Should You Buy or Lease a Facility for an Ambulatory Surgery Center?
Physicians planning to open or expand an ambulatory surgery center may need to decide whether to purchase a facility or lease a suitable medical property. Both options can provide advantages depending on the physician’s financial position, long-term plans, location, and operating requirements.
For physicians considering ambulatory surgery center financing, understanding the differences between buying and leasing can help when developing a long-term business plan.
1. Buying Provides Greater Control Over the Property
Purchasing a facility can give the ASC owner greater control over the property.
The owner may have more flexibility regarding renovations, improvements, expansion, and the long-term use of the building, subject to applicable requirements and restrictions.
2. Buying Can Build Real Estate Equity
When an ASC purchases its facility, part of the financing payments may contribute toward ownership of the real estate.
Over time, the property may become an additional business asset.
The potential for real estate appreciation can also be an important consideration, although property values can rise or fall depending on market conditions.
3. Leasing Requires Less Real Estate Commitment
Leasing can allow an ASC to operate from a facility without purchasing the underlying property.
This can reduce the initial capital required for real estate compared with purchasing a building.
For some physicians, preserving capital for equipment, staffing, working capital, and other startup expenses may make leasing attractive.
4. Leasing Can Provide Greater Flexibility
A lease may provide more flexibility for physicians who are uncertain about their long-term location or future space requirements.
If the ASC grows significantly, the business may eventually have the option to move or expand into another facility, depending on the lease terms and local availability.
5. Buying Can Provide Long-Term Stability
Owning the facility can provide greater long-term control over occupancy costs and the property itself.
The ASC does not have to rely on a landlord’s decision regarding lease renewal, provided the owner continues to meet its financing and property obligations.
6. Lease Terms Should Be Carefully Reviewed
Physicians considering a lease should carefully evaluate the terms before committing to a facility.
Important considerations may include:
- Lease length
- Renewal options
- Rent increases
- Maintenance responsibilities
- Property taxes
- Insurance requirements
- Renovation restrictions
- Expansion options
A medical facility may have specialized requirements that make the lease structure particularly important.
7. ASC Build-Out Costs Can Be Significant
Whether a physician buys or leases a facility, the property may require substantial improvements before it can operate as an ASC.
Potential costs can include:
- Operating room construction
- Electrical improvements
- Plumbing
- HVAC systems
- Patient recovery areas
- Medical infrastructure
- Accessibility improvements
Physicians should determine who is responsible for these costs before finalizing a purchase or lease.
8. Location Is an Important Consideration
The location of an ASC can influence patient access, physician participation, competition, staffing, and long-term growth.
A physician should evaluate the local market carefully before selecting a property.
9. Buying Requires More Capital
Purchasing a facility generally requires a larger overall capital commitment than leasing the same property.
The project may include the real estate purchase, closing costs, construction, equipment, and working capital.
Physicians should evaluate their available capital and financing options before deciding to purchase.
10. Leasing May Preserve Capital for the Business
One potential advantage of leasing is that more capital may remain available for operating the ASC.
Those funds could potentially be used for equipment, staffing, technology, marketing, supplies, or working capital.
However, physicians should evaluate the total long-term cost of the lease rather than focusing only on the initial capital requirement.
11. Real Estate Financing May Support a Purchase
Physicians purchasing an ASC facility may explore commercial real estate financing as part of the overall project.
Depending on the transaction and borrower qualifications, financing may potentially cover eligible real estate and related project expenses.
The specific structure will depend on the property, borrower, financing program, and lender requirements.
12. Consider the Long-Term Business Plan
The decision to buy or lease should fit the physician’s long-term plans.
Buying may make more sense for an ASC that expects to remain in the same location for many years and wants greater control over the property.
Leasing may be more attractive for a physician who wants greater flexibility or prefers to preserve capital for the operating business.
13. Compare the Total Costs
Physicians should compare more than the monthly mortgage payment or lease payment.
A complete comparison should consider:
- Initial capital requirements
- Monthly occupancy costs
- Property taxes
- Insurance
- Maintenance
- Renovation costs
- Potential property appreciation
- Long-term flexibility
Looking at the entire financial picture can provide a better basis for making the decision.
14. There Is No Universal Right Choice
Every ambulatory surgery center is different.
The best option depends on the physician’s available capital, financing options, expected length of occupancy, growth plans, local real estate market, and financial projections.
A physician should evaluate both options before making a long-term commitment.
Final Thought
Buying or leasing a facility for an ambulatory surgery center can each have advantages. Purchasing may provide greater control, long-term stability, and potential real estate equity, while leasing can require less initial capital and provide greater flexibility.
Physicians should compare the total financial and operational implications of both options and choose the structure that best fits their ASC’s long-term business plan.
