Fair Market Value Opinion for a Radiation Oncology Facility Leasing Arrangement
Client/Profile
Mid-Atlantic hospital system in collaboration with a physician-sponsored property company
Challenge/Situation
To establish the fair market value of a radiation oncology building being constructed by the properties company which was to be leased and operated by the health system. This “turnkey” project lease had several unique business terms that impacted the value determination.
Process
Veralon applied two fair market value methodologies to obtain the valuation conclusion. The market approach, using comparable projects and lease arrangements, was limited in its utility for the analysis due to insufficient citings with comparable size, cost and lease terms.
Results
The asset approach using a “hypothetical buyer” lessee was judged by Veralon to be the most applicable to the client’s situation. In using this approach, Veralon assisted the client (the lessee) in restructuring certain terms of the lease related to the lessor’s capital (debt and equity) structure, risk premiums and return and the purchase option held by the health system. The lease was consummated and the facility was completed and opened.