Healthcare vital signs: The advisors

What is true right now

Advisors do not need a market update. They need a reason to raise the real estate question with a client, and this quarter gives them a good one.

Capitalize on the conversation advisors are already having with their clients about practice transitions. The real estate is usually the piece that gets addressed last and costs the most when it does. An advisor who raises it early looks prescient to their own client.

Your client's building is valued on documents, not on square footage.

The 100- to 170-basis-point spread between provider-owned and institutionally owned medical assets is largely a function of lease documentation, term, escalations, rent at market, expense structure and assignment language. Advisors who address these before a transaction protect real value. Addressed after, the same items become a discount. The good news is that all of them are fixable in advance.

A practice sale that ignores the real estate leaves money in the wrong entity.

Corporate and private equity acquirers increasingly separate the practice from the real estate. When the real estate question is answered late, the physician-owner tends to end up with a below-market lease, an unfavorable term or both, which permanently impairs the asset. Sequencing it early is the whole game, and it is squarely in the advisor's hands.

Where the opportunity is

Here’s the question worth raising with every physician-owner client this year.

Cap rates have been stable for four quarters, private buyer demand is at a cycle high and occupancy is at a cyclical peak. That combination makes the sell, hold or sale-leaseback analysis worth a genuine refresh, including 1031 exchange positioning, retiring-partner buyouts and cleanup of the real estate entity ahead of a practice transaction.

Why the appraisal and the market disagree, and what to do about it.

This is an education opportunity for advisors on the mechanics behind the provider-owner cap rate gap. Below-market rent set for tax convenience, short remaining term and undocumented expense responsibility each translate directly into a lower clearing price. All three are fixable in advance, which is exactly the kind of insight an advisor wants to be the one to bring.

Timing the real estate decision around the practice decision.

With real estate investment trusts (REITs) being net sellers and private capital now more dominant, buyer composition has shifted in ways that affect structure, diligence and closing certainty. Advisors who understand who is actually buying can sequence the real estate and practice transactions to their client's advantage.

Learn more about Northmarq's National Healthcare Group

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