CHALLENGE

The Global Healthcare Services team was engaged by Patient’s First, a large multi-specialty practice in Washington, MO, to navigate the potential disposition of nine owned medical office buildings (250,809 SF) that were currently being utilized by the practice. The practice was in talks with two health systems when Global Healthcare Services was asked to advise the practice on the rental rates, occupancy costs, valuation of the real estate assets, and consult on the practices M&A/Affiliation talks.

ACTION

Our team began discussing the opportunities with the physician owners, administrative team, key members of the practice and the real estate holding company. We recommended lease structures and rental rates based on fair market value. We also recommended a leveraged strategy to maximize value of both the real estate and the practice through the affiliation. Based on our experience and as the hospital negotiations continued, it was evident that each hospital system had a different strategy pertaining to the ownership of core or non-core assets. One of the healthcare systems did not want to own the real estate while the other insisted on purchasing it all together. The system that required ownership valued the portfolio at $57,000,000, significantly lower than our opinion of value. To maximize the value of the practice and real estate holding company, we deployed parallel strategies and processes to accomplish affiliation and real estate monetization. We continued talks with the health systems while also creating a market for the assets in capital markets.

RESULT

During this parallel process, the Global Healthcare Services team received over eight offers and negotiated the value to a healthcare acquisition group to over $74,000,000 for the real estate. Simultaneously, negotiations with one of the hospital systems continued while continuing to leverage other acquisition groups for the operations and real estate, and ultimately culminated in a successful transaction. The leverage created by the increased competition forced the hospital to reach close to the same net value to the physician owners of the real estate and the operations, which is an undisclosed amount. This strategy assured the practice of maintaining leverage and maximizing value without being renegotiated by either the hospital.