My long-time readers already know that single tenant net-lease medical facilities are our bread-and-butter. Here’s the story of one of my favorite deals.
In 2011, we found a specialty medical facility for sale in Austin, Texas. It was owned by a real estate developer who needed cash to fund other deals. He was also anxious to close the sale before a looming rise in interest rates.
The property was between tenants and under renovation. An upstart kidney dialysis company was close to signing as the new tenant, but their limited track record was reflected by a so-so credit rating. Ongoing construction work meant it would be months before the tenant could move in and start paying rent.
Our team has built up expertise in specialty medical facilities and we went to school on the deal, analyzing the location, facility, and tenant. The incoming tenant, DaVita Inc., offered services that we projected to grow rapidly in the coming years. They’d scaled up well in other regions of the US, and they showed strong operational and managerial competence. The millions of dollars going into outfitting this property for dialysis told gave us confidence that the tenant would stick around for a long time.
The geography and demography of the deal looked great too. Austin was growing fast, lots were filling up, and the city was investing heavily in new infrastructure. We saw the chance to ride a local economic wave.
The seller’s time pressure was an advantage for Alliance because few real estate operations can move as fast as we can. We handled the diligence process quickly and professionally and demonstrated that we could easily raise the needed capital. This smooth operation gave the seller confidence that they had their buyer, strengthening our hand in negotiating the final details of the deal.
In the end, we hit a home run: a great price on a new facility, in a fast-growing area, with a high quality tenant who was willing to commit to a long term deal. We sold the property several years later for a very substantial profit.