The passage of the Affordable Care Act (ACA) will have a major effect on the medical real estate market. This is a result of the large number of baby boomers in South Florida and the number of uninsured and underinsured people who will soon have medical insurance. The ACA will create a higher demand on future healthcare services. We have found an increasing demand for medial office space as hospitals and other healthcare providers continue their expansions into healthcare facilities. These outpatient facilities are being planned or developed both on on-campus and off-campus locations. We have also encountered an increased demand for physician offices, urgent care centers, ambulatory surgical centers, diagnostic centers and specialty treatment centers.There is also a growing trend towards hospital owned physician groups. In some cases, hospitals are leaving the physicians in their current location, and in other cases hospitals are building or acquiring medical office buildings and relocating the newly hired doctor groups into those buildings. Family practice groups and internal medicine groups are better served being out in the community and not on campus.
Hospitals have already began staking their claim in their geographic areas by either purchasing land or buildings and putting their brand on these locations.
Physician groups trying to determine whether to purchase a medical office building or condo or continue leasing medical space should review the following considerations:
• Flexibility- The growth phase of the practice should be taken into consideration in making the lease vs. own decision. If the practice is relatively new or in a high growth mode, leasing will allow more flexibility and impose fewer constrains on that growth. The length of time that one plans to practice in the area should also be considered. On the other hand, if the practice is established and stable, owning office space maybe a great way to meet future office space needs. We suggest that a physician group take extra space for growth. The space can be leased until it is needed for expansion
• Initial Cash Expenditures- Typically a physician can expect to make a down payment of 10% to 20% of the purchase price. In addition, there will be a cost for the improvements of the office. Leasing office space, on the other hand, requires a security deposit and a rental payment. In some cases, improvement costs are required by the physician. The physician also needs to determine the amount of money needed for other business expenses.
• Control of Costs- If physicians purchase medical space they have a good idea of what the costs will be in the long run. If the space is leased, the escalation clauses in the lease or the market will dictate what the rent will be over the long run.
• Financial Aspects- In order to fully understand the financial aspect of purchasing medical office space, physicians need to have a knowledgeable professional prepare a detailed comparative financial analysis.
Getting advice from professionals (accountants, lawyers, and commercial real estate brokers) who specialize in healthcare can significantly improve the accuracy of the analysis. Having a helping hand from these experts will assure that you make the best decision.
Physicians who have taken “a wait and see” attitude over the past few years have decided to move forward with their plans. We have seen an increase in both the purchase and lease of medical properties by physicians during the last three months.
