Buying Out Your Non-Physician Partner
Which is easier to digest?
- A) Giving up 50% of the real estate ownership, or
- B) A fee of $3,450,000 over the next 10 years.
What if both of those options are the same thing? This was the case for Neuro-Health Physicians who was a shareholder in the 78,000 SF building they occupy entirely in Tennessee. In 2012, the proposition of partnering with a developer and therefore having to source minimal equity and a significantly reduced upfront fee seemed like an opportunity that was too good to be true. The group began to realize it was correct.
With the objectives of the development partner and the physician owners diverging further every year, Neuro-Health was looking for a way to regain ownership and control. Fortunately, the group had room for negotiation. All the value in this real estate investment was contained in a document under their control – the lease. With only nine years remaining on the lease, the developer realized this had become a crucial time to capitalize on his investment.
The developer, being the majority owner, had decided to solicit bids for a sale-leaseback. After a 60-day period, the real estate entity received a number of competitive purchase offers for its location. Neuro-Health Physicians, however, had no interest in participating in a third-party lease. CMAC was able to provide another option, allowing the partners to take their cake and eat it too.
CMAC demonstrated a methodology that outlined the outcomes of three different stakeholder groups:
- The Developer
- The Neuro-Health Physicians with ownership in the building
- The Neuro-Health Physicians without ownership in the building
Through a creative financing package, the developer was able to receive an equivalent sales price to the most competitive third-party offers. The Neuro-Health physicians with ownership received a check through the liquidity event, as well as a continued ownership position. Finally, the partners with no ownership in the building were able to invest and receive a desirable return for their trouble. All parties are elated that they could reach their objectives through this unusual restructuring process.
