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TENNESSEE ORTHOPAEDIC SOCIETY 
Challenges & Opportunities with Medical Real Estate 
Se p t e m b e r 27, 20 14
DISCUSSION AGENDA 
• RTG INTRODUCTION 
• TODAY’S HEALTHCARE INDUSTRY 
• TRADITIONAL REAL ESTATE OWNERSHIP MODELS 
• DISCUS...
• Healthcare Real Estate Advisory Firm that combines 
Industry Knowledge and Expertise 
• Affiliate Company of Pershing Yo...
Disclaimers: 
Please be careful associating general market conditions and assumptions 
with your individual real estate as...
TODAY’S HEALTHCARE INDUSTRY 
• Payment Reform is Transitioning to Value-Based Care System 
• Continued Shift from Inpatien...
AUDIENCE SURVEY 
Regarding your Practice’s Real Estate: 
• More than five (5) practitioners in your practice? 
• Own v. Le...
TRADITIONAL REAL ESTATE OWNERSHIP MODELS 
Physician tenants 
and/or a third-party 
owner create a new 
company or LLC to 
...
REAL ESTATE INVESTMENT TRUSTS 
What is a REIT? 
• Institutional Investor - Industry has grown to sixteen (16) public and n...
HEALTHCARE REAL ESTATE MARKETPLACE 
Billions $ Volume 
$8.0 
$7.0 
$6.0 
$5.0 
$4.0 
$3.0 
$2.0 
$1.0 
$- 
'01 '02 '03 '04...
HEALTHCARE REAL ESTATE MARKETPLACE 
Transactions by Asset Type 
(18 Month Period: December 2012 - May 2014) 
• Over 700 Tr...
HEALTHCARE REAL ESTATE MARKETPLACE 
Pricing Indicators 
9.0% 
8.5% 
8.0% 
7.5% 
7.0% 
6.5% 
6.0% 
5.5% 
5.0% 
4.5% 
4.0% 
...
HEALTHCARE REAL ESTATE MARKETPLACE 
Today’s Financing Environment 
Multi-Tenant 
Investment Property 
Refinance Existing 
...
HEALTHCARE REAL ESTATE MARKETPLACE 
Typical Investment Criteria 
• CREDIT - Risk Mitigation 
• Stability - Established Ten...
CASE STUDY: ARLINGTON ORTHOPEDIC ASSOCIATES 
• 21 Physician Practice 
• 2 MOB’s (49,660 SF) 
• 100% Occupied, Single-Tenan...
CASE STUDY: HARBIN CLINIC 
• 145 Physician Multi-Specialty Practice 
• 7 MOB’s (330,000 SF) 
• 100% Occupied, Single-Tenan...
TAKEAWAYS 
Key Considerations when Evaluating Real Estate Ownership Alternatives 
Know Your “Story” 
• Current real estate...
CORPORAT E O F F I C E - K N OXV I L L E 
On e C h e ro ke e M i l l s , 2 2 2 0 S u t h e r l a n d Ave n u e 
Knox v i l...
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Challenges and Opportunities of Medical Real Estate

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RTG 's Michael Honeycutt and President Greg Gheen presented “Challenges and Opportunities of Medical Real Estate” at the Tennessee Orthopaedic Society. They covered:
Current trends in real estate ownership.
Financing scenarios for physician-owned real estate.
Strategic considerations associated with different partnership structures for ownership.

Published in: Healthcare
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Challenges and Opportunities of Medical Real Estate

  1. 1. TENNESSEE ORTHOPAEDIC SOCIETY Challenges & Opportunities with Medical Real Estate Se p t e m b e r 27, 20 14
  2. 2. DISCUSSION AGENDA • RTG INTRODUCTION • TODAY’S HEALTHCARE INDUSTRY • TRADITIONAL REAL ESTATE OWNERSHIP MODELS • DISCUSSION OF REAL ESTATE INVESTMENT TRUSTS (REIT’S) • HEALTHCARE REAL ESTATE MARKETPLACE • CASE STUDIES • TAKEAWAYS
  3. 3. • Healthcare Real Estate Advisory Firm that combines Industry Knowledge and Expertise • Affiliate Company of Pershing Yoakley & Associates • Independent and Objective Advice • ADVISORY • OPERATIONS • CAPITAL PROJECTS • Serving Health Systems and Physicians RTG INTRODUCTION 1
  4. 4. Disclaimers: Please be careful associating general market conditions and assumptions with your individual real estate assets. Generally speaking, real estate is still very much a “localized” asset class. Consult your accountant, attorney or real estate advisor for information on local market conditions and advice on real estate ownership decisions. 2
  5. 5. TODAY’S HEALTHCARE INDUSTRY • Payment Reform is Transitioning to Value-Based Care System • Continued Shift from Inpatient to Outpatient Setting Source: The Advisory Board Company • Industry Consolidation / Competitive Pressures • M&A Activity • Hospital / Physician Alignment • Increasing Capital Demands for Providers • EMR / Technology • Medical Equipment • Physician Recruitment & Retention • Increased Regulatory Scrutiny 3
  6. 6. AUDIENCE SURVEY Regarding your Practice’s Real Estate: • More than five (5) practitioners in your practice? • Own v. Lease? • Multiple locations? • ASC investment (real estate)? 4
  7. 7. TRADITIONAL REAL ESTATE OWNERSHIP MODELS Physician tenants and/or a third-party owner create a new company or LLC to jointly own a medical office building, ambulatory surgery center, etc. Condominium Ownership Physician tenants own the suites they occupy in a medical office building; condominium association owns common elements. Direct Ownership Physician tenants wholly own a medical office building. Generally best suited for a single-tenant building. Physicians lease from a third-party owner, such as: • Hospital • Developer • Private Investor • REIT Joint Venture or Partnership Ownership MOB and Common Elements Third-Party Owner Physician Tenants Third-Party Ownership Physicians Owner-Occupant Single Tenant 5 Physicians Third-Party Physician-Owned Condominium
  8. 8. REAL ESTATE INVESTMENT TRUSTS What is a REIT? • Institutional Investor - Industry has grown to sixteen (16) public and non-traded REITs • Healthcare focus - many REITs invest in medical office buildings and other healthcare real estate assets • Generally two categories: • Equity (90%) • Debt • Three corporate structures: • Publicly traded • Publicly registered, not traded • Private • Generally seek long-term relationships • Extremely competitive with acquisition capital 6
  9. 9. HEALTHCARE REAL ESTATE MARKETPLACE Billions $ Volume $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $- '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Year # Transactions 87 122 245 289 462 693 654 547 249 380 396 722 797 Source: Real Capital Analytics Historical MOB Sales Volume 7
  10. 10. HEALTHCARE REAL ESTATE MARKETPLACE Transactions by Asset Type (18 Month Period: December 2012 - May 2014) • Over 700 Transactions • $6.75 Billion in Sales Volume • Average Cap Rate of 7.50% Acute (18) ASC (27) Dialysis (34) MOB Single Tenant (173) MOB Multi Tenant (430) Specialty Hospital (22) Source: Pulse on the Market: Healthcare Transaction Report, Stan Johnson Company, May 2014. 6% 10% 3% 2% 57% 22% 8
  11. 11. HEALTHCARE REAL ESTATE MARKETPLACE Pricing Indicators 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% Avg. Cap Rate '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 $250 $200 $150 $100 $50 $- Avg. PSF '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Real Capital Analytics 9
  12. 12. HEALTHCARE REAL ESTATE MARKETPLACE Today’s Financing Environment Multi-Tenant Investment Property Refinance Existing Single-Tenant Owner-Occupied New Construction Single-Tenant Owner-Occupied Refinance Existing Interest Rate 3.95% 4.0% 4.20% Initial Term 5 Year 7 Year 10 Year Amortization Period 20 Year 25 Year 25 Year Loan-to-Value 75% 85% 85% Guarantees (Recourse) Typically Required Construction Only Negotiable 10 *All information based on recent RTG project experience. Each project is unique; a number of variables will impact project-specific financing terms.
  13. 13. HEALTHCARE REAL ESTATE MARKETPLACE Typical Investment Criteria • CREDIT - Risk Mitigation • Stability - Established Tenant • Lease Structure - Term & Rate • Building Location and Quality 11
  14. 14. CASE STUDY: ARLINGTON ORTHOPEDIC ASSOCIATES • 21 Physician Practice • 2 MOB’s (49,660 SF) • 100% Occupied, Single-Tenant • 12 Year Lease Primary Location: 37,100 SF Satellite Location: 12,560 SF Source: Healthcare Real Estate Insights 12
  15. 15. CASE STUDY: HARBIN CLINIC • 145 Physician Multi-Specialty Practice • 7 MOB’s (330,000 SF) • 100% Occupied, Single-Tenant • 15 Year Lease 13
  16. 16. TAKEAWAYS Key Considerations when Evaluating Real Estate Ownership Alternatives Know Your “Story” • Current real estate scenario(s) - Is there a precedent? • Does practice ownership mean real estate ownership? • Timing considerations - Physician Demographic / Career Horizon Understand Strategies and Objectives for your Medical Practice • If you have multiple locations, which are Core / Strategic location(s)? • Are there potential Consolidation or Expansion Opportunities? • Flexibility and Control Considerations Balancing the Economic Risks and Rewards • Capital Investment (Initial and On-going) • Alternate Investments / Opportunity Cost • Potential Income Stream • Operational Cost Containment • Ownership Costs vs. Rent Expenses • Tax Strategies • Future Liquidity / Illiquidity 14
  17. 17. CORPORAT E O F F I C E - K N OXV I L L E On e C h e ro ke e M i l l s , 2 2 2 0 S u t h e r l a n d Ave n u e Knox v i l l e , Te n n e s s e e 37 9 1 9 | 8 6 5. 5 2 1 .0630 ATLANTA 1 1 0 0 J o h n s o n Fe r r y Roa d , B u i l d i n g 1 - S u i t e 4 0 0 At l a n t a , G e o r g i a 3 0 3 4 2 | 404.47 7. 3 0 0 9 www. re a l t y t r u s t g roup.com

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