For physicians and practice owners, selling to a Management Services Organization (MSO) can be a game-changer. Beyond the operational support and financial backing MSOs provide, one of the most overlooked benefits is the immediate and long-term increase in the value of the underlying real estate.

 

 

When a practice transitions from a physician-owned model to being backed by an MSO, investors may view the property as a more secure and desirable asset. A well-structured lease with an MSO tenant can transform a medical building from a single-practice risk profile into a corporate-guaranteed investment, often trading at a higher valuation.

 

Why MSO Backing Elevates Real Estate Value

Corporate Credit and Stability

Instead of relying solely on a physician’s personal guaranty, an MSO lease is often backed by a larger corporate entity or private equity group. The strength and financial backing behind these operations reduces perceived risk for investors when compared to an asset leased to an individual or private practice. The larger entity on the lease broadens the buyer pool and commands sharper pricing.

 

Professionalized Operations

MSOs bring scale, capital, and operational expertise, which reassures real estate investors that the practice will remain viable and competitive over the long term.

 

Market Comparables

Assets leased to MSOs are increasingly trading at cap rates comparable to other national healthcare groups, allowing property owners to unlock higher real estate value by securing the MSO’s backing on the lease and further enhancing that value through well-structured, investor-friendly lease terms.

 

Key Lease Provisions that Boost Value

When negotiating a lease with an MSO, attention to detail matters. These five provisions are especially critical for maximizing real estate value.

 

Minimal Landlord Responsibilities (NNN or Absolute NNN Lease)

The fewer obligations placed on the landlord, the more attractive the property becomes and the more an investor is willing to pay to purchase the real estate. Triple Net (NNN) or Absolute NNN leases, where the tenant covers taxes, insurance, maintenance, and repairs, are buyer-preferred because they create passive, predictable income streams.

 

Annual Rent Increases

To maintain property value, cover rising operational costs like property taxes, insurance, and maintenance, and keep rental income competitive with the market, rent increases are crucial for commercial real estate. They directly enhance a property’s value today as investors place a premium on assets with built-in income growth and protection against inflation. Most investors look for 2 to 3% fixed annual increases to ensure predictable rent growth and consistent yield over time.

 

Long-Term Lease (10-15 Years)

Term length is one of the most significant factors influencing value. Investors are willing to pay more upfront for long-term, stable cash flow, which is why a 10- to 15-year initial lease often commands stronger pricing. Longer terms reduce perceived rollover risk and give buyers confidence to underwrite more aggressively, resulting in higher offers for the property.

 

No Termination Options

Early termination rights can erode value by introducing uncertainty. Negotiating a lease without termination options helps preserve long-term stability. The most commonly included termination language upon a practice sale carves out a clause allowing the tenant to end their lease should the main doctor/prior practice owner retire.

 

Corporate Guaranty

A corporate guaranty from the MSO or its parent organization materially upgrades the credit profile of the lease. This is often the greatest differentiator between a physician-guaranteed lease and an MSO lease in terms of investor demand. Many MSOs seek to sign the lease using a subsidiary or single purpose entity rather than the core operating company. That structure can reduce the real estate value, since the tenant could bankrupt the thin subsidiary tied to a single lease to exit early, whereas a broader corporate guarantor is less likely to fail and is harder to walk away from.

 

Key Takeaways

Selling to an MSO is not just a strategic move for practice growth. It’s also an opportunity to unlock higher real estate value. By negotiating strong lease provisions upfront, practice owners can ensure that their building is positioned as a highly sought-after investment, attracting more buyers and commanding premium pricing.

 

 

For physicians considering a sale, aligning the lease with investor expectations is just as important as the MSO partnership itself. Done right, the combination can provide immediate liquidity, long-term security, and enhanced property value.