A municipality had been engaged in continuous litigation with a for-profit, publicly- traded hospital management company in connection with the value of a hospital’s real property as determined by the Assessor’s Office of the city. The hospital was comprised of both the real property and business operations. As a single use medical facility, the hospital’s value incorporated the mutually synergistic relationship between the tangible and intangible assets of the business enterprise. Since property taxes could be levied on only the real property portion of the hospital, the key to the analysis was separating the value of the business operations from that of the real property.
The purchase and sale of complex medical buildings included intangible rights and privileges related to the use or exploitation of real estate. The market value of these types of health care assets is derived from the unique income generating characteristics that attach to the real property. Our interviews with industry participants indicated that valuations of specialty medical real property under a cost approach usually bear little relationship to fair market value in a cash exchange. As such, we built a proprietary transaction database of sale-leaseback hospital transactions from public SEC filings and prepared an expert report demonstrating the correlation between real property values and the income benefits accruing to the owners of the business operations. As a result of this empirical data, the parties to the litigation were able to settle the dispute out of court on terms nearly identical to the results of our fair market value analysis.