Medical Office Sale Leaseback

Ever wonder how your medical practice could benefit from a sale leaseback? If you are a healthcare professional and you also own your office real estate, then a medical office sale leaseback could be a great option when you’re ready to raise capital for business growth, to pay down debt, or to sell your real estate due to a business sale.

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Medical Office Sale Leaseback

What is a Medical Office Sale Leaseback?

A sale leaseback, also known as a “leaseback”, is a useful and creative way for you to raise capital quickly by unlocking the value you have built up in your medical office real estate. You would start by selling your medical office real estate to an investor and then immediately lease the real estate back from the new owner at mutually agreed terms. Your office would continue to operate just like before, but you would now be the “lessee” (aka, tenant) in the property, and the buyer would be the “lessor” (aka, landlord). 

Here are the top reasons why you might consider a sale leaseback on your medical office real estate:

  • You want to expand your practice to more locations and you need capital to purchase/open these new location(s)
  • You need to restructure your balance sheet and/or pay down debt.
  • If your medical office is sold, the new owner might not be interested in purchasing the real estate along with the business and you could sell the real estate quickly through a sale leaseback to unlock your equity. 

To break it down, the simplest way to think about a medical office sale leaseback is this: You could sell your real estate and immediately lease it back from the new owner. This way, you get access to new capital but also continue to operate your practice just like before. 

What is a medical office sale leaseback?
Medical Office Sale Leaseback Advantages

Advantages of a Sale Leaseback for Health Professionals

If you operate a medical office that also owns real estate assets, there are many great advantages to pursuing a sale leaseback transaction. There are some disadvantages too, so it’s important to be clear on what your business goals are, and these goals should help determine whether a sale leaseback is right for you.

Benefits of a sale leaseback for the lessee/seller

  • You could quickly unlock any equity that’s “stored” in your real estate to help grow your practice faster.
  • You decrease your overall operational risk when you no longer own the office real estate and that risk now sits with the new owner.
  • You can improve the health of your business balance sheet by trading your mortgage (liability) for an asset (cash).

Benefits of a sale leaseback for the lessor/buyer

  • They get a lease that is guaranteed by your operating business
  • They get a consistent and predictable stream of income for a long period of time
  • They get a fair return on their invested capital

As you can see from these benefits, a sale leaseback can be a truly win-win scenario for both you, the health professional owner, and the buyer/investor alike. While there are many details that both parties need to agree on, such as the lease length, monthly payments, etc, the sale leaseback transaction provides many advantages and is a useful tool you should consider if you are looking to raise capital quickly for your medical office.

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Medical Office Sale Leaseback Risks

Like all transactions, there is always some risk involved and you should be aware of the common sale leaseback risks that could affect both the seller and buyer. These risks can usually be assessed and mitigated during the due-diligence phase so that both parties can be prepared to wisely complete their sale leaseback transaction.

Risks of a sale leaseback to the seller/lessee

  • You could have a new investor/landlord that’s difficult to work with.
  • You give up the future appreciation in your real estate.

Risks of a sale leaseback for the buyer/lessor

  • The tenant business could default on their lease agreement forcing an eviction.
  • The tenant business is in daily control of the real estate and could start using it in an unauthorized or illegal way.

While there are many considerations for both the seller/lessee and buyer/lessor, these common risks can be mitigated by each party before entering into an agreement. For example, if you operate a medical facility and are considering a sale leaseback, it would be worth your time to get to know investor first and speak with other tenants of the investor to get a clear picture of how they will treat you as the new landlord.

For the buyer/investor, it is important for them to mitigate these risks by understanding your business model and financial health of the tenant. Investors will want to know the strength of your business in terms of the following:

  • Is your medical practice growing or shrinking? 
  • What is the gross revenue of your practice for the past few years?
  • What entity will be guaranteeing the lease and what is that entity’s creditworthiness?
Medical Office Sale Leaseback Risks
Medical Office Sale Leaseback Examples

Medical Office Sale Leaseback Examples

While there are many medical office sale leaseback examples, here are a couple that should give you a clearer picture of why might choose to do a sale leaseback for your office real estate.

Example 1: Urgent Care Expansion

Christina and Brian own and operate two locations of a national urgent care brand in California. They were offered an opportunity to purchase another location in a nearby county. They researched what it would take to finance the purchase of the new location and realized that they would be able to purchase the new location without financing if they raised capital by selling  the real estate from their two current urgent care locations in a sale leaseback transaction. This would free up the capital they had built up over the years. This allowed them to purchase the new location without taking on any new debt and actually improved their balance sheet in the process. They removed their mortgage debt and increased their assets all at once. They came to an agreement with an investor and sold their urgent care real estate and immediately signed a 15 year lease to remain and continue to operate in the first two locations.

Example 2: Surgery Center Sale

Mark is a surgeon who owns and operates a successful surgery center near Chicago and he was looking to retire and sell his practice to a fellow surgeon. He decided that a sale leaseback transaction was the cheapest and quickest way to unlock his real estate equity and allow the new surgeon to continue as the new owner of the practice without forcing him to acquire the real estate as well. He found an investor who was willing to purchase the real estate for fair market value and immediately after the business sale happened, Mark sold the real estate and the new surgeon signed a longterm lease to lock in a great lease rate that will help control expenses into the future.

Hopefully, these two examples give you a better picture why you might consider a sale leaseback to unlock your medical office real estate equity.

Medical Office Leaseback Agreement

While the sale of your medical office real estate is the first half of the transaction, the leaseback agreement itself is equally important to both the you, the tenant, and the buyer/lessor. The primary concerns in the leaseback agreement itself are the lease length, and the amount of the monthly lease payments. You can use a sale leaseback calculator to understand how the sale price and the lease length and payment amounts are related. Typically both parties start their negotiation by using a standard leaseback agreement template that includes the primary elements of duration and monthly payments, but the agreement also should have any important details related to the responsibility of each party.

Here’s a partial list of elements any medical office leaseback agreement should have:

  • Length of lease in months
  • Monthly lease payment amount
  • Lease renewal options
  • Lease payment increases and timing
  • Entity that is guaranteeing the lease
  • Consequences in the case of a late lease payment or default on lease
  • Management and financial responsibility breakdown of various elements (Insurance, taxes, maintenance, improvements, roof, structure, HVAC etc.)
Medical Office Sale Leaseback
Sale Leaseback Companies

Next Steps

While there are plenty of commercial real estate brokers who would offer to help when you are ready to think through a medical office sale leaseback for your office real estate, there are actually few companies that specialize in the sale leaseback process. These select companies, like work directly with healthcare professionals to buy real estate directly from you, the owner, with zero fees and a quick process. We help you think through your options and potential pitfalls associated with a sale leaseback transaction for your particular situation. So, if you are considering a sale leaseback to raise funds for your business expansion or debt pay-down, start by letting us give you a free offer for your real estate.