Physicians are often faced with making real estate related decisions during the life cycle of their professional practice. PYA, together with Realty Trust Group, offers the following advice based on experiences with our own clients.
Office Consolidation Requires a Plan
Physician groups consider office consolidation for numerous reasons. Some of them leverage fixed costs in staff and infrastructure through consolidation of two or more multi-service physician practice offices to improve clinical and financial efficiencies.
Although these savings certainly make sense from a building cost perspective, it is important to evaluate the location, size, and planned patient-service mix for the new facility, considering the “market need” and not just building costs. The future strategy for the new location must help determine the best geographic location for the larger facility from a patient’s standpoint. It also should consider competitive responses so that the consolidation strategy does not leave a “market gap” for another medical provider.
To Own or Not to Own
Changes in the healthcare environment have encouraged many independent physicians to reevaluate their real estate ownership strategies. Although they have historically preferred to own their facilities, many physicians now need to redirect capital to support physician recruitment efforts, foster professional development, implement electronic medical records, and keep pace with ever-changing medical equipment and technology needs.
Recent changes in the financial industry also may affect access to capital and may create additional liability for physician owners through requirements for personal guarantees. Physicians interested in changing their real estate strategy should carefully consider all of their strategic, operational, and financial circumstances prior to making a final decision.
It is Not Just About the Building
Often, there is too much discussion about architecture and construction costs and not enough attention to strategy, ownership or lease agreements, and controlling operating costs. Increasing the costs of a project for energy-efficient heating and cooling systems, windows, and roofing products is key for controlling future operating costs. Sound advice from legal counsel or a real estate professional can help ensure equitable treatment in a lease agreement with respect to rent economics, including tenant improvement allowances and annual rent escalators. Having the wrong ownership structure or an inequitable lease agreement may result in long-term effects that outlive the aesthetics of the building.
For additional information on PYA’s Healthcare Services and on medical practice real estate holdings, please visit our affiliate company, Realty Trust Group and contact the expert listed below.
