The doctor's office: should a physician group own its building?

• Author: Warner, Steve
• Position: ADVICE: REAL ESTATE

The signs are all there. The wallpaper is starting to peel, there are not enough exam rooms, and the waiting room is standing room only. There is no doubt about it: We need more room.

This is where many physician groups currently find themselves. Their existing space just does not fit their growing needs. However, it seems a daunting task to begin the process of finding the ideal office space. What to do? Where to turn?

There are a multitude of decisions to make along the way. One of the most critical evaluations that must be undergone is whether the physician group wants to develop and own its medical office building or would it prefer leasing this new space. There are pros and cons to each choice. The correct path of action varies by physician group.

Why Should You Own?

There are many reasons why it may make sense for a physician group to own its own medical office building. It allows the group to more fully determine the make up of the space. This is not just limited to choosing the carpet and finishings. It also permits the group to recruit and select the other tenants of the building. There may be tremendous upside to having complimentary physician groups in the same building to provide the desired continuum of care, maximize referral patterns and utilize ancillary service lines such as X-ray and imaging.

There is also potential for a strong financial return on the ownership of the medical office building. Properly structured, this investment can provide a relatively safe and predictable cash flow to the physician investors for an extended period of time. It also provides for the potential of appreciation in the value of the building. Additionally, opportunities for investment in the medical office building could assist the group in new physician recruitment.

Potential Pitfalls of Owning

Developing and owning your own medical office building is not without...