Case Study Details
You’d be forgiven for thinking you walked into a NASA launch control center — rather than a medical building — when you first visit the Cardiovascular Institute of the South (CIS) in Houma, LA.
With ceiling-to-floor monitors, the group’s innovative “virtual care center” allows the physicians to provide round-the-clock access to patients and continually analyze the operational efficiency of each of their 22 locations in real time.
But while CIS has an eye for innovation, it also comes with a rich history: The group’s original real estate operating plan dates to 1989, when it established an agreement that gave all current partners an opportunity to own the real estate.
Over the next three decades, CIS expanded operations to include eight owned properties across the southern United States. When those original partners began to retire, the body of real estate owners slowly diverged from the practice ownership.
After many years, the property’s value had continued to increase and its debt continued to diminish, making it difficult to attract new shareholders who could afford the high cost of buying in.
At last, CIS decided it was time to bring its outdated financing up to speed with the modern needs and goals of its practice. The group contacted CMAC for help restructuring its real estate holdings, and our team got to work crafting a forward-looking financial solution.
After conducting a comprehensive, individualized analysis of the situation, CMAC laid out the best available options for re-syndicating the group’s ownership. By making a few strategic changes to the financing structure, CIS could lower the equity of its real estate and allow new partners to enter as full shareholders at a fraction of the previous buy-in cost — and with over double the returns.
As the current partners had hoped, the new plan also brought a tide of new investment to the practice. Shortly after the deal was completed, ownership leaped from just 11 to almost 40 partners. At the same time, the new financing also allowed existing shareholders to take a significant amount of the investment value they had built up over the years and put it back in their pockets.
No matter what the future holds for CIS, their new financing will give them the foundation they need to be ready for it: fixed-rate security for the next 10 years at an interest rate significantly below 3%; no personal guarantees; and a 25-year repayment schedule.
Just as important, the change represents a big step closer toward the group’s original vision of ownership parity between its physicians, its practice, and the real estate on which it operates.
The best practices stay up to date, embracing and managing change in all areas, including the real estate which provides a lucrative ancillary cash flow to the partners. Kudos to CIS for tackling this project and bringing in the expertise needed to allow so many partners to tap into the real estate partnership.