As the healthcare landscape continues to consolidate, many physicians are choosing to partner with larger regional groups or private equity-backed platforms, monetizing years of dedication through the sale of their private practice. This strategic decision to sell their medical office is often driven by the desire to secure long-term financial stability and reduce administrative burdens.

 

However, amid the focus on practice valuation and deal structure, a critical asset is frequently underappreciated: the medical office building that physicians own and occupy.

 

A practice sale fundamentally shifts the role of this real estate as it changes from an operational necessity to a standalone investment. What was once a cost of doing business becomes an income-generating asset, or potentially, a source of liquidity. While physicians don’t necessarily overlook the property, many fail to fully evaluate the impact of this shift on their financial strategy.

 

Carefully considering whether to retain or sell the real estate post-transaction is essential. In many cases, selling the medical office after a practice transition can unlock significant value and serve as a prudent financial decision aligned with long-term goals.

Becoming a Landlord

Prior to the sale, the physician served as an owner-occupant, blending control of both the medical practice and the real estate. The building’s value was directly tied to the success of the practice, with operations and ownership tightly integrated. As both tenant and landlord, the physician could sign or extend a lease at will, directly influencing occupancy and property value.

 

Post-sale, that role shifts. Physicians must adapt to becoming landlords, no longer directly involved in operational decision-making. Control now lies with a new management team, and the property becomes a third-party investment governed by a lease agreement. The ability to dictate lease terms is gone, and the value of the building is now closely tied to the lease’s duration, structure, and the tenant’s performance.

 

This transition introduces new responsibilities, including landlord liabilities, asset management, and a different investment strategy. The property must now stand on its own merits, evaluated as a commercial asset independent of the former practice.

Property is Now Worth More

This transition creates a unique window of peak value for the property. When a physician practice is acquired by a large parent company or a private equity group, the new tenant typically has a stronger credit profile and a more substantial financial backing than the individual physician. For CRE investors, a lease backed by a national entity or a well-capitalized group is significantly more attractive.

 

This change in tenancy often results in a higher valuation for the building. Institutional leases with strong tenants can drive higher cap rates and attract a broader pool of sophisticated buyers. This is when the market perceives the least amount of risk in the asset. Delaying the sale means this window of opportunity begins to close as the recent lease and the strength of the initial transaction fade.

How the Lease Drives Value

A building’s value is determined by the cash flow it generates. The lease signed by the new tenant becomes the most critical factor of value. Key lease terms, such as the length of the agreement, rent escalations, and renewal options, are now the primary drivers of worth.

 

An initial, long-term lease, which averages around 10-15 years, signed at the time of the practice sale provides a long runway of predictable, stable income for a future buyer. As this lease term burns off, the property loses value because the period of guaranteed income shortens. The pool of interested buyers shrinks as the risk of re-leasing the property approaches. If the sale happens shortly after a long-term lease is signed, a higher price can occur, along with a larger pool of potential buyers.

Uncertainty Around Future Tenancy

Most practice acquiring entities, particularly those backed by private equity, operate on defined investment timelines. On average, they sell or recapitalize their Medical Services Organizations every five to seven years. As a result, the company that acquires the practice today may not be the same entity managing it when the lease comes up for renewal.

 

For the physician who becomes a landlord after the sale, this creates a layer of long-term uncertainty. Each ownership change brings the potential for new leadership, different objectives, and a shift in how the tenant views the lease relationship. What may start as a stable, collaborative arrangement can evolve into something far less predictable.

 

As a passive landlord, visibility into these internal changes is limited, and negotiating leverage can diminish over time. When the lease expires, the physician may be dealing with an entirely new team whose financial goals and operational strategies are no longer aligned with their own, potentially impacting rental income, renewal terms, and the long-term value of the property.

Retirement Timeline vs. Lease Timeline

Many physicians sell their practices as part of a phased retirement plan, with the goal of being completely free of professional obligations in two to five years. However, a typical commercial lease may have a term of 10 to 15 years. This creates a potential mismatch between personal and financial timelines.

 

As a passive landlord no longer working in the practice, leverage and insight are significantly diminished. If the acquiring company is unable to find a successor or make the location profitable, they may decide to close the office, leaving the landlord with a vacant building and a need to find a new tenant.

Double Exposure to the Same Risk

If the sale includes equity or stock options in the acquiring company, the former practice owner becomes financially tied to its performance. Retaining ownership of the medical office adds a second layer of exposure as both the equity and the property’s value depend on the success of the same business.

 

This concentrated risk can be significant. If the company faces operational or financial issues, both income streams—rental payments and equity value—may suffer. A lease renegotiation, tenant instability, or change in strategy could negatively impact both assets at once.

 

Diversification helps reduce this risk. Unlike equity, real estate is often easier to monetize. Selling the property can unlock liquidity and allow capital to be redeployed across other investments, lowering overall exposure and enhancing portfolio stability. This move creates financial flexibility and reduces reliance on a single tenant or entity.

A Strategic Sale

Timing the sale of the real estate immediately after the practice sale is a strategic decision that optimizes return and minimizes risk. It capitalizes on the peak valuation created by a strong new tenant and a long-term lease. Additionally, it provides immediate liquidity, allowing for the diversification of wealth and a retirement plan on one’s own terms. It also frees the owner from the long-term responsibilities and uncertainties of being a passive landlord.

 

Selling a medical practice is an important decision, but the transaction is only half complete for physicians who own their real estate. Failing to address the real estate asset at the same time is
a missed opportunity. Physicians are encouraged to speak with a CRE advisor when the practice sale occurs. This expert can provide a confidential valuation and market consultation, which creates an understanding of the true value of the building as a standalone investment. By strategically selling the medical office building, returns can be maximized, risk can be reduced, and a retirement can be secured.