Case Study

California Medical Real Estate: Shifting Ownership, Same Great Results

Case Study Details

Financing Type:
Partner Ownership
California Medical Real Estate: Shifting Ownership, Same Great Results

Fresno, CA now holds a special place in the CMAC team’s heart; the city of complex real estate ownership transitions!  It was not long ago ago that CMAC concluded one of its flagship ownership re-syndication transactions in Fresno for a prominent orthopedic group in town. The operating entity and real estate entity ownership had become so inconsistent that something had to be done to ensure sustainability and a unified vision going forward. CMAC devised a unique financing structure, aligned the interests of all the doctors, and provided a method of integration and retirement funding that would work for the group well into the future.

When CMAC was hired by the doctors of California Eye Institute (CEI) in Fresno, and learned about the ownership changes that were being contemplated, the immediate reaction was of “Déjà vu.” Fresno had provided yet another challenge for CMAC to wrap its arms around. A group with retiring partners needed to better align its real estate ownership with that of the medical tenant operating entities’ ownership. This deal had several challenges:

  1. A few doctors with significant ownership were retiring and wanted to be bought out entirely for cash upon sale. 
  2. The new ownership group was not purchasing the available shares proportionally; only certain doctors were purchasing the shares that were being sold.
  3. Significant equity had built up in the building, making the buyouts very expensive.

The solution?

CEI’s existing debt was refinanced with a new real estate lender that was willing to allow cash out up to 85% Loan-to-Value. The financing was bifurcated into two loans: The first structured as a regular refinance facility, and the second provided the cash out needed to buy out the retiring partners. Simultaneous with the bank loan closings, the real estate entity lent corresponding funds to the purchasing partners at identical terms to the bank facility. This enabled the real estate entity to transition to a more sustainable ownership structure. The retiring partners received their full cash buyouts, the new owners buying in received vastly superior financing terms to those which could be procured through unsecured personal loans (lower rate and longer payback period), and the partners who maintained their previous ownership levels were unaffected by the pass-through loans. The icing on the cake? The interest rate was cut by 1.84% (with a reduction of 1.00% in the bank’s loan spread), the attractive financing was locked in for a long term, and the personal guaranty levels were slashed. Another great result in Fresno for all involved!

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