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Why sell and leaseback your ASC/MOB real estate? How to maximize the value of your property.

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.

 

Since 1984 Jonathan C. Vick, the founder and President of ASCs Inc., has advised ASC physician-owners on development, merger, and strategic acquisition transactions for over 500 physician-owned ASCs, endoscopy centers (ECs) and surgical hospitals. He has extensive experience in ASC and EC sales, real estate sales and leasebacks, valuations, and mergers & acquisitions. He can be reached at 760-751-0250 or jonvick@ascs-inc.com.

Multi-specialty ASC real estate sells for $6,000,000, a CAP rate of 6.62%

J.H. WINOKUR, INC., of White Plains, New York, in association with ASCs Inc. of Valley Center, California, brokered the sale of the real estate of the Dublin Surgery Center, located in Dublin, Ohio.

The Dublin Surgery Center is a 14,416 square foot multi-specialty ambulatory surgery center with four operating rooms and two procedure rooms.  The Dublin Surgery Center physicians partnered with Surgical Care Affiliates, now part of UnitedHealth Group’s OptumCare, and signed a new 15-year lease.

The property was sold on behalf of the physician-owners to a real estate investment fund.  The transaction closed at a price of $6,000,000, representing a 6.62% CAP rate.

Do you own your ASC real estate?

ASCs Inc. helps physicians who own their ASC/MOB real estate to sell it at a premium price and leaseback with no change in rent.  Many physicians who own their ASC/MOB real estate don’t realize how much value their real estate represents. Physicians usually have significant capital locked up in real estate that could be deployed in higher yielding investments. There are a growing number of private investors and real estate investment companies that realize what great businesses ASCs have proven to be.  These buyers are offering premium prices to acquire ASC/MOB real estate. In every situation, each ASC/MOB property we offer for sale attracts multiple premium-priced offers within 30 days of being listed.

Our goal is to help physician-owners of ASC/MOB real estate to obtain maximum value and optimum terms for the sale and leaseback of their real estate, with long-term leases and no personal guarantees.

Click here to view a list of our recent ASC/MOB real estate transactions.  These transactions demonstrate the demand that exists for medical real estate when marketed by a firm with national buyers — local commercial realtors typically do not have access to these buyers.  We market to national buyers who compete to buy the properties we represent and we consequently obtain the highest possible prices for our clients.

When you want to sell your ASC real estate, call us at 760-751-0250 to discuss the process and how to obtain the highest possible value.

Selling ASC Real Estate: 5 Things to Know for Flawless Transactions

Ambulatory surgery center physicians often own the ASC’s business and real estate. “Over the last year the stars have aligned so that owners of ASC/medical office building real estate can now sell at a very attractive price, get cash for their real estate, lease back the ASC at market rate rent and realize significant tax advantages,” says Jonathan Vick, founder and president of ASCs Inc.

Mr. Vick explains why the current climate is favorable for real estate sale and the steps physician-owners can take to complete a smooth transaction.

Read more at Becker’s Hospital Review

What ASC Physician-Owners Need to Know About ASC Real Estate Sales & Leasebacks

Oftentimes ambulatory surgery center physicians own not only their center, but its real estate as well. Jonathan Vick, founder and president of ASCs Inc., answers questions on successfully selling ASC real estate and obtaining favorable leases for the buildings.

Question: When does it make sense for ASC physicians to consider a lease back transaction for their center?
To find out the answer to this question, and more, click here.