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InterFace Medical Office kicked off Thursday at the Adolphus Hotel in Dallas with an overview of the changes to healthcare real estate driven by the Healthcare Reform Bill. Warren Skea, director of the health enterprise growth practice at PriceWaterhouseCoopers, the conference's keynote speaker, made note that, “2010 to 2020 will be the decade of health reform.” His presentation discussed many of the impacts that the healthcare overhaul bill will have on medical real estate. Many of these are gains in square footage, no doubt due to the 32 million people who will gain insurance as a result of the bill — more than the population of Canada, according to Skea. Under the new healthcare model, hosptials will no longer be revenue generators, but cost centers. “The change will significantly impact their thinking in building new infrastucture,” Skea said. The panel following the keynote, featuring executives from healthcare REITs, hospital systems and private healthcare developers, was a big picture look at the market for medical office buildings, and echoed many of Skea's points. Panelists noted that the credit crisis has put many projects on hold, while the healthcare bill is causing many hospital systems to be very cautious about their decisions …

The subordination provision in a lease is very important. From a tenant's standpoint, if a lease is subordinate to a deed of trust granted by the landlord, the lease is generally terminated upon a subsequent foreclosure of the deed of trust. The buyer at a foreclosure sale might, under certain circumstances, attempt to continue the lease regardless of whether it is subordinate, but if the lease is not a favorable lease (e.g., the lease provides for a rental that is substantially below-marke, or contains other unfavorable provisions), a new owner may instead elect to have the tenant vacate the property after the foreclosure, rather than continuing the lease. Sometimes the course of action could result in a ratification of a lease. For example, a lender forecloses on property on which there is a lease executed after execution of the deed of trust. The deed of trust is clearly superior to the lease, but if the tenant, after foreclosure, continues to pay rent under the lease and the lender continues to accept such rent, there may be a good argument that the lease has been affirmed and ratified. This could be either good or bad for a particular party. For example, …

Buyers and sellers who have been on the sidelines for the last 9 months may have noticed that a curious change occurred while they were away. Market psychology has quietly shifted, replacing buyers’ “glass is half empty” attitude toward asset value with a new “glass is half full” outlook and a willingness to focus on a property’s upside potential. The result: multiple offers are back. But the path that lies between the bid and the close in this new market scenario can look like unfamiliar territory – even for sophisticated buyers. Is a fresh confidence in the economy fueling investor optimism? Probably not. In fact, many may even be less confident today than they were a month ago. But they haven’t given up, and that is key. Last year, if a seller took a property to bid, the asset was lucky to receive a handful of offers. If it got to best and final, most buyers lowered their bids because they thought they could, and there was an intense focus on every detail that could possibly go wrong during the next couple years. Today, despite little statistical improvement in vacancies or rents, investors are more willing to look 2 to …

Everyone working in the healthcare real estate sector should have some basic knowledge of the Physician Self-Referral Act, otherwise known as the Stark Law. In a nutshell, the Stark Law prohibits a healthcare service provider, such as a hospital or outpatient facility, from submitting claims for Medicare/Medicaid reimbursement for services rendered to a patient referred by a doctor with whom the service provider has a financial relationship unless the relationship fits within certain exceptions. The public policy rationale was to discourage physicians from allowing financial considerations to influence their professional judgment. How does Stark impact medical office building leasing and development? When a physician leases office space from a hospital to which he refers patients or when a hospital leases space in a building owned by a referring doctor, the lease is considered a financial arrangement subject to Stark restrictions. As long as a specific lease transaction between a hospital and a physician continues to satisfy a few conditions, no Stark violation will result. These lease exception criteria include: a written lease that is signed by both parties that adequately describes the leased premises; a term of at least 1 year; premises that are commercially reasonable for the intended purpose …

Recently our organization, Expedited Environmental Services, conducted a market evaluation and reached out to our existing clients to determine the strength and weaknesses of the environmental consulting industry. Based on our evaluation, it was brought to our attention by multiple commercial real estate brokers and mortgage brokers that the Phase I Environmental Site Assessment is rarely being conducted becauseeitherthe buyers of the transactions are purchasing the property as a cash transaction,and/or the lending institution is only requiring a Transaction Screen that follows the American Society of Testing Materials (ASTM) E1528-06 – Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process to fund the transaction. The utilization of a TS for this purpose shocked our company, not because the potential owner is bypassing the Phase I Environmental Site Assessment by paying cash, but because the lending institutions did not learn a valuable lesson from the economic turmoil that effected so many of us. Without the proper environmental due diligence, the lending institution is potentially lending to an owner of an environmentally impaired property in which the owner may not have the capital to remediate. This leaves the bank holding a bad note once again. What is also shocking is that …

Given the expected changes in capital gains rates, investors should consider potential taxes on a future sale before making a decision to buy or sell. For real estate investments, there are three tax scenarios that could apply to a sale: short-term gains at ordinary income tax rates (35 percent through 2010 and 39.6 percent thereafter); long-term capital gains tax rates (15 percent through 2010 and 20 percentthereafter); or deferral of state and federal taxes through a §1031 tax deferred exchange.To understand these tax classifications and the corresponding tax rate structures more thoroughly, review Ordinary Income vs. Capital Gain Taxation. Let’s look at a real estate buyer who purchases two distressed properties at a significant discount (either a short-sale seller or a lender who has already foreclosed on property that secured a non-performing loan). For this example, assume the properties are purchased for $140,000 each, a 30 percent discount from the fair market value of $200,000 each. Also assume the taxpayer is in the top federal tax bracket and pays state taxes at a rate of 10 percent. If the taxpayer sells both properties immediately after they are acquired, the taxpayer will realize a before-tax return of $92,000, assuming no repairs …

If your business has substantial noncancelable lease obligations, you already need to disclose those commitments in your financial statements – but only in the footnotes. If a new rule proposed by the Financial Accounting Standards Board and the International Accounting Standards Board goes into effect, you’ll need to reflect your commitments for future rent payments on your books as a liability as well as a corresponding asset. The impact could be significant. This joint project of the FASB and the IASB is intended to add more consistency to financial reporting across a variety of industries and economic sectors. The purpose is to provide more useful and transparent information about leasing transactions in financial statements. But the implications for the reporting companies may be considerable. No, financial standards can’t change how much rent you owe, so there won’t be an impact on your cash flow, but including this asset and liability on your balance sheet will definitely change the appearance of your company’s health; that could affect your performance against loan covenants, or the perceptions of a potential investor. Imagine you lease office space for 10 years, at $1 million per year. The net present value of that $10 million, using …

As the condominium market imploded in 2008, the Florida landscape was strewn with new, partially sold condominiums. Developers ensnared by the rapidly evaporating sales market were unable to support the operations of condominiums in which only a small portion of units were sold. Developer distress led to condominium association distress, and unlucky buyers purchasing at the top of the market saw both their equity and the anticipated level of condominium maintenance vanish. It was against this background that general agreement arose that something had to be done to encourage the absorption of an enormous amount of unsold condominium units. The anticipated acquisitions by vulture funds never materialized at the level expected. Opportunistic investors displayed a great reluctance to bulk purchase unsold units in light of the unsettled state of the law regarding potential successor-developer liability. The Florida legislature attempted to remedy this problem in 2009 with the enactment of a shield law from potential successor-developer liability for bulk purchasers. Although a bill passed the Florida House, it became entangled in the amendment process in the Florida Senate, and the session ended without enactment of a bill. Similar legislation was submitted in the 2010 legislative session and passed both houses. This …

As the national economy begins to work its way out of a significant recessionary cycle, commercial developers everywhere are coming to grips with some sobering new economic realities. While some industry analysts who have been tracking tenant sales numbers have begun to see a few tentative signs of a turnaround, in the short term, the prospect of a sustainable and robust recovery is still in doubt. While some regional and local markets have performed better than others, the overall state of the national leasing landscape has been relatively grim during the last year and half. In the face of these new challenges, commercial developers and shopping center managers who simply hold their breath and hope for a turnaround are unlikely to emerge in a position of strength when the marketplace does improve. On the other hand, savvy industry professionals who are willing to innovate, be creative and flexible, and adapt to the current circumstances, are finding that there are ways to operate more efficiently and effectively – even in a downturn. Especially in a downturn. Some of the most successful developers and managers are focusing more time, money and energy on effective tenant retention techniques, recognizing that there is enormous …

Under budget and ahead of deadline are words that bring music to any clients’ ears, especially with today’s increasingly tight financing and complex building needs. Particularly in the wake of the recent worldwide recession, more developers are looking for means to control costs and increase efficiency. So when a model emerges that promises to minimize waste and not exceed the target cost for the project, it’s no surprise that people are taking notice. Poised to revolutionize the design and construction industry, Target Value Costing (TVC) has literally turned the standard design practice upside down. The traditional approach is to design a project and then determine how much it will cost to build. TVC completely reverses this process, allowing the design to be developed within the framework of the overall budget cost to offer clients more control over the final price tag. In essence, the cost of design options are being evaluated simultaneously, which insures that the final design — and the cost — is in line with the original goals. At the heart of TVC is collaboration and communication among the architects, engineers and contractors. Right from the initial planning stages these teams come together to share their expertise and …