In today’s dynamic environment, healthcare organizations are making tough decisions to prioritize different capital investments. As a healthcare provider, you’re focused on a mission to deliver care to your community, which means being able to provide the right care, in the right place, at the right time.
NAVIGATING A CHALLENGING HEALTHCARE LANDSCAPE
We understand competing capital priorities are forcing systems like yours to make compromises on which investment to make to support your mission. This can result in trade-offs or worse yet, stalled capital investments where patient safety and maintenance to critical facilities may come ahead of strategic initiatives, like expanding access to care and revenue growth.
BUT THERE IS A BETTER WAY | AN INTEGRATED REAL ESTATE SOLUTION
Organizations, like you, are leveraging this capital solution, reducing their risk and successfully executing on their capital projects without upfront capital cost. With Mortenson as their partner, they have a one-stop shop to deliver a seamless project through an integrated approach.
So how does it work?
The solution combines tax-exempt capital and a lease to own strategy with Mortenson’s development and construction expertise. This solution allows you to meet your facility demands and:
- Protect your credit ratings and debt capacity
- Maintain control of your asset
- Reduce project and construction delivery risk – with a single source of accountability and meaningful guarantees
- Expand access to care in the communities you serve!
At any time, you can buy the facility at its declining balance purchase price – meaning, the value of the building and equity earned is yours! Compared to traditional third-party structures, this is the lowest cost solution!
LET’S BREAK IT DOWN
Learn more about how one health system put this into action.
The Challenge
A Joint Operating Agreement (JOA) of two non-profit healthcare systems had a plan to embark on a new Medical Office Building (MOB) project, which would expand clinical space and supplement the growing needs of the existing campus. However, the larger, $2.5 billion healthcare system quickly realized they would be strapped for capital, due to competing capital planning priorities, and subsequently withdrew funding for the project. Since this system was bringing the lion’s share of the equity, the remaining smaller, $300 million healthcare system was unable to secure financing, so the project was put on hold.
The Solution
Mortenson partnered with the JOA to leverage an alternative bond financing option. Through this option, the systems would receive capital through a non-profit leasing organization, whose sole mission is focused on reducing the cost of occupancy for healthcare systems and freeing up system capital for funding other growth strategies. In this model, the JOA wouldn’t need to compromise their missions, they wouldn’t see a rent increase or annual property taxes, and it would offer a declining balance purchase price, flexible ownership rights and reduced risk.
The Result
The board approved the project to move forward, utilizing this alternate solution. Because the healthcare systems were able to maintain their JOA, they were able to serve more patients and specific geographies, while fulfilling their missions. In addition, Mortenson was able to provide a unique completion guarantee and secure the JOA a significantly reduced interest rate. The project broke ground and is currently under construction.
A Closer Look
Declining Balance Purchase Price
Reduced Rent Expenses
Traditional Financing
- Equity Cost of Capital
- Annual Property Taxes
- at 2% of Value
- Fair Market Value Purchase Price
Based on annual rent at 6% first year cap rate with 2.0% annual increases.
Mortenson Solution
- Non-Profit Missions Aligned
- No Rent Increase
- No Annual Property Taxes
- Declining Balance Purchase Price
Based on annual rent at 5.25% interest rate on project cost, fully amortizing.
YOUR PROJECT PARTNER
CHANTILY MALIBAGO
Director of Development, Healthcare
Chantily.Malibago@mortenson.com
763.287.3746
INDUSTRY EXPERIENCE
From financing strategies to delivery approaches, we've got you covered. Let's build the future of healthcare, together.