvementsImportant Clauses


Tenant Improvement Considerations

How much will owner contributeWill owner finance amount over allowanceWho pays architectWho pays impact feesIs a construction period providedHow long is construction periodWhat may I take at lease endTax treatment of improvements


Important lease clauses!

Relocation

Exclusivity

Approved occupancies

Holdover

Restrictions on use

Hours of operation

Return to original condition

First right of refusal on

adjacent space


Buying Real Estate



Due Diligence is Required!

Need 60 % 90 days to assess property:EnvironmentalZoningUtilitiesEndangered speciesWetlandsSoils compaction / sinkholesSurvey / encroachmentsEasementsTitle defectsDeed restrictions


Need time to arrange financing!

Can be pursued concurrent with due diligence.

Need 30 days upon completion of due diligence for commercial financing


Buy more property than you need!

Do not constrain future growth by purchasing property that meets your current needs.

Provide additional space for expansion.


Building a new Facility



So, you want to build!

Important Considerations:

It always takes longer than you thinkIt always costs more than you thinkYou will make changes along the wayThere will be important and timely decisions requiredRemember % this is a “plant”Select the right TEAM


Your TEAM consists of:

LenderAttorneyAccountantReal estate advisorArchitectBuilding ContractorOwner’s representative


Some typical cost considerations

Design Fees 4 % 7%Paint and flooring: $15 / sfDemolition $7/sfMinor renovations: $18 - $25 / sfNew building shell: $80 /sfStandard interior improvements: $50/sfModerate interior improvements: $65/sfSurgical / Diagnostic Radiology: $85 - $125/sf


Key factors for success

Architect and contractor must have medical experienceMust create and adhere to a scheduleMust create and adhere to the budgetLimit changes after permitting


Conclusion

The decision to own, lease or construct a new facility is an important practice and financial consideration.

This decision will likely impact the direction of your practice for many years and should not be undertaken without professional advice and consultation.


For more information

Frank RicciPrincipal

Healthcare Realty & Development Services300 N. New York Avenue, #2802

Winter Park, Fl 32789

Ph: 407-947-5074Email: [email protected]

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