JF1246: Meet The Physician Who Builds Medical Offices In His Spare Time with Jason Blasenak
Jason was a practicing doctor who wanted more. He started investing in real estate by developing residential homes. That venture didn’t work out too well. Years of experience have taught him how to develop medical offices while being a full time physician. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Jason Blasenak Background:
-CEO of Emergency Pavilions, LLC, a medical office development and holding company
-Their main focus is creating urgent care centers that also include other medical office developments attached
-Formally trained Emergency Medicine Physician with over 15 years experience
-Became interested real estate development 10 yrs ago, focus on residential construction building & flipping houses
-Has developed two 14,000 sq ft, multi-tenanted medical facilities with construction of a third currently in their portfolio
-In preliminary discussion with a regional hospital system as a consultant to spearhead development on another urgent care property.
-Say hi to him at 864-991-6156
-Based in Greenville, South Carolina
-Best Ever Book: 7 Habits of Highly Successful People
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jason Blasenak. How are you doing, Jason?
Jason Blasenak: I’m doing great, Joe. How are you?
Joe Fairless: I’m doing great as well, and I’m looking forward to this, because, well, Jason is doing medical office development. He is the CEO of Emergency Pavilions – I love that play on words – and their main focus is creating urgent care centers that also include other medical office developments that are attached to them. He is based in Greenville, South Carolina… So we’re gonna be talking about medical office development.
With that being said, Jason, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jason Blasenak: Sure, absolutely, Joe. I graduated residency – because I’m also an emergency medicine physician – back in 2006; that was about the time that all the flip shows were on TV, and I started to get a real interest in real estate investing as my income went up, so I figured I would try to invest in real estate.
I started back in 2007, building new residential construction houses. My initial plan was to just do flip houses, but I talked to one of my acquaintances from back and high school and he convinced me that I needed to do new residential construction. As you can imagine, that didn’t turn out so well.
I built five houses, I sold one, and thank goodness for my medical income, that I was able to continue the mortgage payments on those through about 2011, 2012, until the market improved.
At that time I figured I didn’t wanna be as active as a real investor, so I started moving into private loans. So I would have real estate investors in the Greenville area reach out to me and I’d provide them with funding for their flips and buy and holds. Then in 2014 one of my co-workers decided that he wanted to open up an urgent care center and he felt that with my real estate background he could operate the urgent care center and then I could operate the real estate aspect of the business.
So we’ve built two medical centers that are anchor tenanted by the urgent care that he runs, and they also have auxiliary medical tenants, which include pharmacy, dental, physical therapy, and then aesthetic medicine as well. We’re getting ready to start building on our third facility around the Charlotte, North Carolina area, and that should be completed by fall of 2018.
Joe Fairless: Wow, that is incredible. I wanna take a step back… In your bio it says “Emergency medicine physician.” Does that mean an emergency room doctor?
Jason Blasenak: Correct, yes.
Joe Fairless: Are you still actively an emergency room doctor?
Jason Blasenak: Yes, I am. I practice at the urgent care center which is basically focused on emergency medicine patients. We advertise ourselves as the ER alternative; so I still practice 3-4 days a week working clinically, in addition to the time that I spend as a real estate developer.
Joe Fairless: So how are you an emergency room doctor and also developing – the most risky and time-consuming and stressful part of real estate you’ve chosen, and you also have a profession that is highly demanding, both mentally and physically? How do you do it?
Jason Blasenak: Very little sleep, Joe. No, I think it just comes down to your desires and your goals in life. I thoroughly enjoy practicing as an emergency medicine physician, but I also realized that I wanted something more, and I wanted income that was basically gonna be passive income as I started to grow throughout my career, because I just can’t see myself working as hard as I am now when I’m 55, 60 years of age. So it kind of melded into a good combination by being able to work as the emergency medicine physician in an office where I own the building and get residual income from that.
Joe Fairless: How did you learn development?
Jason Blasenak: On-the-job training.
Joe Fairless: Are you serious?
Jason Blasenak: Absolutely. I was blessed with a good general contractor, who kind of guided the way for me. But basically, it’s all de novo learning. When we first developed our first center, we were just gonna plan to do just the urgent care, and then I spoke with my partner, we figured that if we put tenants in there, it would lessen our risk in case something were to happen with the urgent care that wasn’t as successful as what we anticipated. So it just grew from there after my first building; then you kind of get your feet wet and know exactly what needs to proceed to keep developing these centers.
I won’t say that I’m a huge developer; both of the centers are 14,000 square feet, so we’re not developing 100,000 square feet medical centers, but it’s just enough risk in there to make sure that the reward is worth it.
Joe Fairless: What are some on-the-job lessons that you learned as a first-time developer?
Jason Blasenak: I’ll preface this back — usually, as a physician you’re pretty trusting of people, and I have noticed now with real estate investing and development that you can’t take most of the subcontractors, general contractors or any of the auxiliary personnel at their word, and you have to do the utmost due diligence to make sure that, especially as a physician, you’re an easy financial target that they like to take advantage of you.
Joe Fairless: Oh, yeah. What happened?
Jason Blasenak: Initially, our first general contractor that we had on the project was taking funds from our draws and applying them to other construction loans, and then he was advancing the draws initially ahead of his timetable of completion, so when we got to the end of the project he got to the point where he said “We can’t completely finish this project as we intended initially, because we’ve run out of funds.” That was a little bit of a life lesson there, and a costly one at that.
Joe Fairless: How much did it cost you?
Jason Blasenak: Thank goodness it was only about $85,000, because it could have been significantly worse from what some of the other medical providers that I’ve spoken with, who have run 300k-500k over. So we kept a pretty tight budget, but initially, when he started taking draws, he went above and beyond for the first two or three draws, so we’ve limited it at the very end; otherwise, it could have been that 300k-500k overage charge.
Joe Fairless: Oh, yeah, relative to others, that’s not a lot. But in real life, it also is. It’s a good lesson to learn, that’s for sure, and thank goodness it was on a 14,000 square foot project, versus a 50,000 square foot project.
Jason Blasenak: Absolutely.
Joe Fairless: That was one lesson, don’t take contractors at their word. What’s something else that you’ve learned?
Jason Blasenak: The best thing that I guess I would have learned is that you can’t rely on other people to do a task for you. You may think that you’re paying someone, but if you don’t have direct oversight over exactly what they’re doing, whether it be the architect, the engineers, and you don’t have any input into it, they’re gonna over-charge you, they’re gonna over-run you, and basically you’re gonna end up with a project that you’re gonna be unhappy with.
Joe Fairless: So you’ve gotta be actively engaged throughout.
Jason Blasenak: Absolutely.
Joe Fairless: And how do you balance — because I asked you earlier how you do it, and you said desires and goals in life; let’s get a little bit more tactical – how do you balance having a full-time job and then also being available to not get rail-roaded, because you’re a physician, and people will try to do that, just for the stereotype, in real estate. How do you protect against that and make sure you’re involved in every step of the process?
Jason Blasenak: I try to separate my clinical days from my administrative days when I’m just focused on real estate. On the days that I’m working as a physician, I really limit the amount of contact that people can have, and I make it so that we have basically protocols in place that if I’m not there or can’t directly answer the phone, that my contractor knows what needs to be done.
As I said, we’ve learned our lesson on the first case, and now I have a good general contractor who I trust inherently, so I have less of those interruptions at this point, but really separating… Because initially, in the first development, when I was working clinically and managing the development, that’s when there was less oversight and that’s really when things tactically went wrong.
Joe Fairless: How did you find your first general contractor that didn’t work, and how did you find your second that does?
Jason Blasenak: The first general contractor – we scrambled… So we initially had a general contractor — we had a budget number, had a general contractor tell us we can absolutely meet that number; he refused to give us the budget. Three weeks before closed, his numbers were 25% higher than what we could afford on the budget. So we went scrambling for the general contractor the first time, and that was by not being prepared and not doing your due diligence.
Joe Fairless: So you basically fired the first one before it started, and then you went scrambling and had to find the first one? Okay, got it. So how did you end up finding him?
Jason Blasenak: Word of mouth, and there were some other dental offices in the bank that we had acquired financing through, had had them manage a bunch of projects for them and were allegedly happy with their work.
Joe Fairless: Wow! You did the right thing, you did word of mouth, and it didn’t work. [laughs] Sometimes you can do the right thing and get the wrong results. What would you do differently if you could go back at that point in time? What questions would you ask or what things would you do?
Jason Blasenak: I think the minute that I felt that the initial general contractor was kind of beating around the bush and couldn’t get us a contract number within three weeks’ time, which would be sufficient to bid for a project of our size, and it delayed another week and another week, I think I should have walked away immediately at that time, and/or started looking for other general contractors by word of mouth, instead of delaying this until three weeks before closing for the bank financing, and then having to scramble.
Joe Fairless: So just so I’m clear – the first GC you did not end up going with, correct?
Jason Blasenak: Correct.
Joe Fairless: But the one you actually used is the one that was doing the advancing the loan stuff, right?
Jason Blasenak: Correct.
Joe Fairless: Okay, so the first one you did not go with. The second one that you just talked about, that you got through word of mouth, he’s the one who was advancing the loans and you lost 85k, correct?
Jason Blasenak: That’s correct.
Joe Fairless: Okay, so then the third one – the one that you’re with now, unless there are any more in-between… Hopefully there are not! [laughs] For your sake. For the third one, how did you find him/her?
Jason Blasenak: The second general contractor, the project manager over our project ended up leaving that company because he was not well-received, because he kind of knew what was going on… So he developed a relationship with another general contractor in the area, and they joined partnership and basically we went with their company on the second buildout, because we had a good relationship with him initially and felt that he was truthful and trustworthy on that first project.
Joe Fairless: So you got someone from the crook’s team and you partnered with that person and his new partner?
Jason Blasenak: That’s correct.
Joe Fairless: [laughs] And what did you do (if anything) to qualify that team before you were like, “Okay, fine, I’ll go with you”?
Jason Blasenak: We did not completely finish off the entire space when we developed the 14,000 square feet. We had 1,800 square feet of unfinished space, so we had that team finish off that 1,800 square feet of space, because we figured that would be a low-risk project, and if they overran, then we would go look for another general contractor.
Joe Fairless: Okay. You gave them a test drive.
Jason Blasenak: Yes.
Joe Fairless: Now let’s take ten steps back and let’s talk business plan and P&L. How do you evaluate if a project will be doable or not from a financial standpoint?
Jason Blasenak: We are very risk-averse… And when we say “we are” – my partner and myself are very risk-averse when it comes to building out real estate, so we try not to spec anything out; we try to have leases in place or letters of intent before we start building out our project.
The main thing that we do to prevent issues coming up is that we have ourselves as our anchor tenant, so basically from the bank’s perspective it’s owner-occupied, so we’re able to get a better loan rate, plus we can kind of control the amount of rent that we end up paying as the anchor tenant as well, and adjust (if need be), based on operations of the urgent care versus what we’re bringing in income on the real estate side.
Joe Fairless: Ideally, everyone who’s doing development has leases in place, or letters of intent at minimum, before they break ground… How did you do that?
Jason Blasenak: We knew that we wanted medically-related tenants, so initially we reached out to our contacts in the Greenville area, the brokers that we knew, to see if they had dentists, physical therapists, pharmacists, occupational therapists – anybody that would be interested in joining in our building, because we think that the synergy of having all medical-related practices in one area enhances the product. So we were lucky enough between our brokers, and then we also went to a regional pharmacy recruiter initially, who also recruits for medical specialties, and they were able to give us tenants before we ended up breaking ground.
Joe Fairless: A regional pharmacy recruiter – is that someone who recruits an actual pharmacy, the store, or a person, a pharmacist, to existing pharmacies.
Jason Blasenak: She will do both, and as I said, she also recruits for dentistry and physical therapy, but she will place either a pharmacist in a building, or else she’ll bring in a pharmacist by themselves, or a regional or local pharmacy store into the facility.
Joe Fairless: Wow. I didn’t even know such position existed, and perhaps everyone else listening did, but I didn’t… So that’s one competitive advantage you would have over someone like me when you’re building this stuff.
Jason Blasenak: Absolutely. And then I will say, with the second building, it was basically word of mouth and we didn’t use any recruiters or any brokers at that time. We developed relationships with auxiliary medical specialties around the area, so they were more than happy when they saw our proof of concept had worked and it drove traffic, to come directly on site with us.
Joe Fairless: How active were you for the second building with the word of mouth, since you didn’t use brokers? How active were you in having conversations and e-mailing or phone calls to recruit people?
Jason Blasenak: I will say pretty active, to the point that we had narrowed down approximately 3-4 tenants for each space, and I spent a decent amount of time meeting with them face-to-face as well as e-mailing them… But most of the tenants that had come through for the second building had already seen that we developed a synergistic practice together because of our referrals we would send to them. So you didn’t have to go out there and convince them too much, but just laying down the numbers for them was the biggest concern, and the reason that I had to spend so much time with them.
Joe Fairless: Oh, yeah. If you were sending referrals to their company, then it’s a no-brainer for them to move right next to you, so it’s easier for everyone.
Jason Blasenak: Right. And I will have to say, Joe, that in medicine there’s a stark law violation where you just refer to just one place, and that’s not the case with us. We referred to multiple providers, it’s just these providers were able to see that it would be more beneficial to them to be on-site with us.
Joe Fairless: Your lawyer will be very pride of you right now. [laughs] So based on your experience as a real estate entrepreneur and developer, what is your best real estate investing advice ever?
Jason Blasenak: Well, Joe, my best real estate investing advice ever is to have patience and persistence. What I mean by that – most people want success, but they don’t wanna put in the effort or sacrifice the time that it takes to get there… And I’ll give an example – 99% of what I do today is not gonna pay immediate dividends today, but 6-12 months down the line, maybe a contact I made or a discussion that I had will end up coming back and either getting a tenant, or getting a real estate deal that I would have never had access to if I hadn’t pushed through.
And then persistence is that you basically need to embrace failure every day, and the faster you fail, the more you learn. Just like with developing the first building, I had a failure during that time – not a complete failure, but I learned my lesson and I moved forward. So as long as you can embrace that and move forward and learn from those mistakes, you are gonna be successful as a real estate investor.
Joe Fairless: What’s something that you learned on the second development deal?
Jason Blasenak: So the second development deal – despite the fact that it was easier than the first, you still have to be as diligent managing the project as you did before. So even though you expect it to move smoother, there are still gonna be road bumps, and if you don’t oversee that, then you’re project is gonna go awry.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Jason Blasenak: I am.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Jason Blasenak: The Seven Habits of Highly Successful People, by Stephen Covey.
Joe Fairless: What’s a mistake you’ve made on a transaction that you and I haven’t talked about yet?
Jason Blasenak: We initially bought our first plot of land where the first building sits, and when we closed on the land we had no means of egress out of the property, so it could have been landlocked and we would have had no access to build our medical center initially.
Joe Fairless: What happened?
Jason Blasenak: It was under a homeowner’s Covenants & Restrictions, and they were trying to play hardball to get us to pay a higher homeowner fee, so we kind of called their bluff and it worked out.
Joe Fairless: Will you please elaborate on that, how you called their bluff and it worked out?
Jason Blasenak: In the 11th hour they decided that they were — despite verbally granting us egress, they said that they were not gonna give us means of egress, which was only out through the road off of a very busy main road… So we ended up closing the property despite that, instead of trying to hold back and wait it out. Then they capitulated and decided that they would, for a higher homeowner fee per year, that they would grant us the egress at that time.
Joe Fairless: So you ended up having to pay a higher homeowner fee for access to the road?
Jason Blasenak: Correct.
Joe Fairless: Got it. What’s the best ever deal you’ve done?
Jason Blasenak: The best ever deal is the second project. We had built that and we started entertaining offers, and we actually had received an offer for a 6.7% cap rate, which is about two and a half times the value of what it cost to build the building… So we decided to back down at that time and start building a third. That by far is the best ever deal that I’ve done.
Joe Fairless: Best ever way you like to give back?
Jason Blasenak: The best ever way I like to give back is I donate money to scholarship funds for special needs children, and I also like to spend time mentoring undergraduate students at our clinic, who intend to attend medical school in the future.
Joe Fairless: Are you doing all this stuff with your own money, or are you bringing in investors?
Jason Blasenak: This is all done with our own money.
Joe Fairless: Best ever way the Best Ever listeners can learn more about what you’ve got going on, or check out your website or get in touch with you? Whichever direction you wanna go with that.
Jason Blasenak: Absolutely. They can reach me by cell phone. My cell phone number is 864 991 6156. Our website is currently just under development now, and it’s EmergencyPavilions.com Then they can also e-mail me at JBlasenak@Emergencymdsc.com.
Joe Fairless: And what’s the phone number again?
Jason Blasenak: It’s 864 991 6156.
Joe Fairless: Well, thank you for being on the show and talking about your medical development experiences, the challenges and the success stories, and ultimately the success story, but the challenges along the way, from doing the right thing, getting referrals from others for a general contractor, but it still not working out, because that’s just how development goes sometimes, I’ve heard; I haven’t done it, but I’ve heard. And then still pushing through it and finding the niche that is very natural to you and your business partner, since you’re already in the industry, and leveraging those connections, and certainly having medium and long-term benefits as a result of it.
Thank you for being on the show. I hope you have a best ever day, and we’ll talk to you soon!
Jason Blasenak: Thanks, Joe.