In Michigan, a common misconception occurs when 501(c)(3) nonprofit corporations buy and sell real property. While nonprofit 501(c)(3) corporations can be exempt from paying real property taxes while retaining title to and occupying real property in Michigan, they can be subject to a real property transfer tax at the time title to its property is transferred. It is customary for a seller (or transferor) of real property to pay the transfer taxes at the time of transfer, but this tax can be negotiated as part of the transaction.
Part 2 of 2
If it survives the current legal challenge in the U.S. Supreme Court, the mandatory coverage aspect of the Affordable Care Act (“ACA”) will not take effect until 2014. This timing has the effect of making hospitals tentative about capital deployment in general and for real estate in particular.
Besides timing and uncertainty, there are other aspects of the ACA and the general economic environment that diminish current and short-term spending by hospitals for new real estate development: Continue Reading →
Part 1 of 2
It seems like yesterday, but we are two years into the “health care reform” era. The Affordable Care Act (“ACA”) became law in March of 2010. The primary goals of the ACA are three-fold: increase coverage, reduce the cost of care and improve the quality of care. Few argue the importance of the objectives. When Congress passed the ACA:
- 45 million Americans lacked coverage;
- Health care constituted a full 16% of GNP (compared to Britain’s 8.4% and France’s 11%);
- The per capita annual cost of care was $7,290 (about double that of most industrialized countries); and
- Quality was comparatively poor (as measured by preventable deaths in the US vs. other developed nations). Continue Reading →
Hall Render real estate attorneys regularly police our health care clients’ real estate contracts, particularly leases, to ensure they comply with applicable health laws. In particular, federal Stark and Anti-Kickback laws. A Michigan nonprofit hospital system’s 2011 payment of $30 million in fines for alleged health law violations demonstrates the potentially high cost of noncompliant leases. Continue Reading →
During the 4th quarter of 2011, Grubb & Ellis (G&E) released their investor outlook for health care properties. The report states that demand is strong and that health care properties will continue to be a reliable investment over the next decade.
G&E points to a number of factors to justify its outlook. The driving force will likely be the number of baby boomers reaching age 65 during the next few years. Experts are predicting that the 65 and over population will grow 36% over the next decade. Current data suggests the 65 and over population visit hospitals and healthcare facilities twice as much as their younger counterparts. Continue Reading →
A good reminder for leases between health care entities and physician groups is that under the Stark regulations, the space rented is reasonable and necessary for the legitimate business purposes of the lease and is used exclusively by the lessee (during such times when the lessee is using the space) and is not shared with or used by the lessor or an affiliate of lessor. In addition, the lessee may make payments for the use of common area space if the payments do not exceed the lessee’s pro rata share of expenses for the space based upon the ratio of space used exclusively by the lessee to the total amount of space (other than common areas) occupied by all persons using the common areas.
In February, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) shed additional light on their proposed rule that changes how lease agreements are treated for accounting purposes. The proposed rule, originally published in an exposure draft on August 17, 2010, treated all lease agreements as capital lease agreements for accounting purposes. The proposed rule was originally met with criticism by most in the accounting and real estate industries.
After receiving an overwhelming amount of comments questioning the proposed rule, FASB and IASB reconsidered some of the more controversial sections of the proposed rule. In February, FASB and IASB announced that they would consider a two-model approach for accounting leases: finance leases and “other-than-finance” leases which more closely mirrored the current practice of accountants when considering capital lease agreements as distinct from operating lease agreements. Continue Reading →
Many large construction projects, including hospitals and health care facilities, utilize a Fast Track project delivery process. The goal of the Fast Track method is to bring a facility from concept to reality in a fraction of the time of a normal building project. Naturally, this process provides certain benefits and risks that an owner of the project must be comfortable with.
The Fast Track process saves time by engaging the contractor prior to the completion of design. Generally, the contractor is compensated using a “Cost Plus the Contractor’s Fee” method, often with the contractor giving a Guaranteed Maximum Price (GMP). Continue Reading →
If you are a tenant in a medical office building and do not appreciate the difference between “rentable” area and “usable” area you may be paying more (or less) rent for the space than what is fair and reasonable. In May, the Building Owners and Managers Association (“BOMA”) updated its measurement methodology for office buildings. This is an important development for all landlords and tenants of multi-occupant office buildings, including medical office buildings. The prior version was initially published in 1996. The new standard, referred to as ANSI/BOMA Z65.1-2010, is a substantial improvement over its predecessor. I believe that the use of the new standard will result in better measurement practices and a higher degree of accuracy in determining rentable areas for tenants. Continue Reading →
In 2010, a number of decisions were handed down by state courts reviewing property tax exemptions for hospitals and healthcare providers. Out of those decisions, the opinion by the Illinois Supreme Court in Provena Covenant Medical Center v. The Department of Revenue deserves special attention. In its opinion, the Illinois Supreme Court reviewed the facts surrounding a property tax exemption valued at $ 1.1 million sought by Provena Covenant Medical Center (“Provena”) for its real estate located in Urbana, Illinois. Continue Reading →