MAY 15, 2020
Private Equity and Your Rent Collection Game Plan
If you partnered with a private equity backed management services organization but retained ownership of your real estate, you may have received a rent deferral request for April, May, June and beyond.
Such a request has the potential to introduce financial strain on your real estate partnership and create tension with your management partner.
Although this is hopefully just a temporary issue to be resolved once you can see patients on a normal schedule again, following the correct protocol is paramount. By adeptly navigating the process, you will preserve the value of your real estate, reserve your legal rights and resolve the situation with as little damage as possible.
To aid in that process, we’ve prepared the following guide, highlighting steps you can take if you have received a rent deferral request from your private equity partner:
Review your lease to understand your rights.
- The force majeure and default and remedies sections are most relevant.
- Contact your attorney, adviser or consultant to brainstorm on a path forward.
Prepare a formal notice, this is time-sensitive.
- Leases often require written notice to officially inform the other party of an issue and reserve your rights as a landlord
- Although it doesn’t need to be adversarial, the notice should come from your attorney.
Talk to your tenant and document everything.
- Get an understanding of the financial challenges they’re having and the steps they’re taking to resolve them.
- Understand the parties involved (attorneys, executives, advisers) so you know whom to contact.
Understand the options surrounding your loan.
- Many banks and commercial mortgage lenders have programs that will allow you to temporarily make interest-only payments towards your loan.
- Talk to your banker to begin the process of a potential mortgage deferral; this may not be quick and will require paperwork.
Strategize on a solution.
- Understand your objectives as a physician landlord and how you can improve the security of your lease.
- Propose a mutually beneficial solution to your tenant and work with your attorney and advisor to formalize it in writing via a binding lease amendment.
Remember, you partnered with your management services organization, so you’re in this together and should approach the situation thoughtfully. However, ignoring your lease, not understanding your tenant’s needs and not creating a mutually beneficial solution could be a disservice to your real estate partnership and ultimately jeopardize the value of your property.
About the author:
Collin Hart is the CEO and managing director of ERE Healthcare Real Estate Advisors where he leads the company’s strategy to provide executive level advisory to owners of healthcare real estate. Before co-founding ERE Advisors, Collin was a director in the real estate division of a private investment banking firm, where he focused on advising physician partnerships and hospital systems in sale-leaseback transactions. He earned his MBA from the SC Johnson School of Management at Cornell University.