For many, the American dream of owning real estate began to fade over the last few years. With all of the talk about depressed values, impossible credit standards and a general distaste for real estate spurred by reduced values, sometimes a perception exists that investing in real estate is no longer a wise choice. With the right structure, nothing could be further from the truth.
Now is actually the ideal time for local medical practitioners to own their offices.  In fact, those forgoing ownership opportunities for leasing space could be sacrificing significant equity in their investment portfolio over the long term.

To illustrate this situation, compare the cost of leasing a 5,800 square foot medical office space with the cost of owning a similar space, making the following assumptions:
  Market-comparable lease rate at $20/sf
  Building value of $1,420,000 (approximately $245/sf)
  Interest rate of 5.5 percent

After Year 1, the Lessee’s net expenses after tax deductions amount to roughly $90,000.  A comparable  property owner with the benefit of tax deductions, depreciation and accounting for paid principal, demonstrates a net expense of approximately $51,000.  If those assumptions are taken out over a 10-year term including an annual appreciation of 3 percent, the property owner realizes a net cash savings of nearly $970,000 over the Lessee!

It is important to note that while lenders have substantially cut back their real estate portfolios and tightened the underwriting criteria for making new loans, the positive results of these actions are now becoming more visible. Banks are in much stronger capital positions and ready to put that capital to use by rebuilding their commercial lending business, with Owner-User deals being the most attractive.  Today, many banks are aggressively pursuing owner-occupied opportunities that benefit well-qualified and established borrowers. Interest rates remain at historic lows.
As a direct result of the soft market conditions, there is excellent value to be found throughout all sectors of the development community. Reduced land costs, aggressive pricing from design professionals/consultants and competitive construction costs combined with the financing benefits listed above create an environment that offers potential medical office lessees the opportunity to consider ownership at lower real costs to their practice.

With a localized patient base, specialized features and a desire for a long-term fixed location, there are few better candidates for commercial building ownership than medical professionals. Going the route of a build to suit option provides an owner the unique opportunity to craft space to specifically meet their needs.  This includes the following benefits to the owner:
  Complete control over their property without having to answer to a landlord.
  Creating a spatial layout from scratch enables practices to build a space around their operational needs, more easily defining room sizes, amenities, location and office flow.
  Definition of structural details to ensure the office contains the materials, security and reliability required by the practice.
   Definition of interior design elements that fit the practice’s tastes and presentation preference.
   Stability: since there is no third party landlord, the practice is immune to volatility in future lease renewal negotiations.

When assessing the option of owning versus leasing, medical practitioners should consider the following:
  Long-term planning goals of the principals – the personal benefit of building equity in an asset
  The appreciable value of the office building – the location, the quality of the premises and the submarket’s long-term medical/professional office needs.
  The ongoing cost of ownership – maintenance obligations and financing costs.

Once the parameters are set, it is important that a highly qualified team of professionals be engaged that can manage the myriad of issues and details necessary to bring a development project to fruition. For the uninitiated, many of these issues can be somewhat daunting. Getting it right up front with proper site selection/due diligence, land planning and understanding the total development cost implications will set the course for a successful project. Once, these issues are understood the process of obtaining land use approvals, completing site and building design, financing and construction can begin. Your development team members must be able to navigate you through the process, and help you avoid the pitfalls that exist at every turn. With a skilled team in place, you can be confident that your interests are being looked after while the process is kept moving forward.

When done right, there are few better long term investments for yourself, your practice and your retirement. There is one more added benefit in that it is immensely gratifying to be able to walk in your front door every morning knowing that it is just that: yours.

David Lamm is a graduate architect from the University of Florida with over 25 years of construction experience and has served as chairman of Lamm & Company Partners, a Central Florida build-to-suit contractor specializing in medical, institutional, and commercial office facilities. For more information, email us at info@lammco.com or visit www.lammco.com

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