STEP ONE: GET EXPERT GUIDANCE
By Bond Oman
The rise of outpatient care has created a trend among many healthcare providers to build their own facilities. Practices envision and plan their new building: confident the new space will take their practice to the next level. Many make a drastic mistake in oversimplifying the development process, confident they can go it alone. However, real estate development is a complex process that requires expertise in contract negotiation, construction, financial structuring and design. That’s why engaging a consultant who has expertise in these areas will reduce risk and make the process more cost effective and efficient.
Many fall victim to the old saying “you get what you pay for” after closing on land and later find out the site that was purchased had unexpected problems. There are a vast number of pitfalls that can have major implications on the financial success of an outpatient project. In a worst-case scenario, the owner may not have the ability to use the newly acquired property for what had been planned. Improper zoning, wetlands, title restrictions, grading issues, easements, access issues, soil load bearing issues and utility availability and capacity represent just the tip of the iceberg. Working with a qualified consultant on the front end can help avoid major issues.
I can speak firsthand to some of the interesting real world challenges my team at Oman-Gibson Associates (OGA) has experienced, and we were able to resolve them for our clients. One case involved a title restriction that would have prevented our client from dispensing pharmaceuticals at their to-be-built medical facility. We discovered this issue early on, which allowed our client the option to exit the diligence period if a solution was not found. Using our existing relationships, we were able to reach out to the big box retailer who had this restriction in place and resolve the issue prior to closing.
In a different case we steered clients away from a “seemingly inexpensive” property after uncovering that utilities were not readily available and that their installation would not be financially feasible. A different project required us to meet with a major railroad company to have a decades old railroad easement on the land abandoned. The process took months to complete, but again it was discovered early enough that our client had the ability to make the land transaction contingent upon it being successfully abandoned.
Taking the time and having the expertise to do in-depth due diligence is critical. For example, we discovered one potential property we were considering had been a former WWII training ground. Our research indicated that live bombs may be found on the site. On another project we discovered a protected tortoise species and were required to relocate the animal. Due diligence also helped us uncover latent environmental issues on a site that made development infeasible, so we assisted our client in finding a more suitable location.
There is a wide variety of development services that can help practice owners navigate the real estate development world. For example, those considering a renovation need condition assessments of the existing structure to determine the facility’s viability for renovation. A consultant can also help with obtaining government incentives and TIF financing and negotiate ground lease terms with landowners. They can act as an owner’s representative in negotiations with land developers to have roads, utilities and other amenities included as “part of the land transaction.”
For those owners who have already begun the process alone and have discovered the need for help, it’s not too late. For example, my team has been hired by clients to resolve problems with previously purchased property. We have seen clients purchase a piece of land that they felt was adequately sized to accommodate their development. They later discovered storm water detention ponds and underestimated parking needs made the site undersized, so we provided them with creative design solutions as a remedy. We have also worked with clients who purchased land with sinkholes or other geotechnical issues, so we provided solutions on remediation and creative site orientation to fix those problems. However, in any case, it always more cost effective to perform both proper and risk assessments at the beginning of a project during the due diligence period as opposed to solving an issue after the fact.
Predevelopment budgeting is another area that is essential to the development process. Understanding your costs prior to closing on a parcel requires some front-end investment, but also provides clarity on project costs, rental rates and investment returns.
A broad range of experience allows consultants to uncover the “all in” costs that can be impacted by topography and local regulations. This is the type of approach a consultant should have when working to help clients develop new facilities. Time should be taken to put things into perspective for the client so that they understand all costs associated with a site they’re considering. Oversight of the due diligence process is paramount and requires a comprehensive approach to ensure the correct parcels are purchased for the project. A consultant should always make it a goal to ensure clients receive the optimal project for their needs. If your consultant is not engaging you early in the acquisition process to help you navigate issues and make the right choices, you may not have the right company for the job. That’s how you build client relationships, through trust, experience and transparency.
Bond Oman is the CEO of Oman-Gibson Associates (OGA), a Nashville-based real estate firm specializing in developing and managing outpatient healthcare facilities.