The Building You Build Today Is the Asset You Sell Tomorrow

Practice owners think about construction as an operational decision. More space, better workflow, stronger patient experience — the argument for building usually runs through the lens of growth and productivity. That is the right framing during the years when you are building the practice. It is an incomplete framing when you start thinking about what comes after.

The facility is a significant component of practice valuation. For operators thinking about an eventual exit — whether that is a sale to an associate, a transaction with a DSO, a private equity rollup, or simply a sale to an independent buyer — the real estate and facility situation shapes the deal in ways that operators who have never been through a sale often do not anticipate until they are sitting across from a buyer.

Owned real estate in a strong location adds value to a practice sale in three specific ways.

The first is control. A practice operating under a lease is subject to the terms and decisions of a landlord. That lease eventually comes up for renewal. The landlord may raise rent materially at renewal, impose conditions on assignment to a buyer, or simply not renew — forcing a relocation that the buyer now has to absorb or pay for. For a buyer evaluating a practice acquisition, lease risk is real risk. A practice in owned real estate carries no landlord risk. The buyer controls the space. That is worth a premium.

The second is equity. Real property appreciates, particularly in healthcare corridors and high-demand commercial locations. An operator who builds in a good location and holds the real estate for 15 years builds equity in a tangible asset that can be sold, leased back to the practice buyer, or used as collateral for future borrowing. The equity is real and realized at sale. The operator who rented the same space for 15 years owns nothing at the end of it. Every rent check was an expense. Every mortgage payment built ownership.

The third is institutional positioning. DSOs and private equity groups that acquire practices are increasingly sophisticated buyers. They have acquisition criteria, and real estate ownership is on many of their checklists — not as a dealbreaker in every case, but as a factor that affects both valuation and structure. A practice with owned real estate in a modern, purpose-built facility commands more than a practice in a leased strip mall suite, because the owned facility removes risk from the buyer's perspective and signals the kind of operator who builds for the long term.

The math is worth thinking through honestly. Consider two operators with identical practices — same revenue, same patient volume, same market. One has been renting for 15 years at a monthly cost that has grown with CPI adjustments. One built 15 years ago with a mortgage payment that was roughly equivalent to the rent at the time. At year 15, the renter has no real estate position and has paid out every dollar in rent as an operating expense. The builder has a paid-down mortgage on a piece of real property that has appreciated and carries no lease risk. The monthly cost was similar. The outcomes are dramatically different.

Building is not always the right financial move. Operators who are early in their career, in a market where real estate costs are prohibitive, or who have strong financial reasons to deploy capital in other ways may make the right call by continuing to rent. The analysis depends on the operator's specific situation. But for operators with a 10-year or longer horizon, the own-versus-rent calculation almost always favors ownership when the numbers are modeled honestly over time.

There is a related consideration for operators who are planning a transition. A practice sold with real estate typically structures the transaction differently than a pure practice sale. The real estate may be sold alongside the practice, creating a larger total transaction. Or the real estate may be retained by the selling operator and leased to the buyer — a structure that creates ongoing income for the seller while giving the buyer operational control. That flexibility is only available to the operator who owns the building. The operator who rented has no asset to structure a deal around.

Dr. Revell looked at two competing proposals for his project. One came from a firm that offered less space for twice the price. The other came from Primus. The decision to build with the right partner at the right cost meant building an asset rather than overpaying for one. That distinction compounds over time.

The operators who plan exits well are the ones who started thinking about the exit 10 to 15 years before it happened. They made capital decisions — including real estate decisions — with the eventual sale in mind. The building they built is not just the place where they practiced. It is one of the primary assets in the transaction that ends their career and funds their next chapter.

If you are thinking about building and want to understand how facility ownership fits into a long-term exit strategy, Primus works with operators at every stage of that conversation. Learn more at primus-companies.com.