Healthcare Advisory Practice: Capital Markets Integrated, Strategic Real Estate Solutions 1
Why Physicians are Pursuing Sales of ASCs or MOBs HINDRANCE TO RECRUITING NEW PHYSICIANS Real estate ownership can be a hindrance to recruiting new physicians. Many physicians are not interested, or do not have the required capital, to invest into a real estate partnership. RETIREMENT PLANNING Older physicians are retirement planning, or are already retired, and have other uses of the capital they have locked up in real estate. HIGH VALUES OF HEALTHCARE REAL ESTATE A significant amount of capital has been raised to acquire medical buildings and there is a lack of quality inventory available for purchase. This supply and demand disconnect, combined with low interest rates, has forced buyers to pay high prices. RISING INTEREST RATE ENVIRONMENT It is expected that the federal reserve will continue to raise interest rates throughout 2018. As interest rates rise, the cost of capital increases, investors must reduce their acquisition price in order to provide for their yield requirements. As interest rates rise, the value of commercial real estate declines. CONSOLIDATION OF PRACTICE Many practices have sold a portion of their business, or are in the process of selling a portion of their business. ASCs are being sold to a national surgery center management company (SCA, USPI, AMSURG, Covenant Surgical Partners, Surgery Partners, among others). Physician groups are consolidating with healthcare systems or larger groups. This creates a credit enhancement of the tenant and increases the value of the building. The sale of the business is a prime opportunity to negotiate a long-term lease that also increases asset value. CAPITAL RAISING EVENT A sale of the real estate can be used as a capital raising event to re-invest into the healthcare business via expansion of the building, opening a new location, purchasing equipment, or recruiting new surgeons. Oftentimes, physicians will make a greater return on their capital by investing in their business versus their real estate. CORE COMPETENCY IS NOT REAL ESTATE OWNERSHIP Physicians realize that real estate ownership is not their core competency and by selling to a professional owner and operator of healthcare assets, they are no longer required to commit time and capital owning their building. AVOID VIOLATIONS OF STARK LAW These laws prohibit physician self-referral, specifically a referral by a physician of a Medicare or Medicaid patient to an entity providing designated health services if the physician (or an immediate family member) has a financial relationship with that entity. 2
Why Physicians are Hiring Our Team We know where pitfalls lie in a healthcare real estate transaction. Having sold over 100 medical office buildings with a market value exceeding $700 million, we are experienced at our craft and know how to avoid surprises. Over $180 million of our transaction volume has involved an ASC component. Unmatched pulse on the healthcare real estate market. We track every sale, perform our own transactions, and have an ongoing dialogue with every investor actively engaged with the market. We have a depth of relationships with every active real estate investment trust (REIT), private equity backed healthcare real estate fund, qualified high net worth private investors, and foreign capital sources. We are committed to creating a market for every asset we are hired to sell. We firmly believe it is not in our client s best interest to bring one or two buyers to an assignment. We create markets, force competition, and maximize value. We have experience with the most prominent ASC management companies including SCA, USPI, AMSURG, Covenant Surgical Partners, Surgery Partners, etc. We pride ourselves on spending significant time consulting owners prior to taking an asset to market. We have an abundance of case studies that prove our ability to advise on structuring brand new long term leases that include other terms the market will deem attractive. Physicians have significant leverage when it comes to determining the role a new owner will play after a sale. We travel to meet every client and tour every asset we are engaged to underwrite. It is impossible to make sure values are maximized unless an advisor understands the nuances of the building, tenant/practice, and market. We understand that there are concerns about how an asset will be managed after a sale has concluded. Part of our process includes soliciting offers from the market and then educating the building ownership on each buyer s background. Top bidders are invited to interview with the physician sellers. Selecting the right partner is for the physician sellers is paramount. Physicians that sell their assets do not want to lose control. By working with the seller s attorney, we are able to structure a lease that allows for all the control a physician group requires post sale. For example, an Absolute NNN lease structure allows for the practice to maintain and manage the facility how it has always been run with almost zero involvement from a new owner. We are competent in a plethora of transaction structures including tax deferral through 1031 exchanges and umbrella partnership real estate investment trusts (UPREIT). We also work with investors that are open to having individual physicians reinvest their proceeds from sale into the new ownership structure (option for a group with a split decision between physicians that want to sell and others that want to maintain ownership). All of our services come at no cost until a sale occurs at a price that is agreeable to the seller. At that time, we are compensated based on a percentage of the sale price. That percentage varies based on the price and difficulty of the assignment. 3
Featured Transactions $803 M Volume Sold 135 Properties Sold to Date Chicago Medical OfficePortfolio Various Locations (Chicagoland,IL) 401,428 SF $131,000,000 21st Century Oncology Portfolio FL, CA, NV, WV, KY 224,150SF $117,216,153 Southwest Houston Medical Office Portfolio Houston, TX 146,651 SF $58,000,000 Memorial Hermann Katy Medical Complex Katy, TX 108,066SF $40,400,000 Bronson LakeView Outpatient Center Paw Paw (Kalamazoo),MI 100,321SF $30,430,000 Wisconsin Medical Office Portfolio Milwaukee, WI (4 Locations) 112,322 SF $30,200,000 Physicians Primary Care of Southwest Florida Portfolio Southwest Florida (6 Locations) 81,541SF $28,500,000 Dermatology Associates of Wisconsin Portfolio Manitowoc,WI 93,142SF $28,339,280 Health Center South Dothan, AL 91,686SF $27,052,000 *Recapitalization Fridley Medical Center Fridley, MN 60,476SF $19,845,000 OSF HealthCare Medical Office Building Rockford, IL 55,416SF $15,700,000 Blaine Medical Center Blaine, MN 76,637SF $14,575,000 4
Value in Action CHICAGO MEDICAL OFFICE BUILDING PORTFOLIO Nine Locations Throughout Chicagoland, IL 401,428-Square-Foot, Nine Property Medical Office Building Portfolio 95 Percent Leased Overall 54 Percent Leased to Illinois Bone & Joint Institute One of the Largest Orthopedic Groups in the Country Long-Term Leases Allowed Our Team to Generate Significant Interest from Private Equity, Institutions, and REITs Multiple Offers were Sourced Throughout the Duration of the Marketing Period Due to Our Team s Customized Platform and Specialized Marketing Campaigns Represented Both Buyer and Seller with the Sale Ultimately Going to a Well-Qualified, Local Joint Ventured Fund Targeting Healthcare Real Estate $131 Million $326.34 401,428 SF Sales Price Price/SF Total SF 5
Value in Action OSF HEALTHCARE SYSTEM MEDICAL OFFICE BUILDING Rockford, Illinois Single-Tenant Net-Leased Cardiovascular Facility 11 Years of Base Lease Term Remaining at Close of Escrow Services Provided at this Location Include Cardiovascular, Sleep Lab, Imaging, Rehabilitation Credit-Enhancement Provided by OSF HealthCare System s Acquisition of Previous Tenant, Rockford Cardiovascular Associates 100 Percent Master Lease Guaranteed by OSF HealthCare System The property is strategically located across the street from the OSF Saint Anthony Medical Campus, a 254-bed tertiary care facility on a 100-acre campus on the east side of Rockford $15.7 Million Sales Price $325.56 Price/SF 48,225 SF Total SF 6
Value in Action SOUTHWEST HOUSTON PORTFOLIO Four Locations throughout Katy and Richmond, Texas 100% Occupied, Four Medical Office Building Portfolio 146,651 RSF Anchored by Memorial Hermann / USPI Surgical Hospital and UT Physicians Represented both the buyer, an institutional healthcare real estate investment group, and the sellers, a partnership of physicians and executives previously affiliated with Richmond Bone & Joint Clinic. Advised ownership on the negotiation of a new 10-year lease with Memorial Hermann Surgical Hospital and its partner, United Surgical Partners International (USPI), as well as new five-year leases with UT Physicians at the outpatient facilities $58 Million $395.50 146,651 SF Sales Price Price/SF Total SF 7
Healthcare Advisory Group About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter. Follow us on Twitter @CushWakeHealth Gino Lollio Managing Director Healthcare Advisory Practice, Capital Markets (312) 338-7061 gino.lollio@cushwake.com View LinkedIn Profile Scott Niedergang Managing Director Healthcare Advisory Practice, Capital Markets (312) 338-7060 scott.niedergang@cushwake.com View LinkedIn Profile