Monetization reconsidered - real estate assets can help deal with capital crunch
Despite the ongonig economic downturn and tight capital markets, hospitals must still grow and invest in new technology and facilities to serve patients - and maintain market position.
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As a result, many systems are reconsidering external partnerships, sale of non-core assets or even the sale of core hospital properties to fund new projects. Third-party financing partners can help hospitals take advantage of opportunities to develop strategic service lines, such as oncology, that can give them an edge in competitive markets. For example, an AA-rated system in the Northeast recently partnered with Lillibridge to build a 150,000 square foot ambulatory care facility in a growing market. Due to capital constraints, the choice was to build now with taxable third-party financing and a long term lease that can later be refinanced with tax exempt funds, or delay the project indefinitely. The system decided that the value of establishing itself in a demographically favorable market, building physicians relationships, and the cash flow generated by the expanded services provided at the facility generates more than justified the investment. Many hospitals are reconsidering the sale of existing non-core assets, including medical office buildings and ambulatory centers, as a way of freeing capital to fund new mission-critical technology and facilities. Such sales not only provide an immediate cash infusion, they reduce ongoing costs for property upkeep and maintenance. The hospital maintains control through a long-term lease-back agreement that may also include provisions to buy back the property at a future date. Some hospitals are even considering such arrangements for core assets, such as inpatient and research facilities. Of course, the value of properties to potential buyers, the system's need for liquidity, and the strategic value and ongoing economic return on any investments made with sale proceeds should be carefully considered before monetizing system real estate. However, with capital costs rising and revenues squeezed, many hospitals are finding that the numbers now work in favor of a third-party capital and development partner. | Tags: Capital, capital |
