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Healthcare Real Estate: The Pros and Cons of Buying Versus Leasing

“Owning real estate can be a great recruiting tool, and can lure physicians into a larger practice,” says Stephen Timoni in a recent interview with Healthcare Finance News’ Jeff Lagasse.

“They become a partner in the practice, but they also offer them a buy-in into the building,” he said. “That’s very interesting for a young physician because, down the road, what physician groups may be doing is they’ll sell their building for a gain to a real estate investment trust or hospital system, and then they’ll lease the building back from the hospital. So they cash in on their equity.”

Another option for physician groups is to retain the real estate and lease it back to the health system for additional income — providing better overall economics, largely in the form of tax benefits.

The appropriate real estate philosophy is largely dependent on the type and size of the organization. For larger health systems, it might make more sense to approach investors and convince them to sell an ancillary building and then lease it back to bring cash in — and to get them out of the real estate management business, which can be costly.

What’s inescapable is that some kind of coherent strategy is necessary, particularly since demographic changes in the U.S. are resulting in the need for sound real estate practices.

“You look at the baby boomer generation — those are the people entering the 65-and-older population, and that population segment is growing very rapidly,” said Timoni. “And it’s a high percentage of our population. So I think by the year 2025 or 2030, you’re going to have maybe a quarter or a fifth of the population aged 65 or older. Those people require healthcare, so that’s driving, right now, the need for healthcare real estate. A lot of healthcare real estate is in the ambulatory setting, in the clinic setting. You’ll see this growth.”

You can read the full article here.