A close to standing-room-only crowd of 300 gathered at the FourSeasons Resort and Club Nov. 14 at the inaugural RealShare MedicalOffice Buildings to hear the "how-tos" of working with medicaloffice buildings, health centers and other health care real estate.The good news is health care systems are realizing their corebusinesses is medicine, not real estate.

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Additionally, "Health systems are looking for alternativesources of capital," says Ron Long, CFO, Texas Health Resources inArlington, TX. "They'd like to shed some of their non-core assetsto get it." Even better news is that sales are still strong in thismarket, though not as hot as in previous years.

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But getting a foot in the door with these medical establishmentsisn't necessarily a piece of cake. Participants learned at theevent, sponsored by RealShare Conference Series, the real estateconference division of Incisive Media, that success in the businessis dependent on one thing: Relationships.

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"You have to be good at dealing with physicians. You have tounderstand their personalities and even know something about theirbusiness," Long says. "Then there is a relationship with hospitalson top of that." As a result, someone looking to do a single,one-off deal won't have much success in this industry. "Hospitaland health systems like to partner with developers and investorswho have track records in these issues," he remarks.

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The medical establishment prefers the long-term relationshipsfor a reason. "Once a hospital goes forward to monetize a building,the management is asking 'who do I want to be partners with for thenext 20 years?'" comments Birmingham AL-based Sanders Trustdirector of business development Bruce Bright.

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Malcolm Sina, president and CEO with DASCO Cos. LLC of PalmBeach Gardens FL agrees with the assessment. He also points outthat the investor wanting to invest in the medical product typeneeds to understand it's driven by internal rate of return, ratherthan cash flow.

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In addition, the medical office development side is differentfrom standard office developments. "The cost of product delivery isdifferent, and higher, explains Jeffrey Land, vice president,corporate real estate with Catholic Healthcare West, headquarteredin San Fransisco. "It's harder to get deals done, andpre-leased."

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Much like rest of the real estate market, it's difficult to finddebt for acquisitions, though plenty of equity is out there. Theexperts point out the best way around the credit situation is totap into small community banks and focus on small deals not morethan $20 million. "Six months ago, large banks loved the largerdeals," notes Chicago-based GE Healthcare Financial Services Inc.senior vice president Brent Tharp. "These days, the only banks leftwith anything to lend are the local banks."

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"Twelve months ago, it was the larger deals that got all theattention," agrees Jeffrey Cooper, executive managing director withSavills LLC, headquartered in London. "But if you bring a largetransaction around today, people would say 'no thank you.'"

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The reason, he continues, is because the larger transactions cantake up to 120 days for the due diligence. "The metrics can changetoo much in that time," he notes. On the other hand, the smallerdeals are easier to close because they aren't quite as scary forthe local banks.

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Does this mean that larger transactions are out of the picture?Not so, says Chicago-based Shattuck Hammond Partners' senior vicepresident Ari Weinberger. Weinberger points out that lenders can beencouraged to form a syndicate for those larger transactions.

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Regardless of transaction or development size, the speakers saynothing will happen without experience or a track record of atleast 20 years. Bright suggests those interested in working withhealth care real estate join forces with an investor or developerwho's been in the industry for awhile, then take the time to builda reputation.

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James Schrim III, chief operating officer with Klingbeil MedicalPartners LLC in Worthington, OH says the key to success in medicalreal estate is a willingness to grind it out, do the homework andfind creative ways to raise funds. "It takes capital, courage andcommon sense," he adds. "If you have these three, you caneventually do well in this market."

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