In the rapidly evolving healthcare landscape, independent physician groups face numerous challenges, from regulatory changes to shifting patient demographics. One strategic move that can significantly benefit these groups is owning the real estate from which they practice. Here are four compelling reasons why physician groups should consider this investment:

1. Control of Practice Destiny

Owning the real estate allows physicians to have full control over their practice environment. This control translates to stability and the ability to make long-term strategic decisions without the uncertainty of landlord demands or lease renewals. When a physician group owns their property, they can tailor the space to their specific needs, whether that involves expanding the facility, incorporating state-of-the-art medical technology, or redesigning the patient flow for better service delivery. This control can become particularly important in markets where space is in low supply and competitors, particularly hospitals and health systems, seek to enhance their strategic position, sometimes at the expense of private practices.

Moreover, ownership ensures that the practice can remain in an established location that is convenient for their patient base, avoiding disruptions caused by potential relocations. This permanence can enhance patient loyalty and trust, as patients appreciate continuity in their healthcare providers.

2. Providing an Attractive Risk-Adjusted Return

Real estate ownership is not only about operational control; it's also a sound financial strategy. Owner-occupied medical real estate can provide an attractive risk-adjusted return, typically boasting annualized returns of between 15% - 20% and therefore outperforming other types of investments over the long term. Debt financing is particularly attractive for private practices as banks can provide better-than-market rates due to the low risk and desire to form depository relationships with the underlying practice. Physician groups can also benefit from property appreciation, creating a valuable asset on their balance sheet.

There’s a reason that banks perceive these investments as low risk, and that’s primarily because they are driven by the underlying leases that are signed by the practice. As long as the practice is able to afford the leases, the likelihood of default or property depreciation is significantly lowered.

Additionally, real estate investments offer tax advantages, such as depreciation and mortgage interest deductions, which can improve the overall financial health of the individual. By owning their property, physician groups can build equity and wealth, rather than simply paying rent to a landlord.

3. Ancillary Revenue to Attract New Physicians

Ownership of medical office real estate can generate ancillary revenue streams, which can be a powerful tool in attracting new physicians to the practice. This ancillary revenue is typically not offered by competitors and over the lifespan of their practice can result in a meaningful increase in the physician’s net worth.

These revenue streams not only bolster the financial position of the group but also enhance the overall service offering, making the practice more attractive to prospective physicians. New doctors often seek out practices that offer stability, growth potential, and opportunities for ancillary income, all of which are facilitated by real estate ownership.

4. Creation of a Retention Tool to Provide Practice Glue

Physician turnover can be costly and disruptive. Real estate ownership can act as a powerful retention tool, creating "practice glue" that binds physicians to the group. When physicians have a stake in the ownership of their practice's real estate investments, they are more inclined to commit to the practice for the long term.

This sense of ownership fosters a collaborative environment where physicians are invested not only in their own success but in the success of the entire group. Shared ownership can lead to a more cohesive team, reducing turnover and ensuring continuity of care for patients. Additionally, the financial benefits of ownership, such as property appreciation and rental income, can serve as a significant incentive for physicians to stay with the practice.

Owning the real estate from which they practice provides private physician groups with substantial advantages. From controlling their practice destiny and ensuring financial stability to attracting new talent and retaining existing physicians, the benefits are clear. As the healthcare environment continues to change, physician groups that strategically invest in real estate will be better positioned to thrive and deliver exceptional patient care.