HEALTHCARE CAPITAL MARKETS€¦ · Unmatched pulse on the healthcare real estate market. We track every sale, perform our own transactions, and have an ongoing dialogue with every

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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.

Why Physicians are Pursuing Sales of ASCs or MOBs

Gino LollioManaging Director (312) [email protected]

Scott NiedergangManaging Director (312) [email protected]

Kyle SeychelBroker Associate(312) [email protected]

Chad KozaritsFinancial Analyst(312) [email protected] 2

� 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.

Why Physicians are Hiring Our Team





A real estate sale-leaseback is a transaction in which the owner-occupant sells the land and building used in its business to a special purpose investor and then simultaneously leases the property back from the investor on lease terms agreed to concurrent with the real estate sale transaction.

Sale-leasebacks, in this instance, are when healthcare providers sell a fixed asset, typically medical office buildings, and then lease them back from the buyer – allowing seller(s) to gain access to cash fairly quickly. This allows them to pay down debt, immediately improve their balance sheet and cash position allowing them to gain access to capital to fund core projects if other avenues, such as grants or donor contributions, are not adequate.

The relative healthy performance and steady cash flows of medical office buildings has made them a much sought after property type by institutional investors and real estate investments trusts. Medical office buildings are also perceived as somewhat recession-resistant, since demand for medical care is strong in both good economic times and bad.

BENEFITS OF A SALE-LEASEBACK TRANSACTION

100 Percent FinancingSale-leaseback proceeds are equal to 100 percent of property value, in context to a loan, which only funds 65 percent to 75 percent of value.

Improved Balance SheetBy selling the real estate, the company is converting long-term non-liquid asset into working capital. In addition, a mortgage appears on the balance sheet as a liability, while an operating lease does not.

Off-Balance Sheet TransactionNo obligations are shown on the balance sheet, as sale-leaseback transactions receive operating lease treatment.

Improved Income Statement The real estate sale can reduce the negative impact of depreciation and interest on income statements.

Access to CapitalThe sale-leaseback capital received from the

transaction can be deployed in core operations that yield higher returns than appreciation of real estate.

Debt ReductionThe proceeds also can be used to pay down existing debt and eliminate future refinancing risk.

Better Access to Long-Term Capital MarketsWith an improved balance sheet and income statement, a company can improve its credit status and have better access to a variety of capital sources.

Tax BenefitsBy leasing its facility, a company can write off its entire rent payment, rather than only the interest portion of a mortgage payment.

Maintain ControlThe lease agreement is structured so that the tenant maintains full operating control over the space it occupies because it is designed to mirror ownership.

SALE

SELLER BUYER

LEASES

RENT

About Medical Office Buildings Sale-Leaseback Transactions





$833 MillionVolume Sold

140Properties Sold to Date

Chicago Medical Office Portfolio Various Locations (Chicagoland, IL) 401,428 SF$131,000,000

21st Century Oncology PortfolioFL, CA, NV, WV, KY224,150 SF$117,216,153

Southwest Houston Medical Office PortfolioHouston, TX146,651 SF$58,000,000

Memorial Hermann Katy Medical ComplexKaty, TX 108,066 SF$40,400,000

Bronson LakeView Outpatient CenterPaw Paw (Kalamazoo), MI100,321 SF$30,430,000

Wisconsin Medical Office PortfolioMilwaukee, WI (4 Locations)112,322 SF$30,200,000

Physicians’ Primary Care of Southwest Florida PortfolioSouthwest Florida (6 Locations)81,541 SF$28,500,000

Dermatology Associates of Wisconsin Portfolio Manitowoc, WI93,142 SF$28,339,280

Health Center South Dothan, AL 91,686 SF$27,052,000*Recapitalization

Fridley Medical Center Fridley, MN 60,476 SF$19,845,000

OSF HealthCare Medical Office Building Rockford, IL 55,416 SF$15,700,000

Blaine Medical Center Blaine, MN 76,637 SF$14,575,000

Featured Transactions





CHICAGO MEDICAL OFFICE BUILDING PORTFOLIONine 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

401,428Total SF

$131 MillionSale Price

$326.34Price/SF

Value in Action





FLETCHER DRIVE MEDICAL CENTERElgin, IL

■ 39,734-Square-Foot | 100% Occupied Medical Office Condo Building | All Unit Owners Have Agreed to Pursue a Sale

■ NNN Lease with Minimal Landlord Expense Responsibilities

■ All Leases Include Annual Rent Escalations of 2.00% or Greater

■ 21% of Rentable Square Feet Leased by Advocate Health Care (S&P AA+)

■ Illinois Gastroenterology Endoscopy Center, LLC has an Approved Certificate of Need (C.O.N) in Place and Performs Over 5,000 Cases Per Year

■ 70% of Rentable Square Feet Committing to 10 Year Leases at Close to Escrow

39,734Total SF

$10 MillionSale Price

$250.00Price/SF

Value in Action





cushmanwakefield.com

Cushman and Wakefield’s Healthcare Capital Markets Team works hand-in hand with the 300+ members of the firm’s Healthcare Advisory Practice and 350+ members of the firms Capital Markets Division nationwide, providing local market intelligence combined with national capital markets expertise. The Healthcare Advisory Practice is comprised of real estate professionals from every major market around the country, drawn from a variety of disciplines including consulting, brokerage, project management, property/facilities management and valuation.

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries.

Gino LollioManaging DirectorUS Healthcare Capital MarketsDirect: (312) [email protected]

Scott NiedergangManaging Director US Healthcare Capital MarketsDirect: (312) [email protected]

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HEALTHCARE CAPITAL MARKETS€¦ · Unmatched pulse on the healthcare real estate market. We track every sale, perform our own transactions, and have an ongoing dialogue with every