MILWAUKEE-These days, there seems to be differing thoughts on whether health systems should own the healthcare real estate housing their physicians or have third-party firms own and manage them.

During the last decade or so, one large Wisconsin health system has been bullish on the practice of selling MOBs to third-party investors, or having third-party firms develop and own MOBs housing its doctors. In fact, Milwaukee-based Aurora Health Care, the state's largest private employer and the operator of 15 hospitals and 145 clinic locations, has engaged in 16 transactions involving 52 individual medical properties in since 2002.

During a panel discussion concerning provider monetizations at a recent healthcare real estate conference, Larry Wiemer, senior director of finance for Aurora, explained why the system has embarked on such a course of action.

First up, according to Weimer, the transactions generated $550 million in net proceeds and $160 million in gains “based upon the net book value versus the proceeds.” The transactions, he noted, took place in a variety of forms, including traditional sale and leasebacks, build-to-suits, owner-developer financed projects, and credit tenant lease financings.

“The reasons that we sold included a number of things, including (improving or protecting) our debt rating from the ratings agencies,” he said. “We sold during times when we were growing, and as a result we became relatively highly leveraged. But our strategy called for continued growth, and it was a balancing act between using cash from operations, borrowing on a tax-exempt basis, and looking to monetize some of the assets -- and it really came down to a number of different opportunities.”

When a member of audience asked whether selling real estate assets is still viable option for health systems in today's arena, Weimer responded: “I just feel that if you want to be in the business of providing healthcare, you don't want to be in the business of owning or managing real estate.”

After selling what Weimer called a “rather large portfolio at the time” in 2002, the health system typically engaged in at least one transaction with third-party firms per year through 2009, when it sold a portfolio of nine properties for about $170 million, according to Mr. Weimer. Earlier that year, in two separate transactions, Aurora sold six MOBs to a real estate investment trust for $75 million.

“That kind of capped off the majority of the assets that we at Aurora wanted to monetize,” Weimer noted. “We have done some selective transactions since then.”

For Aurora, it's been important to be in control of the buildings it has sold and now leases from third-party owners, Mr. Weimer said. To do so, it has added clauses to leases that give the health system flexibility in how it can use the buildings.

“Essentially many of our leases are true triple-net, bondable come 'hell-or-high-water' leases, so we're responsible for any kind of condemnation, any casualty,” he said. “So it's been increasingly important to us to flexibly manage the buildings.”

John B. Mugford is 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.