Part 1 of this interview appeared in the April 19, 2025, Operations & Procurement edition of DSOPro.

DSOPro: Describe the current trends you’re seeing in dental real estate and how DSOs can or should adapt.

Dental real estate has really changed a lot. As I look back at some of the older-generation practices, I see them in smaller professional buildings, and a lot of them are in homes that have been converted into healthcare practices. Now, I’m starting to see a lot more practices located in high-visibility retail spaces, kind of like a consumerism move, making it more convenient: “Oh, you go to Trader Joe’s? Our dental office is two doors down so you can take care of your groceries and your dentistry at the same time.”

There is a move to locate in high-visibility shopping centers, or retail-anchored types of locations. There are still tons of successful practices in those legacy-type structures, but I think that is the direction many people are starting to go as they build out new spaces.

DSOPro: What about the medical/dental combination spaces that are opening in some areas around the country?

I have not encountered those on a real estate basis, but I believe I’m a whole human. We’re not a set of teeth in a box in one corner and a heart in a cabinet in another part of the room. We have known in dentistry, forever, about the oral systemic connection. So, acknowledging that we’re one, whole human in a connected system and combining multidisciplinary healthcare together is a great thing.

When patients came to our office, we took their blood pressure. Obviously, we would monitor that if giving someone anesthesia, but we also wanted to understand what their health habits were—if they had blood pressure problems, smoked, what their diet was like, etc—so we could make referrals for them into the traditional MD universe and help them get the care they needed. That’s my view overall on healthcare. When the different subspecialties and types of providers can collaborate and work together in an interdisciplinary fashion it is better for all providers and for patients, too. We can all learn from each other.

DSOPro: Do you focus on particular geographic areas?

We’re looking at the entire United States. I personally believe a well-diversified portfolio is always the most economically rewarding and prudent whether it’s my stock portfolio or if it’s my real estate portfolio. Highly concentrated exposure in one particular area really is highly concentrated risk.

DSOPro: Let’s discuss rising interest rates and market shifts and how they’ve impacted dental real estate investments.

Interest rates are one of the most powerful movers of valuations in the real estate industry. The valuation of a property is heavily influenced by the acquiring party’s cost of capital. Cost of capital is in the form of equity and in the form of debt. When the price of debt goes up in the form of interest rates, people who invest equity look at it and think, “Well, I could buy some triple tax-free municipal bonds for let’s say an after-tax adjusted return of 6%. Therefore, if I’m going to use my equity to buy a building, or debt to buy a building, and the rate of the interest expectation is higher, I will need a higher return on the building itself.”

The challenge we have right now is that interest rates are high, but we’re coming out of a period where interest rates were low. When interest rates were low, they pushed the price of the buildings up because it was more economically efficient to purchase them. And now that interest rates have come up, the cost of buildings is a little sticky, so it takes time for it to adjust down. So, in some cases, there is a dislocation between what people call interest rates and cap rates. Cap rate is the price of a building derived by taking the net income and dividing it by a percent, that percent is the cap rate.

Currently, there is a dislocation in the proportion of cap rates versus interest rates. But it’s not in a range that is untransactable, at least in dentistry. People in other sectors might think the market is a little bit broken at the moment. We’re doing a lot in the healthcare space right now, but the multifamily and the commercial spaces have definitely slowed down a lot.

DSOPro: Describe the guidance you can offer on sale-leaseback transactions for dental practice owners.

A sale leaseback is when we acquire the building and the former owner receives cash and a long-term lease, and now they have a new landlord or owner of the building. How do you structure it in a way that works for everyone? The lease is critical. It must be attractive to a professional investor, like a triple-net lease where the rent goes up a little bit every year, and it has a long duration. A short lease of 3 or 4 years would not be good for an investor because they want to own the building for a long time. That’s one way the investor looks at it. The other way is, they want to ensure the rent being collected is not crippling the practice, because that’s not sustainable. You don’t want to crush your tenant.

From the dentist’s perspective, they want to be able to sell their building. And because the price of the building will be derived using the cap-rate valuation formula we discussed—taking the net operating income of the rent and dividing it by a cap rate—the dentist seller could be tempted to take the rent and inflate it and make it very high. Let’s say the typical rent for a healthcare standalone building in your marketplace is $25 a square foot. Let’s make it $50 a square foot and then divide that by the market cap rate. Suddenly, the building is worth twice as much as the building across the street. But it really isn’t, because that lease doesn’t go on forever. That is not a market lease that is sustainable.

From the dentist-seller perspective, you want terms that are investor-friendly, and the highest rent you can get going into this calculation, but you also want it to be sustainable. Sustainable in that it doesn’t exceed, let’s say, 5% of the practice’s top line income, which is the usual and customary rent proportion as a percentage of overall revenue that most people consider the benchmark. It should also be in line with what is commensurate with your marketplace. Finding that middle line down the fairway is really the key.

Often, people do a transaction with a broker, which is a great resource to administer and manage what is a cumbersome and complicated process. But, of course, the brokerage fee associated with that could be 6%, which is nontrivial. In some cases, dentists choose to transact with us directly, which saves them the broker fee.

One vitally important thing I would caution people to do, before selling the practice and signing a long-term lease with you as the landlord and the new practice owner as the tenant, is make sure the terms of the lease have sufficient lease duration and structure, like a triple-net lease with rental bumps that reflect the marketplace. When you sell that building, which is encumbered by a lease with the person who now owns your practice and cannot be adjusted for many years, it’s important to get the correct lease in place. There’s no better time to do it than when you are the practice owner and the landlord.

DSOPro: How does your team help with diligence and risk assessment for dental deals?

As we discussed, people ideally want to sell their practice in real estate to one buyer but that is much harder these days. If there are two buyers, the realtor should be someone who’s quick and good at it. The individual buyer is not always the easiest partner to work with. The process will be slow, they don’t have the resources of a big group, and they may not have all their equity or their debt partners in place.

We are a resource that can help dentists quickly and reliably transact their real estate or that can support DSOs when a dentist wants to sell both the practice and real estate. We can be the DSO’s “Easy” button. They can buy the practice, and we’ll buy the real estate from the sidelines or on the front line with them, however we can help. That creates a win-win all around.

I know a number of DSOs regretted buying the practices and the real estate. Most DSOs don’t buy do that now, but there was a phase when people did not quite understand the financial implications of DSOs having a balance sheet with a lot of real estate. Even with a separate real estate holding company, the bank still looks at it as a global cashflow analysis and a global debt service coverage ratio analysis. So those DSOs don’t have the lending capacity to keep buying practices. Or even worse, the amount of real estate they own has overwhelmed their balance sheet to such an extent that it’s creating foot-faults on covenants with the banks.

We’re finding some DSOs want to get rid of all their real estate, so we’re starting to connect with them and looking at acquiring their portfolios, which frees up their lending capacity to focus on their core business, which is great dental practices.

DSOPro: Can you assist with real estate negotiations for mergers and acquisitions?

We’re not a lease negotiator per se, but we do assist because we can help transact the building, which is important to a lot of people. I should have said this at the top, but there is no exact number and it’s difficult to measure: it is believed that about 22,000 to 26,000 dentists own the building they practice in. It’s a big number. If there are 180,000 dentists practicing in the United States, it means 1 in 8 owns their building and will need to figure out what to do with it in the coming years.

We collaborate with dental lenders and investors to help finance real estate transactions. We work with the commercial real estate community of lenders and are well-funded on the equity side. So, we assist in transactions of real estate, but we’re not involved in the operations or acquisitions of the actual dental practice.

DSOPro: Are there any tax advantages you’d like to mention?

When you sell your dental practice and real estate at the same time, it’s a big tax moment for you. For many it’s probably the greatest economic windfall of their life. In our model, dentists can roll equity into the fund. That equity is not taxed if it’s not money they receive in cash as a distribution. So, it is a great way to defer a portion of the tax on the sale of your real estate and have it grow in the fund. It’s a very powerful economic lever.

As people receive dividends from their rolled equity, those dividends are treated as “return of capital.” That is not taxed as the sale proceeds. So, this is a very economically efficient or tax-efficient strategy. Eventually you must pay tax on the money that you actually receive when the whole thing winds down after the fund sells and you get your “second bite of the apple” proceeds. But you can defer and manage it along the way. And real estate, as many people know, is certainly a very tax-efficient sector of investment.

People don’t park their money forever. It’s nice to get a dividend, but eventually you might want to use that money for something else. So, the expectation of these funds is that they have a 4- to 5-year business plan. The way that investors get their money back is in dividends, anytime the portfolio refinances and takes cash out and, finally, in the eventual sale of the whole portfolio. The money comes out along the way. That’s the usual and customary structure for just about every real estate fund.

DSOPro: Are there any drawbacks or any additional considerations for dentists thinking about this?

Yes, I would say on the drawback side, there is the psychological concern that some people have of, “I own my practice, I own my real estate, I have the safety of knowing that this is where my primary source of income lives.” And while I understand that mindset, it isn’t really commensurate with reality. Coca-Cola doesn’t own the buildings where they bottle their soda. General Motors doesn’t own the buildings where they manufacture their cars.

So while this sale-leaseback concept of selling it to an investor and then leasing it back is something that seems new to dentists. But it has been usual and customary in just about every other sector of the economy. It hasn’t come up for dentists before because their spaces were too small and investors were focusing on much larger buildings. If you want to have a half billion-dollar portfolio, it’s faster to buy 20, $25-million buildings than it is to buy 200 $2.5 million-dollar buildings. We want to become the biggest and the best dental landlord and to aggregate many properties together to create a great experience for dental practice owners and operators.

DSOPro: Why dental real estate?

We believe that institutional investors like owning dental. First, dentists are really invested in their space. It can go on for second- and third-generation users. Another reason is, patients love their dentist, they really love their hygienist, and they also really love the convenient geographical location of the practice and the familiar feel of going to that space. So, a dental practice is very sticky tenant.

And lastly, we all know that dentistry is an outstanding profession for a lot of reasons. But the one I like to share is that the failure rate of a dental practice is less than half a percent. I can’t think of any entrepreneurial venture where the likelihood of having an operational professional failure is sub 1%. Considering that, a dentist is a wonderful tenant. They’ve got a multi-generation space with a big investment that has a very low failure rate. So, we believe that the portfolio we are putting together will be extremely well received by the financial markets.

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About Brent Simon

Brent has two professional passions: dentistry and real estate. Dental Real Estate Syndicate combines the two, allowing him to achieve his highest professional calling.

After completing his MBA with a focus on real estate finance at Cornell University, Brent founded Dental Care, a dental support organization that constructed healthcare facilities and supported hundreds of dentists and team members in multiple states, and whose mission was to “Improve the quality of our patients, teammates, and community member’s lives through dentistry.”

Fascinated by the design, construction, and operation of all types of facilities, Brent was the founder of East 11th Partners, a real estate investment company. As CEO, Brent was responsible for over one million square feet of property investment, including office buildings, shopping centers, apartments, and multifamily development. East 11th Partners has been recognized for leading the creation of spaces that are environmentally sustainable while generating meaningful returns for investors.

Brent is a member if YPO (Young Presidents Organization) and a two-time recipient of Inc Magazine’s “5,000 Fastest Growing Companies in America” award.

Dental Real Estate Syndicate

Dental Real Estate Syndicate is a well-capitalized group of dental and real estate professionals that unites the expertise of both specialties to offer the advantages of real estate investing at scale while ensuring private dental practices and Dental Service Organizations (“DSO”) maintain long-term control over their operating location. Dental Real Estate Syndicate unlocks capital for these dental real estate owners and eliminates their property management responsibilities, while the diversified portfolio provides tax-advantaged dividends and the opportunity for appreciation with lower risk. For additional information on Dental Real Estate Syndicate please visit DentalRealEstateSyndicate.com.