Recognizing the Problem and Taking the Steps

Over the past couple of decades, there has been a substantial move for medical groups to create additional ancillary income streams by investing in their owner-occupied real estate rather than paying rent to third-party landlords. Unfortunately, in most cases, the reality often falls short, and these multi-million-dollar investments:

• deliver below-market returns, substantially reducing physician distributions,
• lack sustainable structures for partner buy-ins and buyouts, and
• create divisiveness rather than unity within the group, applying conventional operating agreement provisions that don’t align with the unique dynamics of physician-owned practices.

Why This is Happening

The core issue is a lack of clear ownership and accountability. Unlike the clinical side of the practice - where leaders are evaluated based on outcomes - there’s rarely anyone specifically tasked with overseeing the real estate investment. In addition, most practices don’t have someone on the executive team with the specialized expertise needed to properly structure the investment, negotiate optimal financing, or manage the evolving ownership of the real estate entity in alignment with a changing partnership.

How Serious is the Issue?

At the 2024 CPOMP (Congress of Physician-Owned Medical Properties) meeting, a group of approximately 100 physicians and executives took part in a 10-question multiple-choice assessment designed to gauge their preparedness to face real estate scenarios they’re likely to encounter over the term of their tenure. The results were telling: the average score was just 66.7%. Even a single misstep on the test could represent a costly error in an actual situation - and many participants missed more than one.

Neither medical schools nor healthcare administration programs offer real estate training in their curricula. Yet, these same professionals are routinely making high-stakes real estate decisions with significant long-term financial implications - often without the tools or knowledge they need.

 3 Steps to Creating Better Outcomes

1. Accountability

Without a clear person or group responsible for the performance of your real estate investment and held accountable for its outcomes, it will drift like a rudderless vessel - staying afloat, but with no real direction. To optimize your investments, achievable goals must be defined and actively pursued. Many practices have now appointed a Chief Property Officer - an owner in the real estate specifically charged with overseeing the real estate investment’s performance.

2. Education

Fortunately, physicians and practice leaders have access to CPOMP, a dedicated forum where peers come together to share challenges, outcomes, and solutions related to owner-occupied medical real estate. CPOMP offers targeted sessions on timely issues and foundational education through its Real Estate 101 course. First-time attendees often walk away saying, “I didn’t know what I didn’t know.”

3. Expert Advocates

Even with greater knowledge, physicians can’t be expected to be real estate experts. That’s where seasoned advocates come in. Today, a number of firms specialize specifically in owner-occupied medical real estate - bringing expertise and strategic guidance. Regular contributors at CPOMP include CMAC Partners, CBIZ, and Eide Bailly, all of whom are committed to exclusively representing the interests of physicians.

The Bottom Line

It all starts with recognition: recognizing that dollars are being left on the table. Recognizing that sustainable models now exist to support long-term buy-ins and buyouts.

But most importantly, it’s about recognizing that you have the power to change the trajectory. With the right structure, the right support, and the right mindset, an untapped level of improved performance can come through your actions. Start now.