Enhancing Your Practice's Revenue - California Orthopaedic ...

a leased space, thereby maximizing your own practiceefficiency. Additionally, you may be able to attract highprofiletenants that will make your space the ‘medical caredestination point’ in your community and thus increaseyour own practice’s visibility.Real estate development is a complex business that mayrange from the renovation of existing buildings with the intentionof re-lease to the purchase of land upon which newbuildings are built and leased. In any real estate project,the initial obstacles to success are usually financial. A largeamount of capital is required to fund these ventures. As aresult, multiple investors are usually necessary to make thedeals successful. In order to solicit investors successfully, asound business plan must be created.Before you consider a real estate development project,you must conduct meaningful due-diligence. Commercialreal estate transactions are not the same as residential. Thedue-diligence inspection is the responsibility of the commercialinvestor. Caveat emptor; that is to say, let the buyerbeware. Due diligence checklists can be found online orfrom a real estate attorney. The following checklist is necessarilyincomplete but will give you a good idea of the issuesthat must be resolved.1. What property does the purchaser believe it isacquiring?2. What is the purchaser’s planned use of the property?3. Does the physical condition of the property permit useas planned?4. Are there any zoning considerations?5. How much is the purchaser expecting to pay?6. Is there any condition that is likely to increase theeffective total cost of acquiring the property; e.g.,removal of underground storage tanks, etc.?7. Is the real estate tax in line with the value?8. Are there any encroachments on the property; e.g.,from contiguous parcels?9. Are there any encumbrances on the property that willnot be cleared at closing; e.g. easements?10. If leases exist, what are the terms of the leases in case ofproperty sale? How are security deposits handled?This checklist will give you a good idea of items/questionsthat should be satisfied in advance of proceeding withyour project. Deciding on whether to renovate an existingspace (with or without tenants) versus construction of anew building is dependent on a number of factors includingspace availability and cost. There are advantages torenovation of existing space. The cost of the renovation canbe controlled and therefore lessen the long-term real estatetax liability based on assessed value.There may also be tax incentives for renovation of existingstructures in city and state development zones. Sincereal estate taxes are usually determined based on total projectvalue, the development of a new construction projectwill most likely increase the long-term tax liability as theproject will be assessed at full value. Consultation with a taxattorney and accountant is highly recommended.Once a due diligence investigation has been performed,a complete analysis of the project including an overview ofthe development process, land acquisition and sight improvementsshould be performed. This should be followedby:1. A market and feasibility analysis with specific emphasison office market demand (What are the othercommercial spaces available locally?)2. Development of project financing (This would includemortgage financing, and equity development.)3. Building design and construction4. Marketing and leasing of the space5. Property operations and managementReal Estate development requires a systematic approachand an experienced team of professionals to succeed financially.These projects should be reserved for the seasonedreal estate investor with sufficient knowledge of the localcommercial market and sufficient financial support to seethe project to completion.SummaryPassive income can be generated in many ways. Havingmore than one source of revenue will give you moreversatility to expand your practice and protect your futurepractice solvency. Utilizing your real estate is a straightforwardmethod of generating income. By space-sharing orsubleasing you can reduce your own office overhead whiletaking advantage of idle space and under-utilized staff.You may even find that you are able to practice rent-free.I strongly recommend starting small and learning aboutcommercial investing before you consider larger ventures.Large scale real estate investing can be profitable but alsocostly if the market is not thoroughly researched and thecorrect development team is not assembled.Contact: Adam Soyer, DO: adam.soyer@nyumc.org© 2011 American Academy of Orthopaedic Surgeons39