In this episode of The Same Day Podcast, host Mat Zalk sits down with Toby Scrivner, Senior Vice President at Northmarq, to discuss how healthcare real estate became a powerful investment and growth strategy. They explore why this sector remains resilient in economic downturns, the influence of private equity on healthcare practices, and the challenges of rising construction costs. Toby also shares how physicians can gain equity and maintain independence through strategic real estate decisions.
How Healthcare Real Estate Became a Powerful Investment and Growth Strategy With Toby Scrivner
Toby Scrivner is the Senior Vice President at Northmarq, a firm offering capital markets, debt, equity, investment sales, loan servicing, and fund management services in commercial real estate. He leads Northmarq’s National Healthcare Group from the Tulsa office and specializes in healthcare property investments. Before joining Northmarq, he was a partner at Stan Johnson Company, where he built its first healthcare investment team.
Here’s a glimpse of what you’ll learn:
- [03:10] How Northmarq grew into a full-service capital markets platform with nationwide reach
- [04:47] Why healthcare real estate is a recession-resistant asset and how Toby Scrivner leverages it for clients
- [13:08] The impact of private equity on healthcare practices and the risks and innovations it brings
- [25:20] How rising construction costs and limited medical office supplies are reshaping physician real estate decisions
- [31:47] Opportunities for physicians to gain equity and maintain independence through strategic real estate investments
In this episode…
Healthcare real estate is becoming one of the most strategic investment opportunities in today’s market. With rising costs, shifting private equity involvement, and a growing need for medical facilities, the landscape is changing fast. How can investors and physicians leverage these trends to build long-term value and growth?
According to Toby Scrivner, a veteran in commercial and healthcare real estate, healthcare properties have proven to be a recession-resistant asset and a powerful growth strategy. He highlights how limited supply and increasing demand for surgical and clinical space create strong investment opportunities. By helping physicians structure deals and attract capital partners, he shows how real estate can fuel practice expansion and long-term independence.
Resources mentioned in this episode:
- Yonatan Schmidt on LinkedIn
- Mat Zalk on LinkedIn
- Keyrenter Property Management
- Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
- Keyrenter Property Management email address: [email protected]
- Chris Lile State Farm
- Toby Scrivner: LinkedIn | Contact no.: (405) 609-9195
- Northmarq
- Northmarq National Healthcare Services
- Centers for Medicare & Medicaid Services (CMS)
Quotable Moments
- “I’m over 30 years. At this point, my third economic downturn slash recession, each one different from the other.”
- “Real estate is a tool to be leveraged at the end of the day, and you have to look at what are your overarching goals.”
- “We went through an economic downturn in 2008, and while everybody else’s business was slowing down, mine was ramping up.”
- “It’s critical infrastructure. I always look at medical facilities the same way you look at railroad tracks or highway systems.”
- “Nobody understands specialization more so than a physician; there are reasons why you specialize.”
Action Steps
- Evaluate your healthcare real estate goals early: Defining whether to lease, buy, or develop clarifies financial strategy and long-term growth.
- Leverage relationships with lenders and equity partners: Building a trusted network provides access to capital and favorable terms for complex healthcare projects.
- Analyze market demand before investing: Understanding local provider gaps and patient demographics ensures your property meets real needs and drives occupancy.
- Structure leases with future value in mind: Properly setting lease rates and terms can protect profitability and increase property value for eventual sale.
- Explore joint venture opportunities for costly builds: Partnering with experienced developers or investors reduces risk and makes high-cost construction projects more achievable.
Sponsor for this episode…
Keyrenter Property Management:
This episode is brought to you by Keyrenter Property Management.
Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.
The team helps clients build wealth while taking the headache out of property management.
That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.
To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].
Episode Transcript
Intro 00:04
Welcome to The Same Day Podcast, where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.
Mat Zalk 00:20
Mat Zalk here. I’m the host of The Same Day Podcast, where I connect with top business experts in real estate leaders. You can check out a bunch of other podcasts that we’ve done, including Andy Gurczak of All City Adjusting talking about his role as a public adjuster, fighting for every dollar you deserve on an insurance claim. And he’s helped many of our clients. And the podcast that I did with him dives into the details of how loss claims work and how you can get more money back from insurance companies.
Today’s episode is brought to you by Keyrenter Property Management. At Keyrenter Property Management. We are a full service property management company helping our clients buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of property management. No matter what rentals you have single family homes, condos, townhomes. We have the management solutions you need.
Go to keyrenterpmc.com or email us at [email protected]. Today’s guest is Toby Scrivner. He’s a Senior Vice President and director of Northmarq National Healthcare Group. He brings over 30 years of experience in commercial real estate, and is widely recognized as a pioneer in the healthcare real estate industry.
With more than two decades dedicated to the sector, he played a pivotal role in transforming healthcare real estate from a niche segment of the office market into its own distinct asset class. Today, that asset class generates more than $15 billion in annual sales volume, thanks in part to his vision and leadership. For more information, visit northmarq.com that’s northmarq.com Toby Scrivner. Welcome to the show. How are you?
Toby Scrivner 01:46
Hey. So good. Good to be here Mat. Thanks so much for having me on, man. You got a lot of years of experience.
It’s it’s it’s impressive, I think. Yeah. Some gray hair. I’ve got some too, I got that. Maybe it’s more from the kids than from age.
I don’t know, for I’ll really do it to you. Yeah. The the longevity. I actually love to know the statistic. On longevity of real estate professionals.
What portion start every year? What portion don’t make it after a couple of years. But I suspect that 30 years in the industry is is a you’re an elite. You’re in elite company I would say. Yeah.
Yeah. That are just incredibly lazy and unwilling to move. I don’t know. No, no it’s. Yeah.
No, it’s it’s kind of weird. You’re gonna start thinking about that. I’m over 30 years at this point and my, my third economic downturn slash recession, each one different than the other. And yeah, you know, and I’ve managed to to fight through all all of them so far so good for you. There’s opportunity in every market.
Mat Zalk 02:44
There’s always opportunity. That’s exactly right. Let’s let’s start with maybe a brief overview of Northmarq kind of on a national level, how many offices, how many people just very generally. And then maybe we, we navigate into how you have have kind of fit into that footprint over the last 30 years. And then maybe let’s talk about the healthcare sector and kind of what you do specifically. Yeah.
Toby Scrivner 03:10
No. You know, I was with Stan Johnson Company, which was an astronaut, Mat Lee’s platform. We were purchased in 2022 by Northmarq Capital or, which had predominantly been in the debt origination brokerage, expanded out into multifamily brokerage, and then acquired Stan Johnson Company as part of their commercial division. The company’s plan is really just to build out a full service capital markets platform, you know, in all facets. Now we’re in everything from debt, multifamily, commercial equity origination, 1031 accommodation.
We’re really covering so much with now almost a little over 2000 employees. Wow. In major markets all across the US.
Mat Zalk 04:01
And debt and equity origination means you’ll somebody comes to you and says, I, I want to buy this property. It’s $10 million. I’ve got to come up with 2 or 3. Like, what am I doing to do that? I have a million, but I need to go.
Source two whatever. 1 or 2 more and you’ll help connect them or put together the package to bring in other investors on the syndication. Is that right?
Toby Scrivner 04:21
Exactly. Syndication or through family funds who have money set aside for investment into various deals.
Mat Zalk 04:28
And then the debt, the same way you have relationships with banks and you can say, talk to, you know, whatever bank to to kind of figure out the debt. And you are seeing a lot of it. So, you know, kind of who has terms that are, that are whatever, who wants to underwrite. What kind of deals is that? Right.
Toby Scrivner 04:43
Correct. That’s it.
Mat Zalk 04:44
I mean, full service. That’s a beautiful model.
Toby Scrivner 04:47
It’s it’s been great. And, you know, for us being, you know, healthcare for so long what our focus was in helping either providers, owner users who owned their own healthcare real estate, helping them look at how to leverage your real estate to grow your practice. Working with developers who had developed on behalf of either providers or health systems to take those assets to the market with a long term lease in place, sell them as stabilized investments. But it was, you know, very focused on what’s happened now is that, you know, we’ve dug a deep trench of knowledge within the healthcare space, and now I have this full spectrum of services that I’m able to bring to the table and help my clients many times, getting involved in the transaction at a much earlier stage, you know, hey, I’ve got this piece of land that I’m, I think would be great for healthcare tenant. Now we can help them target.
All right. Here’s where there’s demand for provider services. Here’s a group that’s outgrowing their space. Here’s here’s a hospital system that’s looking to penetrate this market. And we develop out a package that helps them to be able to go to the tenant, sell them on why being at their location would be ideal for bringing the debt or bringing the equity, and then ultimately the execution on the disposition, if that’s the direction.
It’s been great.
Mat Zalk 06:01
And people I mean, so you’re saying sometimes practitioners want to go deeper, put more chips on the table and they want to buy a facility and sometimes maybe they want to extend the lease, give somebody a stable cash flowing asset, but take some chips off the table. They’ve had the building for a long time. They want to get out. So it’s kind of either side of that for the life cycle of a of a practitioner.
Toby Scrivner 06:20
It really can be. And I and I real estate is a tool to be leveraged at the end of the day. And you have to look at what are your overarching goals, and then how can the real estate serve those goals? Yeah, the goals may be to extend the footprint of the practice at multiple locations. Well, you’re you’re not best served if you’re tying equity up in real estate holdings.
That’s limiting your ability to invest capital in your operations and grow your footprint. Yeah. So you know, or a doctor may have well, I just want to own the real estate occupy. Well, that just becomes a secure investment with a long term, you know, strategy to capitalize on it. And then at some point down the road.
Mat Zalk 06:57
So I want to I want to get into how the private equity roll up, consolidation of of dental practices and other things have changed the landscape for commercial for healthcare, real estate. But before I do that, tell us about your 30 year history with first Stan Johnson and then and then Northmarq.
Toby Scrivner 07:15
Well, you know, every time you say that, Mat, 30 years.
Mat Zalk 07:19
33 year history. But since you were born, since you were born, you were selling healthcare, real estate.
Toby Scrivner 07:26
Right, right. Well, the bad side of it is it’s a reminder of how old I am. The good part is, I’ve gotten a lot of experience.
Mat Zalk 07:31
Exactly.
Toby Scrivner 07:32
The last 30 years. So, yeah. No, it’s it’s been a fun ride. I started off in, in commercial real estate back in 1995, I think it was so, you know, started off I’d come out of medical device sales. so I had a knowledge of the healthcare industry.
I’ve been an orthopedic device sales of hip knee. And then when did I care with big companies like Johnson and Johnson’s Vistakon. But real estate had always been a fascination for me. And so I came up learning, you know, commercial real estate based in Dallas and, and, you know, great dynamic market for commercial real estate. And when it came time, I moved to to Tulsa in 2006, I was introduced to Stan Johnson and and his company, which was at National Net Lease platform.
And I really saw what they were doing, which had been, you know, the industry is predominantly comprised of retail, big national retail chains, expanding their footprint by not allowing their money to be tied up in real estate using third party capital. And so I kind of recognized the correlations between what health systems were needing to do in order to extend their footprint and capture more consumer, you know, patients in their system, in their catchment. And I recognize that this same model could be applied to healthcare providers, that if we stop thinking about patients as patients and instead looking at them as consumers, it only makes sense that you have to expand your footprint out into the same demographics where those consumers live, work and play. Sure. And and so that was really kind of the formation of my feelings on, you know, this is an industry, that industry being healthcare that has a long runway is going to continue to grow.
And the infrastructure that’s critical to serving that industry is very unique in nature and requires specialization to be able to communicate to, you know, the providers who utilize it, the lenders who lend money on it, and those who ultimately want to own these assets as a long term investment. Yeah. And so it just became a kind of a culmination of my years of experience in both commercial as well as in the healthcare sector. I started the, the, the, the national healthcare group, which at that time was just Toby Scribner.
Mat Zalk 10:04
When was that?
Toby Scrivner 10:05
That was in 2006.
Mat Zalk 10:07
So you started that?
Toby Scrivner 10:09
Yeah, I started that with Stan and and I think I said, you know, Stan looked at it like, you can’t just do one thing. You know, as a broker, you’ll go broke. And I disagreed. And.
Mat Zalk 10:23
And he had the confidence in you to to let you run.
Toby Scrivner 10:26
I would say no. He had zero confidence in me at the time. He said, you either float or sink or swim. I’m very I’m very convincing, man. I was like, what it was. Wait. No, seriously, it was one of those scenarios. Like, okay, hold my beer. Watch. Yeah. You know, and.
Toby Scrivner 10:40
It it it took some time, but what he saw is we went through, you know, an economic downturn in 2008. And while everybody else’s business was slowing down, mine was ramping up. I was, you know, I was able to leverage what is has been an industry that that is recession, recession resistant. Yeah. And continue to build out my book of business.
Mat Zalk 10:59
And so what what what. What caused your business to ramp up. Healthcare’s recession resistant. And and practitioners at the time were taking the opportunity low rates maybe depressed prices to say I’ll do it now. Let’s buy.
Toby Scrivner 11:18
It really was kind of a a combination of messaging. I mean, one, I, I could tell the story of the industry that, you know, we’ve got a consumer base that’s going to continue to utilize the services here regardless of the economic downturn. Well, you’re you’re owning that Chili’s restaurant. That’s not seeing the amount of patrons it was seeing a year ago. My doctors continued to see the same patients because those patients are going to go to the doctor.
Yeah. So it was about building confidence with an investor base that was looking to place money and buy assets. And at the same time talking to providers or owner users who perhaps, you know, owned their own real estate and helping them recognize how they could continue to control their real estate, the destiny, how it was utilized. But take some chips off the table and reinvest that money into other aspects of their business that were essentially going to generate a better return for them than simply holding real estate.
Mat Zalk 12:11
Yeah. Yeah. What your story reminded me of putting putting your, you know, physical locations into the the areas where your consumers are. It reminds me that I, I went for the longest time to a dentist at 71st and Sheridan and I’m like a 31st in Lewis guy, and I just can’t go. I can’t drive this far to go to my dentist. And I think in Dallas you’re like.
That’s just that’s an everyday commute. Maybe twice, three times a day. But in Tulsa, I’m like, I just I’m going 31st in Harvard. I gotta change this. I can’t spend this much money.
Because we are ultimately spoiled and.
Toby Scrivner 12:44
We do get. Like that. And I lived in Dallas. I’d have to pack an overnight bag to go to Frisco. You know, it’s like, so far.
Mat Zalk 12:54
Absolutely. Let’s let’s turn for a second. What are we seeing in the in the space of, of private equity and consolidation of healthcare practices? Has that affected your business? Has it has it changed the dynamic significantly? Like what?
What are the current realities?
Toby Scrivner 13:08
Boy, that’s a that’s a great question. And it’s one that, you know, we mull back and forth because, you know, private equity has been fantastic in terms of providing capital for innovation where we see change, you know, healthcare can be very bureaucratic. The involvement of insurance companies can create some real challenges. And private equity has always been instrumental when it comes to innovations in healthcare. But we’ve also seen some downsides to private equity.
The perfect example is Steward Health, a large health system that was backed by private equity. Grew considerably. Made some obligations commitments, buying operations to expand its footprint. It leveraged its real estate by selling it off to an institutional REIT. And you know, they couldn’t they could never turn a profit.
And so eventually had to file bankruptcy. And we saw a lot of communities that were deprived of access to emergency medical services as a result of these hospitals shutting down.
Mat Zalk 14:14
And the implication is that had they just remained independent and not been gobbled up and acquired, they would have continued to operate kind of as they had for the previous 20 years. And those communities would have been left with hospitals running. Maybe not as sophisticated but.
Toby Scrivner 14:29
Such ready access to money being thrown at them. They would have operated from a perspective of, you know, looking to, you know, sustain profitability and operational viability. So there’s there’s a lot of criticism, certainly amongst providers in healthcare of private equity’s involvement and that it’s not exactly good for consumers necessarily. But, you know, we can’t ignore the other parts of that where there is innovation that comes from it. What we don’t want is a big bureaucratic, stagnated market where you’ve got health systems dominating regions and dictating the way healthcare is going to be delivered in a region.
Nor do we want insurance providers, you know, dictating, having so much power that they can dictate what goes on. And there’s always been this this triumvirate, triumvirate of insurance, health systems and providers that had to work together. But with private equity coming in. It’s allowed these health systems to expand to the point where they get to dominate a lot of the decision making, absorbing providers up so that they become employees instead of working independently, and they tend to be more mindful about the care of consumers themselves. When we talk about physician providers.
So it’s a big passion of mine. I love to see that entrepreneurial ism that comes from physician providers. Yeah, I’d love to see that supported. And so I’m always on the lookout for ways for physicians to maintain their independence from health systems or from insurance companies.
Mat Zalk 16:06
But so what happens. In healthcare, the the private equity backed healthcare systems come in and just offer a provider just more just they make an offer that they can’t turn down. They feel like. I mean, why do they not maintain or else they just may want to take some chips off the table? They’ve been doing it for 30 years.
Toby Scrivner 16:21
And there’s always a there’s always that, you know. But you know, I think it’s you know, you’re talking about physicians who are nearing retirement. They took a lot of risk, as you know, developers essentially they they were on the node note for the debt to build whatever facility it was. And, you know, I can think of a large orthopedics group, you know, that that we worked with up in Wisconsin where, you know, they’d taken a considerable risk, built out a facility that was catered to their practice. But because they didn’t have the kind of market share that would get favorable contracts, the health system, you know, came in and bought the practice because they needed to be able to get better reimbursements from the insurance companies.
And the health system offered that. So that’s a lot of times what motivates those kinds of decisions. And just the fact that, you know, you’ve got an asset that has a value in today’s dollars, that younger physician partners coming in really can’t step up and pay that acquisition value and buy you out of your shares at a price that you could get if you went to the open market. So a lot of what I do is come in and really kind of helping the parties understand, you know, one that. yes, the developer that’s about to retire took a lot of risk early in his career, and there’s a value that he’s created from that.
But the value you’re going to get from this in the market is contingent upon a lease obligation to which this younger physician is committing himself to. So you can’t deny the value he’s creating for you in that. And so it’s finding that middle ground and then sometimes finding the way to bridge the gap of that equity disparity that we’re talking about there that allows the younger physician to become a joint venture owner in the real estate alongside either a, you know, a third party joint venture partner or or way in which they’re giving imputed equity into the deal based upon their commitment. So we do a lot of different types of development partnership structures to help bridge that gap with these different physicians.
Mat Zalk 18:21
I get I’ve always told people. That there’s nothing in real estate that’s very complicated. It doesn’t take a rocket scientist to do it, but you’re making it sound like there’s like there’s some complication here. There is there are a lot of details. I mean, calculated calculating, imputed equity and understanding. You know, what you’re giving up in exchange for the long term lease.
That’s going to be the cash flow that pays for the for the real estate. I mean, there’s there is some complication here. This is the first conversation that I’ve had about real estate where I’m like, oh, there’s maybe there’s more complications than I’m achieving.
Toby Scrivner 18:51
It’s just those personalities as well. You know, it’s just 100%.
Mat Zalk 18:57
Physicians have large personalities sometimes. Let’s talk. Let’s talk about a specific deal. Any deal you want to share good outcome for, maybe we’ll start with a physician that is looking to buy the land that they’re sitting on, or buy land and develop something so they can move their office and own the real estate, ultimately. Yes.
Anywhere across the country, whatever you whatever you feel like, be a good story to share.
Toby Scrivner 19:23
Well, I think there’s gosh, there’s there’s a lot of ways. I think, you know, we have over the course of my career, even going back into the medical device sales. I’ve seen this pendulum swing back and forth a couple of times where hospital systems were coming in, buying out physicians back in the early 90s and buying their practices up. And then there was this rebellion of physicians who would get into the middle age of their careers and go, I’m tired of being dictated to how to see patients. And so they vacated that model and went back out, developed projects, you know, got together with their partners, their colleagues and developed a facility and, you know, operated as such.
And now we’ve seen that pendulum swinging back, you know, to consolidation over the last decade. And so that motivated a lot of those sales. But now the pendulum is swinging back yet again. Those guys that came out of medical school in their early 30s and lots of debt and got signed on by a hospital as an employed physician, and now they’re kind of in their late 40s, early 50s.
Mat Zalk 20:29
Take a little more risk.
Toby Scrivner 20:30
I really thought I’d have a whole lot more money at my at this stage of my career, and they’re a little frustrated by the bureaucracy.
Mat Zalk 20:38
The system isn’t isn’t some of that frustration or, or some of the, the delta between their, their past perception of what they’d be at today and where they are today. The result, not just of of the debt that they incurred in going to medical school, but just that it’s harder to get paid. Insurance companies are paying less. I mean, is there it used to be that you could like you’d come out of medical school and it was kind of push from there was the perception I have I’m 41, but being a kid was like my friends parents were doctors were like they were kind of set. And now it seems like my friends who are doctors are a little bit more.
They’re jaded, they’re more upset. And I don’t know if that means that they made $700,000 when I was ten years old, and they still make $700,000 today. And that’s not the same when you adjusted for inflation or if there’s something else that happened. Like what? What?
What’s causing that? In American society.
Toby Scrivner 21:33
Well, after 30 years, you know, involved with physicians, I can tell you that I’ve yet to see a generation that didn’t complain about their situation over there.
Mat Zalk 21:42
So I just wasn’t privy to the complaints of my friend’s parents. Right, right.
Toby Scrivner 21:47
And it’s and their complaints were legitimate. And that was just really kind of the the oversight that and the power that insurance providers had in terms of how they treated patients. Right. And it had to do with, you know, you know, the doctor should have more say in how they’re treated. We’re the specialists.
But, you know, but there’s the other side of the coin which wants to protect, you know, the other, you know, consumers out there from having to pay for somebody else’s, you know, treatment that defies logic, you know. So those things have always existed. There are complaints about the bureaucracy the way things are. But but they’re they’re legitimate. And this is the this is just part of the regular, you know, conversations that have to take place amongst systems, insurance providers and healthcare providers to make sure that we’re working together to serve the consumer at the end of the day.
But to answer your question about, you know, perfect example, you know, we’re now I’m working with physicians who are leaving healthcare systems and looking to, once again, how do we build our own building, how do we get access to the services we need? And I can tell you that it’s more challenging today, because what we’ve seen over the last five years has been a substantial increase in not only the cost of capital, but the cost of construction. So we’re now looking at a facility that’s much more expensive to build in today’s dollars, and it makes it almost cost prohibitive. The only major construction projects we’re seeing in healthcare across the country right now are being sponsored by healthcare systems expansions on campus. You know, or even new construction of facilities on campus.
But typically they’re hospital sponsored. What makes it more challenging are those providers who are trying to exit and, you know, either forming their own group and building a new facility. Those costs become very, very challenging. So, you know, we can help out by bringing joint venture partners in to kind of help with that capital. But combine that now with what we’ve got nationally in terms of overall occupancy of the available medical office space that’s out there.
The national average is over 92% occupied. So in many markets, we’re seeing that occupancy rate 95% or more. Wow. Here in in Tulsa we’re at almost 97% occupancy.
Mat Zalk 24:22
It just makes it very expensive to be leasing property.
Toby Scrivner 24:25
It well, it’s twofold. It’s one, you’re very unlikely to find some available space out there that you could go into that is going to accommodate your practice. And then secondly, for those tenants that are leasing in, there’s a higher probability that they’re going to see rent increases as their leases come up for renewal.
Mat Zalk 24:47
Let me ask you this, though. When you say it, because of construction costs, the development can be unlikely to happen. I mean, it’s cost prohibitive. Is that because with interest rates the way they are, people don’t want to secure the debt? Is it because some paradigm shifted and banks no longer want to lend to a doctor that’s building his own facility?
Or is that because the return on a cash on cash basis is just less than they can get by putting the money in the stock market, or buying single family or multifamily commercial real estate.
Toby Scrivner 25:20
It can be all of the above. I think the the big thing you have to look at is, is you’re coming out and you build something new. If you’re going to finance it with all your, your yourself, your the debt, the equity. Look, banks love to loan on doctors. They know that physicians produce great income.
And so there’s stability there. And there’s favorable, relatively favorable loan rates for physicians relative to general consumers. So there is some savings there. But that doesn’t offset the 40 plus percent increase in cost of materials that we saw. So now you’re taking out what was a $300 a square foot building to build five years ago is $450 a square foot to build it today.
So, you know, even if you’re a physician, you’re going to structure a lease with your your company, okay. You’re going to want to get a return over and above your debt service. If your borrowing cost is at 6.5%, you’re going to set your lease rate at call it 7.5% of your construction costs.
Mat Zalk 26:30
And that’s more than they’re paying in rent right now.
Toby Scrivner 26:32
And it’s more than they’re paying right now. So your cost of occupancy for the practice increases substantially. So the average rental rate on new construction across the country right now is around $38 a square foot triple net for new construction, just clinical office. If we start doing ambulatory surgery centers where we get into higher acuity, that construction cost goes up to over $700 a square foot. Wow.
Okay. So we’re seeing lease rates on that anywhere from 50 to $65 a square foot triple net. So so imagine now if you’ve got an existing ambulatory surgery center that is compliant with all the standards and you’ve been leasing it for $25 a square foot, you’ve got a substantial amount of increase that you can increase and still be well below replacement cost.
Mat Zalk 27:20
What about the benefits to a medical provider in, as you say, building a building? Creating a lease and being a tenant of a building that you own in a different LLC. What are the what are the depreciation benefits? What are the other tax benefits associated with doing that?
Toby Scrivner 27:36
Yeah. No, no it does offer a fantastic investment opportunity. You’re offsetting you know income. You’re able to funnel expenses through it that become advantageous to you. Yeah.
And there’s appreciation. But at the end of the day it’s critical infrastructure I always look at at medical facilities the same way you look at railroad tracks or highway systems. This is infrastructure that’s critical to the delivery of healthcare services. And those things are very difficult to replace. So, you know, owning that or controlling that is, you know, is something that has merit in of itself.
Can you get you know What? What tends to happen more times than not is physicians will treat the real estate more as being an accretive element to the practice, by keeping their cost of occupancy as low as possible and allowing more higher EBITDA profitability into the operations. And then what happens one day they wake up and they want to sell the real estate. Well, because they haven’t structured right. They’ve they’ve and I’m aware of multiple, you know, practice groups that I’ve worked with over the years that look your property isn’t worth this much unless we put a lease rate that, you know, can get us to that in place.
And good luck convincing.
Mat Zalk 28:54
Its right pocket. Left pocket though. Couldn’t you own a if you have a building that’s 100% owner occupied or owner tenanted, I should say, don’t you just sign a new lease with yourself and and then wait 12 months and you have a trailing 12 that represents.
Toby Scrivner 29:07
In theory, if you’re a solo practitioner, yes, that’s great. But when you’re a practice with 20 physicians.
Mat Zalk 29:14
You got to get everybody aligned or everybody has to be aligned on what.
Toby Scrivner 29:17
We want to commit ourselves to a 20 year lease that’s, you know, 20% higher than what we’re paying now. Yeah, for your benefit. So those are the kinds of things that I get to get involved in and.
Mat Zalk 29:27
Have have the have the rates that practitioners can charge for services kept up with inflation. And I guess it’s subject to negotiation with insurance companies. But yeah. Can’t you say look, what used to cost me 300 is now costing me 450 a square, a square foot, and therefore I have to pay more in rent and blah, blah blah. And I have to charge more.
Toby Scrivner 29:47
These are the big challenges that we face. You know, coming up, is that the perfect example of of that is and again, we talked about physicians complaining about, you know, their their craft. This is one of those chief complaints is that the reimbursements aren’t keeping pace with inflation, nor the cost of, of occupancy that they’re having to pay for for rent. We’re seeing that in the inpatient rehab facility sector is a big one where you’re building these post-acute care hospital facilities that are very expensive, but the reimbursement rates that you get per patient per day in these facilities is capped. You know, these it’s largely Medicare and Medicaid reimbursed and that has a cap on it.
And so what was costing us, you know, $600 a square foot to build is now costing us $800 a square foot to build. We’ve got to charge more rents in order to, you know, to pay for the cost of this. But my reimbursement has not increased. It’s staying the same. So those are challenges.
There are questions I have of what happens when those 2.5% annual escalators that you’re putting in place for your rental amount, they reach a point where they continue to escalate. But all the while, the CMS centers for Medicare and Medicaid Services are looking to decrease Crease and make up for it by. Well, you’ve got more patients coming in. Well, if I’ve got a 40 bed facility and I’m at 100% average daily census, I’m capped out on what I can earn revenues in that facility. So as those reimbursements decline but my rent goes up, at what point do those two lines cross?
And an operator has to say, I can’t pay the rent, I’ve got a default. And, you know, how do we handle that as a society.
Mat Zalk 31:37
For for your mid 40s practitioners, how are you advising them right now? I mean, how do they position themselves with real estate at the moment?
Toby Scrivner 31:47
You know, every situation is different. I do think that there’s some fantastic opportunities out there right now because of the critical nature of this infrastructure, because we’ve seen a lack of limited supply, of surgical space availability. I mean, I’m hearing cases in some markets where doctors are not able to schedule a surgery for a patient. You know, 6 to 10 weeks out because the operatory is available in that market are all full. They’re all.
And so I think there are opportunities to buy existing assets that can be converted to a higher acuity clinical or ambulatory surgical service services and, and still come in at a, at a cost basis that is well below what it would cost new. I think those are the kind of opportunities that physician providers should be looking at right now, because they can become the catalyst, become a major influencer in getting that project done. And the reward from that is getting a stake in the deal seat at the table. And you’re the driving force, the equity, the debt, they’re all there. I can bring those to you.
It’s it’s you as a provider that has the ability to make this deal happen.
Mat Zalk 33:04
Is it hard working with physicians that are that are true experts in their very specific field and bringing them into construction and understanding. I don’t know everything from temporary fencing and erosion control into, you know, TPO roofing and, I don’t know, more sophisticated roofs. Or is that, like a cinch? They’re smart folks and they get it really quickly. I guess every situation is going to be different.
Toby Scrivner 33:29
But yeah, no, it really is. I think that’s that’s one of the things that I’ve always kind of, you know, we all know doctors who, you know, have egos and, and I love those guys because they’re, they’re confident in what they do and they’re sharp. I mean they didn’t get to where they are. But, you know, I’m always quick to remind everybody that nobody understands specialization more so than a physician. There are reasons why you specialize.
And that’s what I bring to the table is this is this is my specialty. And there are parts of it that I don’t know, but I know people who do. And I bring those people to the table. And it’s about bringing specialists together in every aspect of the deal and putting it together that way.
Mat Zalk 34:13
And when the doctor comes to you and says, I’m ready, I’m ready to take the plunge and buy real estate, convert it as you say, or develop something. Do you connect them with give a suite of contractors that you, a big general contractor that you think is the right player for each, you know, each situation. Do you have do you have an owner’s rep that you, you know, refer to all those sorts of things? Do you make it kind of more turnkey for them or is it here’s the real estate kind of there you go.
Toby Scrivner 34:44
Yeah. No it’s it’s yes. I mean, so having done this for as long as I have, I have developed relationships who specialize in healthcare in virtually every major market around the country. Yeah. And then the access to be able to find those.
So it’s about running a competitive process, you know, for them. So if the physician has somebody What do you want to self develop this. Are you looking for a joint venture partner. Do you want you know how what how much money do you want to put in it. How much time do you want to invest in it?
We have to understand all of those things. But you know, everything from doing a competitive bid process from developers who, you know, come to us with their pitch on how they’re going to build the facility for the doctors they’re looking for, obviously, debt equity. Is there all those we’re doing a market analysis and feasibility study for them where I can go in, I can take a look at, you know, what’s the physician provider gap in this market? You know, we look at these zip codes that are within a 20 minute drive of this location. You know, what are the case volumes for your specific specialty that are coming out of these zip codes that we’d be able to tap into.
So, you know, it’s it’s really kind of helping them assess and analyze the viability of a, of the site, what their practice is going to be able to, you know, feasibly get in terms of a percentage of that, how that translates into rent coverage, EBITDA for the practice. All of those things are where we’re we’re bringing that resource and helping them dissect and understand the market.
Mat Zalk 36:15
Sounds like a tremendous amount of work.
Toby Scrivner 36:17
Yeah.
Mat Zalk 36:19
Toby, where do people find you? If they want to move into a new building, develop a building or they’re they want out. They want to take some chips off the table and sell their sell their real estate.
Toby Scrivner 36:29
But, look, you can always check us out on northmarq.com and it’s northmarq M-A-R-Q .com. We have our own page dedicated to the National Healthcare Services Group. You’ll find my number there, but you can always call me direct on my cell. (405) 609-9195. I’d love to talk to doctors around the country.
Mat Zalk 36:51
How’d you end up with an Oklahoma City number?
Toby Scrivner 36:53
Well, that goes back a long time ago. I grew up in the 405 area code. Hung on to it for.
Mat Zalk 36:59
Went to Dallas, went to Dallas and came back to the big T.
Toby Scrivner 37:02
It just follows me everywhere.
Mat Zalk 37:04
I love it. Toby Scrivner’s, Senior Vice President and Director of Northmarq National Healthcare Group. He brings over 30 years of experience. Sorry, I had to say it again, 30 years of experience in commercial real estate. And he’s widely recognized as a pioneer in the healthcare real estate industry.
With more than two decades dedicated to this sector alone, he played a pivotal role in transforming healthcare real estate from a niche segment of the office market into its own distinct asset class. Today, that asset class generates more than $15 billion in annual sales volume, thanks in part to his vision and leadership. Go to northmarq.com northmarq.com for more information. Well, we appreciate you being on the show. Fascinating.
Toby Scrivner 37:44
Mat. So good to talk to you. Thank you so much for having me.
Mat Zalk 37:46
Thanks.
Outro 37:50
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