September 15, 2020
PTS Launches Innovative New Dental Practice Real Estate Cooperative
Co-op concept groups single-tenant dental practice properties for dentists who join dental service organizations (DSOs), allowing dentists to retain part ownership and lower capitalization rate with private equity backing
Professional Transition Strategies (PTS), a company that represents dental practice buyers and sellers and offers brokerage and practice consulting services, today announced the launch of a new real estate concept that will improve property value for dentists who own a single-tenant building where they practice when they join a dental service organization (DSO). By joining PTS’s dental practice real estate cooperative (co-op), dentists can retain part ownership in their building while significantly improving the property’s capitalization (cap rate).
“DSOs are the fastest-growing sector in dentistry right now, especially among younger dentists, who are three times as likely as older peers to be affiliated with a DSO, according to the American Dental Association (ADA),” PTS Founder and President Kyle Francis said. “When DSOs purchase a practice, private equity groups typically purchase the buildings that DSO group affiliates practice from, but when a dentist joining a DSO owns a single-tenant building, that property falls through the cracks. The co-op groups those properties together, backing leases with a portfolio worth hundreds of millions of dollars, increasing security and value.”
Dentists who sell to the co-op and retain part ownership benefit from the arrangement by lowering the cap rate, a formula used in real estate investing that divides the annual income of the property by its cost or value. The cap rate is a measure of risk in an investment, and lower cap rates are more attractive to investors. Dentists who sell a portion of their practice to PTS’s new dental practice real estate co-op can expect a lower cap rate on the same principle that makes any other type of business’s property more attractive to investors if it’s occupied by a chain rather than a mom-and-pop shop: lower risk.
The co-op bundles properties for dental practices similarly to how DSOs bundle the dental practices, with the selling dentist retaining part ownership in a joint venture (JV) agreement and selling over time. A property that is part of a co-op portfolio of strong leases with many long-term tenants generating hundreds of millions annually is more attractive to investors than a single-tenant practice generating half a million dollars per year, so it can sell at a lower cap rate and secure a stronger return.
“For dentists who own the property where they practice, that property is typically their second-most valuable asset after the practice itself,” PTS Lead Broker Stanton Kensinger noted. “If there’s a way they can lower the cap rate from the 8.5 to 10 range to 6.5 to 7 by selling to the co-op, that’s a win-win situation for everyone. PTS is in a unique position to put this co-op together since we already work with numerous DSOs across the US. As far as we know, this co-op concept has not been done before in the dental industry, but we have an opportunity to create additional value with the co-op, so we’re pleased to offer this new option.”
About Professional Transition Strategies
Founded in 2006 and headquartered in Colorado Springs, Colorado, PTS helps dentists buy, sell or start dental practices, move to new offices or expand at a current location. The company is committed to client success and provides expert consulting services to help dental professionals improve operations, marketing, accounting and other facets of practice management. PTS donates a percentage of its profits to Give Back a Smile, a cosmetic dentistry charitable foundation that restores the smiles of victims of violence. Find out more about PTS at www.professionaltransition.com.