LONDON - Cash may not always save the patient's life. But in the health-care business it is helping resuscitate hospitals.

Squeezed by rising costs, hospitals in the US are increasingly considering selling their buildings specifically their office buildings to raise cash.

While the trend has been a few years in the making, it has recently gained momentum. According to property company Real Capital Analytics, $945m in new money was invested in US medical office buildings last year, up from 786m in 2001.

Industry professionals say the strong first quarter bodes well for the rest of the year. In February, Windrose Medical Properties Trust said it would buy 12 office buildings from Medical Properties of America. Last month St Vincent Health in Indianapolis, owned by Ascension Health of St Louis, announced plans to sell 11 of its largest office buildings. Catholic Healthcare West also intends to sell some of its offices.

"Not a week goes by that we don't get two or three inquiries from hospitals looking to explore selling their medical office buildings," says Fred Campobasso, president of Chicago-based national health-care property consulting and development firm AMDC Corporation. "A year ago we might have had two or three inquiries a month."

Some hospitals are looking at shedding property to raise cash and focus resources on their core business: patient care. Between 35% and 60% of a hospital's balance sheet could be tied up in property, while hospitals are finding it harder to get money out of patients and medical schemes, investment income is falling and demand for capital to fund new technology is rising.

Many hospitals rent offices to doctors, who have historically paid low or below-market rent. Selling the buildings would have the added advantage of removing any appearance of impropriety.

Physicians, meanwhile, are likely to gain the services of a professional management firm or the opportunity to become an owner or part-owner of the buildings they occupy. But rents are bound to rise to reflect fair market value.

Investors can expect 9%-11% return in the first year, says Campobasso. Most property investors target a leveraged return in the "high teens" over the life of the investment. "This is consistent with other real estate investments but there is less risk because the tenants are the doctors who are at the hospitals," he says.

The medical office niche is also attracting other investors. "The health-care real estate segment has held up much better than the rest of the office sector because it has doctor tenants who need to be close to the hospital there is a lot of equity capital chasing these investments."

Some in the industry say two out of three hospitals are in the first phase of assessing divestiture and the trend could result in one of the largest transfers of property. "Less than 5% of all nonacute care property in other words, the medical office building portion of the real estate portfolio of the hospitals is owned by a third party," says Campobasso.

"That is going to change dramatically. In the next five years it could go as high as 20%-25%."

Business Day