Many physician groups are growing so quickly, they have multiple real estate projects planned in an endless stream – an expansion at the main office, building a satellite facility, investing with a hospital on a new ASC, adding a parking structure, etc. By the time they close on financing for one project, funds are needed for the next. It can be a full-time job for the finance staff and doctors of a dynamic practice. 

Let’s look at the issues to consider:

• Should we pull out equity from one property to use for another? If yes, when?
  • When do we renew our loan, even if we don’t actually need the funds yet? Do we pay interest on funds we don’t need, but have the security of a known rate?
  • Or is it better to use the real estate like an ATM and pull out cash when needed, but be subject to risen rates?
• Will the cash flow strain of simultaneous projects be too much?  Should we instead do them sequentially?
• What if we need to close quickly on a new opportunity? Will that “rock the boat” on all our other financing? Do we have to redo everything? 

Doctors don’t want to keep going back to banks to get loan proposals for every new project or need. It’s exhausting and time consuming, not to mention expensive to have multiple closings. And if the practice uses its depository business as leverage to get the best loan on one project, does it really want to move that relationship again to another bank on its next loan request?

When faced with multiple projects looming in the next several years, doctors should take a long-term, strategic approach to the financing. CMAC Partners can advise on how to structure an RFP to take into consideration all the factors and requests a flexible financing structure for future projects.

There is no right answer for every group, but some of the structures used by CMAC have included:

• Guidance lines with a loan “program” so that the doctors can quickly access funds for a project that meets the described parameters (be it real estate purchase or an investment in an ASC), to be easily termed out at known financing terms (done for an Orthopedic practice in North Carolina)
• Revolving lines of credit secured by real estate to allow quick access to equity for new projects, without additional loan closings (done for an Ophthalmology practice in Washington State)
• Pulling out additional cash from a refinance to be held in reserve for a future ASC project (done for an Orthopedic practice in Wyoming) or for future doctor buyouts (done for an Orthopedic group in Pennsylvania) with negative arbitrage managed
• One loan which allows for multiple draws on demand to easily access additional funds for new projects when needed (done for a Urology practice in Tennessee)
• Closing on an initial project, with the understanding that the bank will offer identical terms to the next several projects when they are ready (done for an Orthopedic practice in Tennessee)

CMAC’s RFP and financing strategy:

CMAC reviews the circumstances for each client and advises on the strategy which would be of greatest benefit to the financing outcome. For example, when will moving the practice’s depository relationship have the greatest positive impact? In some cases, it makes sense to divulge to the bank all the planned future projects and at other times to reveal projects one at a time. Due to COVID-19 and the resultant turmoil in loan terms offered, CMAC has advised several clients to take a quick rate modification on existing debt because the credit market wasn’t favorable for very large or speculative projects. Simultaneously, we laid the groundwork so the client can pull the trigger on the next financing when the timing is more fortuitous.

CMAC takes a long-term and sometimes multi-year approach to maneuvering its clients into the most auspicious financing for future.