ROME, GA-One of the larger medical office building transactions of 2012 involved the sale of seven buildings owned by a large physician practice in northwest Georgia. During Q4 2012, the 150-year-old, 140-doctor Harbin Clinic of Rome, GA sold seven buildings for $90 million to Indianapolis-based Duke Realty Corp. Not only was the sale one of the largest healthcare real estate transactions in 2012, but it was also one of the largest provider-driven sales, otherwise known as monetizations, of the past decade. According to our research, the deal was in the top 10 provider monetizations since Healthcare Real Estate Insights was first published in 2003.

During a panel discussion concerning provider monetizations at a recent healthcare real estate conference, Kenneth Davis, president of Harbin Clinic, was on hand to give insight into how the deal took place and why Harbin decided to sell the buildings. Harbin first began considering the possibility of selling most of its buildings late in the 2000s, at about the same time healthcare reform was being enacted.

“For one thing, we knew (under reform that) revenue was going to decrease in time, which was going to lower our operating margins,” Davis said. “We also knew that we were going to have significant and new capital expenses,” including expanding its electronic medical records, building an accountable care model, and recruiting physicians in order to compete with other systems.

In addition, Harbin Clinic officials anticipated a day when they might want to align with or be acquired by another health system. “Our legacy has always been to be independent,” Davis noted. “But given what we were seeing in the reform legislation, it sure looked like it would make sense to consider the idea of an alignment. Also, during the recession, things were not looking that favorable for real estate, and we were concerned about what was going to happen with interest rates. We were actually quite afraid of what the future might hold.”

The clinic's healthcare real estate was technically owned by its physicians through a separate entity, Harbin Clinic Properties LLC, which was formed in the early 2000s. As Harbin officials anticipated a possible merger, they were concerned that the real estate holdings would be looked upon as a possible hindrance by a potential partner.

When the clinic finally decided to sell, it chose Duke Realty after several long discussions with the real estate firm's top officials. Those discussions were necessary, Davis said, because Harbin wanted to make it had a “cultural fit” with its new landlord.

“We have what we consider a great real estate partner, we have capital, and we feel that if and when hospitals look at us they don't see the burden of a $100 million of real estate portfolio that they would have to purchase if we joined them, of if they joined us,” he said. “We think it has worked our well and is much to our benefit.”

John B. Mugford is the Editor of Healthcare Real Estate Insights, the nation's first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.