Navigating the commercial real estate market as a healthcare provider can be a daunting task, whether you’re looking to scale your practice, purchase or lease a new office space, or negotiate a renewal. The importance of a real estate strategy to your practice’s success should not be understated—it’s a significant decision and the second-highest expense behind payroll for most practices. With nearly 80% of practices leasing their healthcare space, far too much money is being left on the table at negotiations.
Beyond your monthly rent, consider what’s also at stake when signing or renewing a lease: tenant improvement allowances, free rent, annual escalations, and more are all negotiable and can cost (or save!) a practice tens of thousands of dollars over a lease term.
It’s why successful healthcare professionals aren’t negotiating leases without the help of agents who work to protect what you’ve earned. And luckily, the financial responsibility of hiring an agent does not land on you the tenant. It’s an important commercial real estate industry standard that means hiring someone to represent your needs as a healthcare provider comes at no cost to you in the majority of scenarios, as the commission is paid for by the landlord. Here’s what else you need to know about tenant representation.
AGENTS PROVIDE UNBEATABLE MARKET KNOWLEDGE
While understanding nationwide and industry-specific trends is helpful when choosing an office space, real estate is local, which means agents tied into your regional or state-wide market have an understanding of the landscape, of things that influence real estate dynamics and decision-makers, of available vacancies, of recently completed transactions, and of future spaces that may be available soon.
The majority of this information is not public record, nor is it readily available to compile, but expert real estate agents can provide this at no charge. Market knowledge ensures you’re not only getting the best space for your practice, it also ensures you don’t overpay. Agents provide that assurance, along with guidance when choosing location, evaluation of market conditions, analyzing purchase vs. lease comparisons, timeline management, and negotiating the most competitive rates and terms.
You Don’t Save Money Without a Tenant’s or Buyer’s Agent
Tenants or buyers may think “if I don’t have an agent, I’ll get a better deal”. Listing agents frequently insinuate or make this comment as well. However, the tenant or buyer is not listing a property ‘for sale by owner’ where they are choosing to sell the property without representation and can control if they save a portion of the commission. Instead, in most cases when a tenant or buyer does not have an agent, the listing agent will get paid an inflated or double commission; or the owner will simply pocket that money. This leaves the tenant or buyer in a position where they do not save money and typically receive a substantially inferior deal by paying more and receiving less concessions than they should have.
Many owners and listing agents understand that everyone wants to feel like they are getting a better deal. The reality is, 99% of the time, they are not. Landlords and listing agents often put together offers that contain additional margins and encourage the tenant or buyer to counter their offer so the tenant or buyer feels like they are really ‘negotiating’. The tenant or buyer leaves with the impression they are saving money without representation and have really ‘cut the price’. However, this is all part of the owner’s or listing agent’s strategy.
AGENTS OFFER EXPERIENCED NEGOTIATION TACTICS
In order to provide top-level lease negotiations, a full market evaluation is necessary. That means your agent should be negotiating on three to four properties simultaneously in order to offer a side-by-side comparison, and view of availability, even if you plan to renew your lease.
Why? It’s a powerful tool for negotiation and healthcare providers should never settle for less. Leveraging a local real estate professional’s expertise yields consistently more favorable terms for a tenant than simply asking for a lower price. When you have multiple offers you’re willing to pursue (even in a renewal negotiation), you’re creating a strong posture that doesn’t include bluffing or threatening. Instead, it creates an environment where landlords compete to attract and retain quality tenants.
Don’t Pay a Consultant to Be Your Real Estate Agent
There are very legitimate healthcare consultants spanning nearly every healthcare industry. They can specialize in helping you open your first practice, scale to multiple locations, increase profitability, hire and train staff and beyond. However, the best consultants don’t try and do other professional’s jobs. Instead, like a coach or general manager, they assemble the best team.
There are some consultants who will try to be the ‘jack-of-all-trades’ and venture into specialties that go beyond their reach. Whether offering to be your real estate agent as part of their fee or accepting the standard fee from the landlord or seller, you should avoid consultants who don’t have the expertise or experience to ensure you receive the most favorable terms possible.
Understand that the consultant, if even aware of it, is not going to tell you they left tens to hundreds of thousands of dollars on the table, missed finding you the best locations or forgot to include key concessions that you should have received. Instead, they will tell you they took great care of you. Unfortunately, that is rarely the case. A great consultant will advise you to hire the best partners you can for your team, including: CPA, lender, real estate agent, attorney, etc. and will not try to be those people for you.
YOUR AGENT SHOULD ONLY REPRESENT TENANTS OR BUYERS
If an agent has listings within the market you’re looking or if they have a listing agreement with the landlord, it’s an immediate conflict of interest as they’re financially incentivized to lead you toward their listings and/or maximize the landlord’s profit. Additionally, it’s not possible to fairly represent the interests of competing parties in the same transaction — a landlord and a tenant. To ensure you’re being advocated for, always look for agents who strictly represent buyers or tenants. This not only means more aggressive negotiation by the agent, it also means tenant-specific solutions are on the table, such as lengthening build-out periods, free rent concessions, or greater tenant improvement allowances specifically for your practice.
Don’t Pay an Attorney to Be Your Real Estate Agent
Because lease and purchase contracts are legally binding documents, you should always have an attorney, who understands real estate law, review your contract to advise and protect you. However, just like your real estate agent should not be giving you legal advice, your attorney should not be telling you what building or space to choose, how much to pay and negotiating terms for you. Unless an attorney spends 40 to 50 hours per week evaluating the market and negotiating on properties, they are likely unqualified to play real estate agent. Similarly, your real estate agent should not be drafting language in a binding contract.
The best teams of agents and attorneys have a high-level respect for what each party does. They complement each other, instead of trying to do the other’s job. Additionally, if you are paying your attorney to be your real estate agent, you will spend thousands of dollars in unnecessary fees.
YOUR AGENT SHOULD BE HEALTHCARE-FOCUSED
Sure, many basic lease deal points might look similar across the real estate industry but healthcare differs. Healthcare-specific real estate agents work within and understand a healthcare provider’s world, from a real estate perspective. They should have familiarity with the healthcare industry, whether it’s the office space needs of a general practitioner, ophthalmologist or dentist. From zoning, parking requirements, assignment and exclusivity language, etc., a healthcare specific negotiation looks dramatically different than a standard office or retail user. And that is why having an expert in your corner, with experience, is a winning strategy.
Healthcare clients are some of the most desirable tenants, and specialized agents have the ability to leverage that value to shift savings by significant amounts of money. If you’re on schedule to renew your lease or plan to look at new spaces for your healthcare practice, consider hiring a healthcare real estate agent to ensure your needs are represented.
A good real estate agent should save you dozens of hours of your valuable time by helping you avoid costly pitfalls and delays, while ensuring you receive the most favorable terms possible. It is very common for a healthcare specific real estate agent to save you tens to hundreds of thousands of dollars over a ten-year period. With that much at stake, ensure that you hire the absolute best agent you can. And… NEVER pay a consultant, negotiator or attorney to do what your real estate agent will do for you for free.