NEWMARK KNIGHT FRANK

Global Healthcare Services Draws Record-Setting Pricing of Physician Owned Portfolio

Written by: Jonathan Kesler, Global Healthcare Services

Newmark Knight Frank’s Global Healthcare Services team recently closed on the sale of the Ogden Clinic real estate portfolio located just north of Salt Lake in Ogden, UT. The four-property, owner-occupied portfolio was recently constructed and comprises 105,592 of rentable square feet. Garth Hogan, Todd, Perman, Dana Hamric and Jonathan Kesler represented the seller, Ogden Clinic Investment Company. Ogden Clinic is a dominant, independent physician group that has the capacity to serve patient needs all along the healthcare continuum.

The NKF Healthcare team led a controlled marketing process, which garnered the interest of 15 reputable, potential buyers in the first round of bidding. A review of the initial offers provided a great cross-section of the buyer pool: public and private, traded and non-traded healthcare REITS, private equity funded buyers – some relatively new to the healthcare capital markets, other not so much. The fervor for the portfolio grew immensely as the NKF team spent time with the REITs and private equity groups telling the story of the clinic with its strong position within the market place, and the potential for growth within the practice as they increase market share. Three rounds of bidding resulted in three very astute buyers vying for the opportunity (two public REITs and a private equity funded buyer) with a high bid at a 5.95 cap rate. As buyers pushed the price up and the spread between competitors became very slim, the partnership turned their attention to tax mitigation and potential to reinvest sales proceeds. This narrowed the field to two buyers and two reinvestment options: an UPREIT or a tax-deferred reinvestment into the new ownership entity. After a candid discussion with 60+ physician owners, the partnership voted to accept Montecito Medical’s offer of $42,750,000, which represented a 6.12% cap rate. The seller structured the leaseback piece of the deal as a 12-year absolute net master lease of the portfolio at market rental rate. The practice will continue to self-manage their facilities and control space utilization.

Ogden Clinic’s real estate partnership consists of 76 members including physicians and some members of administration. The goal of the ownership, through a monetization of its real estate holdings was twofold, to capitalize on favorable market conditions and to maintain the controls they have enjoyed as owners. Both goals were achieved thanks to Ogden Clinic’s CEO Paul Schofield, who was instrumental in working with the real estate board to make decisions on behalf of the broader partnership throughout the transaction. As Ogden Clinic continues to grow their presence in Utah, they will likely develop more medical office buildings which is a display of the entrepreneurial spirit still inherent in many physician partnerships today, despite the systemic uncertainty in healthcare.

For additional information please contact Jonathan Kesler at jkesler@ngkf.com or Dana Hamric at dhamric@ngkf.com

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