Autism therapy companies looking for a growth accelerator could find luck in putting more effort into their real estate initiatives, including lease buybacks and owning properties in certain circumstances.
Companies of many sizes are finding that investors are more reluctant to cut checks in a high-interest-rate investment market. While interest rates are up and investments are down, the demand for autism therapy and related services has not slowed. Autism therapy organizations need to get creative to finance their growth. However, it requires the leaders of these organizations to take on initiatives that are more reminiscent of commercial real estate development than autism therapy, a key consideration when looking to turn real estate challenges into opportunities.
Companies that have engaged in sale-leasebacks can have some hand in setting the rents for themselves. They can also get capital without giving up equity in the business, which can then be put into other initiatives like growing the organization or paying down debt. Further, owning real estate can be a better option than leasing it in certain markets.
“When we’re looking at the rural market strategy, there’s low inventory and not a lot of options. What you are able to find is flexible classifications of spaces,” Brett Blevins, CEO and founder of Commonwealth Autism Care, told Autism Business News about buying real estate. “It (buying) opens more avenues.”
These alternative strategies are meant to help providers break free of norms and the status quo of a private equity-dominated industry. In a parallel function, some autism therapy providers are seeking to franchise their brands to expand rather than owning all expansion with inventors.
In some circumstances, buying can lead to a lower mortgage payment than a lease payment. On top of that, time allows for equity in the building to accumulate, adding an asset to the company’s books. A dramatic example of real estate being an asset could include using real estate to diversify revenue sources. Children’s Autism Center announced in May 2023 that a partnering nonprofit acquired a strip mall in Fort Wayne, Indiana, where the organization is based. Children’s Autism Center will use space in the building. The acquisition will also allow for more diverse services, the organization said.
For Blevins and Commonwealth Autism Care, the real estate and debt are held by a separate holding company to which the company pays rent. Blevins said provider-entrepreneurs and other smaller operators could derive additional benefits from the sale of the practice if they own the real estate. Historically, investors in health care services have not been eager to plow capital into real estate. “We think our capital is better spent on providing care,” Spero Health CEO and President Steve Priest previously told ABN sister publication Behavioral Health Business.
Blevins said that entrepreneurs could still hold on to real estate and effectively become the landlords of their former practices. Or, they could look for a separate sale of the real estate.
“If real estate is tied into a deal, it muddies the valuation of the business itself,” Blevins added.
An even more intensive focus on real estate could create a steady flow of capital for companies.
Bryan Huber, director of the sale-leaseback group at SAB Capital LLC, said his company has helped autism therapy and developmental pediatric providers generate $20 million through sale-leasebacks.
In one instance, an Atlanta-based provider entrepreneur identified a vacant property that they wanted to use as an autism therapy clinic. Huber declined to name his client. SAB Capital and this clinician were able to get the property under contract for $1 million and brought in another firm to acquire the property for about $3.5 million in exchange, in part, for tenancy in the building.
“It provided them with a source of funding that was non-diluted, didn’t require personal recourse, and therefore did not add debt to his balance sheet,” Huber said. “That’s how they’ve expanded their ABA center footprint.”
Other clients have used this approach to convert vacant funeral homes and bank branches into clinics and used the proceeds of the sales to pay down high-interest debt that was more expensive than the leases.
In 2024, SAB Capital helped an autism therapy provider with the sale-leaseback of five clinics in Michigan and Indiana. It generated $6.1 million that was used to pay down debt and expand in Nebraska.
