Transitioning Partners from a Renter’s to an Owner’s Mentality

Overwhelming Participation a Result of Good Education

Let’s play Jeopardy. The category is “Physician-Owned Real Estate” and the answer is “Make It Mandatory in Your Practice’s Operating Agreement”. The question? “How do you get all the members of your practice to become owners in the practice’s real estate?”

Wouldn’t it be easy if we could turn back the clock and have the foresight to include such a provision? Everybody’s on board. Problem solved. Unfortunately, most of us don’t have that luxury and instead face the unenviable challenge of convincing our partners to come on board. The risk is that such an opportunity could turn into a divisive issue unless a preponderance of the partners decide to invest. 

Tennessee Orthopaedic Alliance, Nashville’s leading orthopaedic group, had historically leased the property from which it practiced. However, in 2018, the group’s leadership decided to invest in a satellite office to be constructed in a Nashville suburb. The decision was not initially embraced by many of the partners who were quite comfortable as a tenant with a renter’s mentality and viewed such an investment as uninteresting or even an unnecessary risk. 

So how did TOA manage to bring 45 of 50 partners on board? – they educated them!  The TOA leadership arranged a series of meetings so that every partner had the opportunity to attend. Present at those meetings was the project developer along with CMAC Partners who put together a presentation that detailed the investment, the returns, the methods of buy in and buy out and the risks. The partners were able to ask any and every question that came to mind and, in the end, were able to make fully-informed, individual decisions as to whether or not to invest.

The decisions by some were further facilitated by personal bank loans made available through CMAC such that most of the cash needed for each partner’s investment could be borrowed, knowing that the cash flows from the rent would pay both the monthly payments on the personal loans and the taxes on the cash flows… even in the first year. Each year thereafter, those partners would continue to gain equity through repayment of the loan and would realize cash out as rents escalated. The financing was concluded at a lower-than-estimated loan spread that provided outcomes that surpassed those that had been presented. 

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