Maximizing Profitability Through Real Estate - March edition
March 25, 2021
As our firm continues our 2021 series of Maximizing Profitability Through Real Estate, our March edition provides a Case Study of a recent transaction where CARR was able to help a client capitalize on market conditions, as well as the Economic Aid Act that was recently released. These articles are published by one of Truitt, Tingle, Paramore & Argent's most trusted vendor partners in the Dental Industry, CARR.
In part three of this series, we asked Alabama | CARR Agent, Kyle Church to write a Case Study to help our clients better understand a scenario that may apply to you, or a colleague, as it pertains to buying the building you are currently renting. To protect client privacy, we will say the Dr’s name is Dr. Kim.
"When we initially met for lunch, Dr. Kim had roughly two years remaining on her lease. She had goals of being in a facility that would allow her to grow your footprint, and her practice while owning. Practicing in a tight market, this was certainly a tall task. Dr. Kim concluded the best-case scenario would be staying where she currently was, and owning the building she is currently in. Two variables that would make this difficult: 1. Dr. Kim’s landlord has zero interest in selling the building; 2. She occupied less than 50% of the building. CARR approached the landlord and walked them through why it made sense to sell this building to Dr. Kim now vs. waiting two years to make that determination. Mainly because Dr. Kim’s rent made up over half of the tenant income on the property, and if Dr. Kim were to relocate in 24 months; that would devalue their property immensely considering the term that would be remaining on the various tenants they had in the building. This gave current ownership enough doubt in their position to consider selling us this property.
- Based on the current NOI of the property of ~100,000, this building was purchased at a cap rate well below what that market bears – absolutely fantastic when evaluating from an investor perspective for a piece of real estate in a very strong market in Central Alabama.
- This purchase price equated to ~$215/sf. Just for reference, the cost to build a dental office is ~$250/sf – NOT including land. A project of this scope, if there was comparable land available in the area, would have been well out of Dr. Kim’s budget. Buying an existing building to renovate would have likely been in the same range, if not more.
- Dr. Kim was able to buy this building WITH tenant income on the property for less than she would have been able to get into another facility without tenant income.
- Dr. Kim now OWNS the real estate she practices in; which creates an asset for her to carry to retirement.
- This purchase gives tremendous tax advantages to Dr. Kim that will help put her in a better tax position with her practice and personally.
- Financing: Because of CARR’s knowledge in the lending space, CARR connected Dr. Kim with a Dental Specific Lender. This Lender was able to offer 100% financing for the real estate. 100% FINANCING! That is incredible considering the piece of real estate purchased with the overall practice re-finance.
- Along with the Real Estate Purchase, Dr. Kim was able to refinance her practice debt, AND cover the 10% down payment required for the real estate over a 10-year fixed note below 3.50% (commitment deposit/UCC fee waived) SBA Loan at 90% for the real estate is fixed for 25 YEARS well below 3.99%
- Economic Aid Act – Because of the timing of the transaction, and the release of the EAA – Dr. Kim was eligible to capitalize on the Economic Aid Act:
- SBA Guarantee Fees WAIVED (over $30,000 in savings)
- SIX Months Principal and Interest Paid by the Federal Government (over $35,000 in savings)
Overall, just a fantastic deal for Dr. Kim. Per the lender on the transaction ‘…In over ten years in banking this was my favorite transaction to be a part of because of the impact it will have on Dr. Kim and her family long term.'
These types of transactions and scenarios are not exclusive to just a few of our Dentists and Specialists across the Southeast. These types of scenarios are available to all dentists. The difference is having a well-prepared game plan as it pertains to your Practice’s Real Estate. Whether you are in a leased space or own a space; having your road map to Maximize Your Profitability Through Real Estate can be the difference in hundreds of thousands of dollars throughout your career."
Whether you are evaluating a lease renewal in your current space, exercising certain options within your lease, evaluating your current space vs. what the market bears, having a team of experts guide you in your next CRE transaction can be the difference in achieving the best terms possible.