Three Key Concepts Of Real Estate Representation

Healthcare professionals are becoming increasingly more educated on the importance of having a real estate strategy to maintain and increase profitability. This is significantly important considering real estate is the second highest expense behind payroll for most healthcare practices.

You might say, “Great, but how much more is it going to cost to hire representation to ensure I am protected and achieve the most favorable terms possible?” If you are a tenant or buyer (as opposed to a landlord or seller who is interested in leasing or selling their property), the answer should always be ZERO! To be clear, it should not cost you anything to hire professional representation.

“How can a service not cost me anything?” you ask. Here’s your answer: Real estate is one of the largest industries in the world and contains several industry standards. One of them, is that the tenant or buyer should not be paying their agent. Landlords and sellers take on the responsibility to pay a commission to their representation as well as the representation of the buyer or tenant, with the goal of leasing or selling their property. This is a standard concession that spans both residential and commercial real estate.

However, people tend to understand this better when they consider residential real estate. Most people who have purchased or sold a home understand that the majority of transactions have a buyer and seller agent, and that the seller agrees to pay a commission to both parties.

The same is true in commercial real estate. Most owners have a commission agreement or amount of money set aside for each transaction. The traditional split is to offer each agent half of that amount of money. However, when tenants or buyers show up unrepresented, the listing agent typically gets a double commission, or at least, substantially more than if the tenant or buyer had representation.

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.

Summary: commissions for the tenant’s or buyer’s agent are built into the majority of commercial real estate transactions. Going without representation typically results in the tenant or buyer losing money and receiving substantially inferior terms.

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.

Summary: don’t allow your consultant to be your real estate agent and never pay them for real estate services. Likewise, a good real estate agent will not try to be your consultant either.

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 real estate agent should be finding the best properties and then negotiating the main terms of your lease or purchase.
Your attorney should then review and recommend changes that protect you and ensure you receive what your agent negotiated for you.

Pay your attorney to be an attorney. Never pay your attorney to be a real estate agent.

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.

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Three Common Mistakes Healthcare Professionals Make

Real estate is the second highest expense behind payroll for most healthcare practices. The benefits of capitalizing during lease negotiations can include a healthy raise through increased profitability, reduced debt, a nicer office and more. On the contrary, if negotiations are not handled properly, the results can be decreased profitability; resulting in the need to produce tens to hundreds of thousands of additional dollars just to pay the same bills that should have cost dramatically less.

While there are many key concepts and strategies you should always do prior to and during any lease or purchase negotiation, there are an equal or greater number of mistakes you should avoid. Having represented thousands of healthcare professionals over the last decade, we have gathered some of the most common mistakes healthcare professionals make during lease and purchase negotiations with the goal of helping others avoid the same mistakes. Here are three of the most common mistakes:

1. Believing The Landlord Or Seller Will Simply Offer Their Best Terms

Landlords and sellers are in business to make money. They are no more likely to voluntarily reduce lease rates or give up any extra money through concessions as you would be to voluntarily reduce your reimbursement from an insurance company or cut your patient fees if you didn’t have to. While it sounds pleasant to hear a landlord talk about giving a ‘fair deal’ or ‘reasonable price’, your odds of getting either are bleak without truly understanding the market, entering the negotiation process with multiple other options and having the needed guidance to capitalize. Trusting a landlord or seller without the help of professional representation will most likely result in the forfeiture of tens to hundreds of thousands of dollars that could have stayed in your checking account. Case and point: if you were about to sell your home and a fair price was $400,000… but your agent told you a buyer would pay $500,000… what would you list or sell it for? The “fair” price of $400,000… or the most you could get for it? Exactly. You would sell it for the most you could. Your landlord will treat you the same way. They will charge you the highest they can while giving you the least they can get away with.

2. Determining Market Value By Asking What Your Neighbors Are Paying

Several years ago, we were reviewing the lease terms of a doctor who had been in a building for 20 years. In looking at his lease, he was paying $30 per SF, and had not received any free rent or tenant improvement allowance in his last negotiation. When we posed the question: “Do you believe $30 per SF with no concessions is a good deal?”, his response was: “I believe so.” “Why, we asked?” His response: “There are four other healthcare practices on this floor. We all know each other and talk about our leases. We are all paying $30 per SF and the landlord has told all of us they don’t give free rent or tenant improvement allowances.” Our response: “I understand the logic behind that approach… but what if I told you we just did a lease with a brand-new tenant on the first floor at $21 per SF ($1,800 per month in savings if it were your lease rate), while also obtaining 3 months of free rent and over $100,000 in tenant improvement allowance!” The bottom line is that landlord got away with convincing five different practices the market was far higher than it really was and that they didn’t deserve any concessions. Imagine finding out that you have been overpaying by $1,800 per month for the last 5 to 10 years and forfeiting money that could have completely renovated your space? This scenario happens every day to uneducated tenants who consult with other uneducated tenants and compare terms that were the result of having no posture, no knowledge of the market and not applying leverage through representation.

3. Not Knowing Market Availability And Comps

The foundation of a successful negotiation starts with understanding what your other viable options are, how they compare to each other and how to execute on them. When dealing with landlords or sellers, many healthcare providers try to bluff their way into and through negotiations. A savvy landlord or seller can often read a bluff from a mile away. Here is the problem with this approach: it communicates you are too busy, you don’t know who to hire and you don’t know what you could achieve. Trying to wing it in these scenarios will not work! This approach typically results in less respect from a landlord and the exact opposite results you were hoping for. Also, overly aggressive offers or unrealistic requests can compound the problem, as can emotional responses to the conflict inherent in most high-dollar negotiations. If you are going to be successful in your next negotiation, understanding market availability and comps is the first place to start. You can hire representation to do this for you, or you can invest dozens of hours yourself into the process.

These are just a sample of the more common mistakes you should seek to avoid when looking at your real estate decisions. Unfortunately, there are several more you need to avoid.

Conclusion

Don’t be taken advantage of during your next purchase or lease negotiation. There is too much on the line. Losing tens to hundreds of thousands of dollars affects your income and can also impact the quality of care you provide. Hire professional representation to level the playing field, start the transaction at the proper time, know the market and top available options and negotiate with multiple owners. If you do these things you are very likely to capitalize on your second highest expense.

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The Downfalls of CPI Escalations in Commercial Leases

When it comes to signing a commercial lease, there are many factors to consider to ensure a favorable, and financially sound agreement. One particular aspect that healthcare providers often overlook, that should be approached with caution, is the inclusion of CPI (Consumer Price Index) escalators. While landlords may make a strong case as to why you should include a CPI clause in your lease, it is crucial for tenants to understand the potential drawbacks and implications associated with them. In this article, we will explore what CPI is, why landlords favor CPI escalators, and why it’s in the best interests of healthcare providers to have an agent who understands the significance of CPI escalators.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for goods and services. It is used to track inflation and gauge the purchasing power of consumers. CPI is typically calculated based on a specific index, such as the CPI-U (Urban Consumer Price Index), which reflects the spending patterns of urban households. They can also be hyper localized to specific regions or markets around the country.

Landlords often include CPI escalators in leases as a means of protecting their rental income against inflation. By tying rental increases to changes in the CPI, landlords aim to ensure that their revenue keeps pace with rising costs and maintains the value of their investment. It is not unreasonable for landlords to want to see some sort of escalation within the lease as real estate is one of the most consistent appreciating assets that a person can own.

But in most cases, the landlord gets a double win with a CPI escalator by stipulating in the lease that the rental increase will be the greater of either: the percentage increase in CPI; or a fixed minimum amount (such as 3%). Meaning they get all the benefit of a high inflation market, and none of the risk (or benefit to you) of a low inflation market.

While CPI escalators may seem reasonable at first glance, tenants should exercise caution and thoroughly evaluate the potential drawbacks before signing a lease agreement. The main reason this is not a fair ask is because CPI has no connection to the appreciation of commercial real estate. For instance, the real estate values have steadily increased over the last 100 years (outside of a small dip here or there, as was experienced in 2008 and a strong surge in 2020), whereas the U.S. CPI over the same time period looks more like an irregular heartbeat.

Lack of Predictability: CPI escalators can introduce uncertainty into a tenant’s financial planning. Fluctuations in the CPI can lead to unpredictable rental increases, making it challenging for tenants to budget effectively and plan for future expenses.

Potential for Rapid Increases: In certain economic conditions, CPI may experience sharp increases due to factors beyond the tenant’s control, such as spikes in energy costs or supply chain disruptions. This can result in significant rental hikes that may strain the tenant’s budget and profitability.

Cumulative Impact: Over time, even modest CPI escalations can accumulate and lead to substantial rent increases. Tenants should carefully consider the long-term financial implications of CPI escalators, especially when their business operations depend on stable occupancy costs.

Alternative Rent Structures: Tenants should explore other rent structures that offer greater predictability and control over rental expenses. Most commonly, landlords are willing to accept an escalator that ties rent increases to either a specific percent at a specific period in the lease or a specific per square foot increase at a specified time in the lease.

Navigating the complexities of commercial leases, including CPI escalators, requires expertise and advanced negotiation skill. Engaging the services of a buyer / tenant-only agent, without any conflicts of interest, is crucial in securing the best lease terms and protecting the tenant’s interests. An agent specializing in representing buyers / tenants understands the nuances of commercial real estate transactions and can help mitigate the risks associated with CPI escalators.

Let’s take a closer look at the cost differences between two different 10-year leases signed in 2013, each with varying escalator clauses.

In the first lease, the tenant agreed to a 2,500 square feet space at a rate of $25 per square foot, with an annual escalator of 3% or CPI-U for All Urban Consumers (whichever was higher). For the sake of example, we used January numbers for the year over year difference.

In the second lease, the landlord agreed to an annual escalator that would increase the same dollar amount every year. In this example, we used $0.50/sf per year as the escalator.

Inflation

CPI or 3%

$.50/sf

2013

1.6

$62,500.00

2014

-0.8

$64,375.00

$63,750.00

2015

1.2

$66,306.25

$65,000.00

2016

2.5

$68,295.44

$66,250.00

2017

2.1

$70,344.30

$67,500.00

2018

1.3

$72,454.63

$68,750.00

2019

2.5

$74,628.27

$70,000.00

2020

1.6

$76,867.12

$71,250.00

2021

8.2*

$83,170.22

$72,500.00

2022

6.3*

$88,409.94

$73,750.00

By comparing these two lease structures, it becomes very clear that the first lease with the escalator based on the higher of 3% per year or CPI results in a much higher (and as importantly, much more unpredictable) lease payment. When compared to the $0.50/sf per year escalator of the second lease, the difference is a $46,101.87 NET savings to the practice.

The most eye-opening thing of all is that with this very common CPI language in the lease, when the inflation was below the 3% mark, the landlord was making almost double the average CPI in annual escalations. But as soon as it hit 8%, the landlord got even more benefit.

This example highlights the importance of carefully considering the terms of the escalator clause in a lease agreement and how it can significantly impact the overall costs for a tenant over an extended period. Working with a buyer / tenant-only agent can help navigate these complexities and negotiate favorable lease terms that align with a tenant’s long-term financial goals.

While landlords may find CPI escalators advantageous for maintaining their rental income in the face of inflation, tenants should approach these clauses with caution. The lack of predictability, potential for rapid increases, and cumulative impact of CPI escalators can significantly affect a tenant’s financial stability and operational profitability. It is essential for healthcare providers to carefully evaluate lease terms, consider alternative rent structures, and enlist the services of a buyer / tenant only agent to ensure a favorable lease agreement that aligns with their long-term business goals.

By making informed decisions and seeking professional guidance, tenants can secure leases that promote financial stability and provide a solid foundation for their business success.

CARR is the nation’s leading provider of commercial real estate services for healthcare tenants and buyers. Every year, thousands of healthcare practices trust CARR to achieve the most favorable terms on their lease and purchase negotiations. CARR’s team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, and practice transitions. Healthcare practices choose CARR to save them a substantial amount of time and money; while ensuring their interests are always first.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

Medical Office Buildings or Retail Spaces? Which is better?

For healthcare practices, choosing where and what type of property to locate your business in is a decision that will impact your bottom line, earning potential, referrals, doctor-patient relationships and interactions, and more.

When deciding on a practice location, many healthcare professionals examine two primary commercial real estate options closely: the retail center and the standard or medical office building. If you are looking for a space dedicated exclusively to healthcare tenants, an office building might be for you. What about convenient retail locations with proximity to shopping, dining, or proximity to other non-medical businesses that often drive additional traffic to a property? Then a shopping center might be a better fit.

To compare the two, you’ll want to consider how important certain amenities and details are to your practice, including visibility, signage and exposure, window lines and natural light, property maintenance, neighboring businesses, accessibility, and parking. And of course, the consideration of cost. Here are some of the aspects you’ll want to mull over.

As demand for retail space surges, have you thought of converting a former storefront into a space designed for your healthcare practice? The industry term, “med-tail” has come on the scene recently, as more healthcare providers look to retail centers for their practice space for a number of reasons.

One of the first benefits of purchasing or leasing commercial real estate in a retail or shopping center is visibility. Exterior signage can be just as vital for certain healthcare practices as it is for public-facing retail companies looking for brand recognition. How much of your marketing strategy will depend on patients seeing your brand from the road or while walking to other stores or businesses? High visibility through exterior signage and exposure on major roads can vastly increase practice recognition—and profitability.

The accessibility of retail centers might be another advantage to consider, as most provide easy access off of major roads and convenient ingress and egress into the parking lots. Additionally, retail properties are not only developed with high-traffic flow and ample parking in mind, they’re also often near easily identifiable cross streets.

High foot traffic from shopping center patrons can be a major asset to consider. For example, you’ll gain recognition from passersby heading to stores, restaurants, or adjacent businesses. Many patients may also consider it an added convenience being able to frequent neighboring retailers in the same trip, making a high-volume retail center with pedestrians a great fit.

These benefits do come with a cost. In most metro areas, and all things being equal, a retail space will typically be more expensive than an office setting. Many practice owners look at this increased cost as a marketing expense. The more eyeballs that see your sign, with greater traffic and visibility, the more potential.

While retail locations have created an abundance of options for healthcare practices, some still prefer the stability of a traditional medical office space—one that creates a familiar experience for patients.

In general, neighboring occupants and tenants will also be in the healthcare or professional services space, providing related services for patients. This can mean valuable referral relationships with other specialists in the building or one-stop “shopping” for patients visiting both a general care physician and a pharmacist, for instance.

Inside, traditional medical office buildings may offer more natural light or better window lines than retail spaces. When it comes to maintenance or benefits, office buildings typically have systems and amenities that will benefit all tenants, such as shared restrooms, vestibules, lobbies, and common meeting spaces. And while the cost of both retail centers and office spaces depends drastically on location and quality of the property, traditional office buildings are generally priced more competitively, with both taxes and maintenance typically lower as well.

Compared to surface lots shared by other retailers or restaurants in shopping centers, parking available at office buildings may be in an adjacent garage or exterior lot, but is often ample room for both physicians and patients. Office properties may also reserve spots for people with mobility issues or pregnant patients or even create areas for patient drop-off.

Healthcare providers are constantly looking for innovative ways to deliver their services to patients, and finding the right location and space is the first step. The key is to partner with an expert healthcare real estate team to examine which spaces are available, accessible, and cost-effective for you. Your agent can provide you with a detailed breakdown of the pros and cons of both office and retail spaces—and how they can affect your bottom line.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

Top Mistakes Healthcare Providers Make During a Lease Negotiation — What Not to Do

Everyone wants to feel like they’re getting a good deal. But most of the time, landlords and listing agents have the upper hand. That’s especially true in lease negotiations.

So many variables affect the success of healthcare real estate negotiations, including timing, market conditions, supply and demand, tenant’s needs, proper representation, and more. And all of those directly affect your bottom line. Having represented thousands of healthcare professionals, we know the mistakes to avoid. From incorrect timing and lack of leverage to placing too much trust in your landlord—here’s what not to do.

If so, that’s a red flag. When an agent has a listing agreement with the landlord, that’s where their loyalty will lie—increasing the landlord’s profit. They won’t be able to adequately represent both of you in a lease or purchase negotiation, which brings us to the next question you should be asking:

Neighbors talk. And we often find tenants in renewal situations accepting their lease terms because they know several of their neighbors have the same terms. But what they don’t know is—more often than not—the landlord is offering new tenants greater concessions, better lease rates and terms than they offer to those renewing their space. Landlords can get away with convincing business owners that the market is higher and tenants in their spaces are paying fairly. But imagine finding out that you’ve been overpaying by thousands to tens of thousands per year compared to what a new tenant negotiated. Sadly, this scenario happens all too often for tenants who consult one another rather than a professional agent.

Believing a landlord will simply offer their best terms—even if you have a great relationship with them or if they’re a patient—is a common mistake we see. While you might trust your landlord to tell you a reasonable price or a fair deal, it’s rarely the best deal. Landlords are no more likely to voluntarily offer up concessions or reduced lease rates as you would be to voluntarily decrease your treatment fees or voluntarily give someone tens of thousands of dollars simply because they asked you to. At the end of the day, a landlord’s priority is staying as profitable as possible—as is yours—so entering the negotiation process with the right amount of leverage and market knowledge will significantly help you capture the best terms.

Knowing what viable options exist in your local market is the foundation of an educated real estate negotiation. You’ll want to know about available vacancies, recently completed transactions, future spaces that may become available, how they compare to each other, how they benefit healthcare tenants specifically, what concessions could be offered at each location, and how to execute on all of that knowledge. This is critical information that healthcare real estate agents provide (most of which is not public record or not listed in online databases) with expert knowledge of their local market. Knowing about multiple properties at a time—ones that may be more appealing or offer better value—will not only help you find the best new space, but also help with lease renewal negotiations in your current space (ensuring you’re not over-paying).

The best teams include agents AND attorneys who complement one another. While you should always have a real-estate focused attorney review your contract to protect your legal interests—lease and purchase contracts are legally binding documents, after all—that same attorney should not be advising you on location, price, or lease terms. What’s more, only bringing an attorney or consultant to the table can often come off as a sign of weakness to the landlord, who knows that the market knowledge isn’t there.

Lease renewal negotiations should contain concessions similar to what a new tenant would receive. But because most landlords are focused on keeping their business profitable, that rarely happens without firm negotiation and a strategic plan. Same is true with voluntarily reducing your lease rate. But this is where an expert healthcare real estate agent (one trained to only represent tenants and buyers) comes into play. Agents will not only ensure you’re starting the transaction at the appropriate time; they’ll invest time to create leverage with the sole goal of maximizing your profitability during negotiations.

Without representation, it’s hard to know how much money you’ve left on the table. Luckily, landlords and sellers take on the financial responsibility and pay for tenants’ real estate agents. The difference between a properly and poorly negotiated transaction can impact every aspect of your business. So make the most of your next one with representation that will protect your interests.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

Tenant Representation: Everything You Need to Know

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.

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.

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.

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.

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.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

Doing Your Due Diligence with Healthcare Real Estate

A real estate transaction can either catapult or cripple your practice, which is why many healthcare professionals turn to expert agents. But before you hire a commercial real estate firm, these are the questions you’ll want answered.

Across the industry, it’s typical for real estate firms to represent both tenants and landlords and buyers and sellers. When hiring an agent, however, it’s vital you look for occupier-focused firms—the same way as in court, you wouldn’t ask for legal advice from the opposing party’s attorney. Not only does this eliminate inherent conflicts of interest, but it also allows for more aggressive, tenant-specific negotiations—think lengthening build-out and free rent periods, offering higher tenant improvement allowances, and other important concessions that have the power to shift figures by tens of thousands of dollars in your favor.

Negotiating on three to four properties simultaneously is essential, and here’s why: First, you’ll want to see an apples-to-apples, side-by-side view of what the market has to offer. Without market knowledge, you’ll have little baseline against which to compare an offer or lease rate. Second, understanding comps and the local market is the foundation of a successful negotiation. Agents find out what viable options are available on the market for you and exactly how they compare to one another and the space you’re eyeing.

Have they demonstrated knowledge of your industry or business? Healthcare spaces have specific requirements that need to be addressed up front before they turn into costly mistakes.

For healthcare providers, working with real estate agents familiar with the healthcare industry can make a drastic difference. Understanding healthcare practice lending programs or what a dentist, optometrist, or physician needs from an office space is valuable to moving deals forward and saving providers money. For instance, we know veterinarians need soundproofing rooms, surgery suites, relief areas, and private exits, while dentists require operatories, laboratories, sterilization areas, consultation rooms, along with the ability for technology utilization.

Not only will healthcare real estate agents be familiar with the unique needs required by doctors across the board, they’re also advocates for healthcare providers as tenants. If they don’t understand your business and industry, how can they sell the landlord on your value? For instance, across the country, listing agents, landlords and developers know that CARR works solely with healthcare clients, which happen to be some of the most desirable tenants in the industry. Medical providers and healthcare clients have some of the lowest default rates, and landlords view them as portfolio stabilizers. So, our agents communicate that and leverage their value to obtain concessions or lease rates that otherwise may have been unavailable.

If you plan to build out a new space you’ll be leasing or purchasing, collaboration between your agent, contractor, architect, and lender is imperative. Is your agent in sync with local professionals who can help? The agent should be well-connected within the real estate and healthcare community in order to introduce you to other key players you’ll need on your team.

At CARR, our agents view their roles as strategic partners, vetting national and local vendors that best support our clients. These ongoing relationships and conversations are valuable to help us move the needle in negotiations and offer the best possible experience with everything from lease negotiations and purchase vs. lease decisions to renewals and market evaluations.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

How to Save Money During a Lease Renewal Negotiation

More than 80 percent of healthcare practices lease their office space. That means that annually, more lease renewals occur than any other commercial real estate transaction. And statistically, healthcare providers lose more money in lease renewals than any other transaction in commercial real estate. However, what most healthcare providers don’t know is that their lease renewal is negotiable, even if the renewal terms are specified in the current lease. (A landlord who says you can’t renegotiate those terms is usually doing so to make more money.)

Because healthcare real estate is typically the second highest expense behind payroll for the majority of practices, it’s vital to approach every lease renewal negotiation with an intentional strategy: to win. And winning in lease negotiations can lead to reducing overhead and improving cashflow and profitability. Here are some essential keys to a successful strategy.

First, understand that a commercial real estate agent’s services are almost always free for tenants and buyers (paid for by the landlord or seller), and they’re essential to maximizing profitability, efficiently.

You’re busy managing a practice and taking care of patients, so upcoming lease renewal negotiations often get swept to the bottom of the to-do list—and understandably so. But here’s the bad news: Losing time in healthcare real estate negotiations means losing money.

A healthcare real estate agent’s goal is to identify top lease and purchase options in order to come to the table with leverage, and that—plus negotiating a mutually agreeable deal—takes time. The foundation of a successful renewal negotiation is understanding market availability and area comps. What viable options are available in your area should you choose to leave and relocate? How do they compare to each other? How can you leverage those spaces at the negotiation table with your current landlord? What terms and concessions are new tenants in your building receiving? Negotiating with multiple landlords and property owners at one time will give you a good idea of what you should be paying to stay—or leave.

Beginning to end, the real estate negotiation process takes time, and starting it too late can set into motion costly issues. If you’re settling with a lease renewal without taking the time to negotiate multiple properties simultaneously, we’ve seen practices overcharged by tens to hundreds of thousands of dollars over five-to ten-year lease terms.

While landlords will provide legitimate concessions on lease renewals to existing tenants, they’ll only do so when they know they have to be competitive. Getting a landlord to voluntarily reduce the lease rate is rare. But when they know they’re negotiating with an expert and at legitimate risk of losing a blue-chip tenant (like a healthcare provider), they’re willing to bring the lease rate back down to a market number, resulting in monthly rent savings for you.

To create real posture, understanding the market and which top properties meet your requirements is essential. Beyond simply looking at commercial databases, this takes time, market expertise, and established relationships with listing agents and owners. Landlords will get competitive with lease rates if you’re represented well and they believe you have other viable options.

Tenant improvement allowances are concessions often negotiated in lease renewals. Here, the landlord is investing capital into the space in order to secure a long-term tenant. While many landlords will offer allowances up front in initial-term negotiations, most lease renewal negotiations leave this concession untouched. These allowances, which are given to new tenants in a property, are also available to lease renewal tenants in order to freshen up the space after years of use. A qualified healthcare real estate agent will know just how much additional money to negotiate in the next renewal.

Another negotiable deal point is an annual increase to the base lease rate. While most leases have annual increases, the amount of the increase varies and often outpaces inflation. This increase is negotiable and can compound more favorably or negatively against you, depending on the percentage increased each year. A landlord’s goal is for the agreed upon annual increase rate to be higher at the end of your lease term than what they would offer a new tenant, with the hope that when you renew, you’ll do so without any objections. This is where the advice and help of an experienced healthcare real estate broker can save you thousands.

With so much at stake in lease renewals, creating a customized strategy and game plan is vital. While some healthcare providers will take the do-it-yourself approach to negotiating, mistakes can be very costly and expensive for your practice. The clearest and most successful path to winning in real estate is hiring a healthcare-specific agent to ensure you’re maximizing profitability.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

How to Choose the Best Location For Your Practice

Healthcare practices come with a unique set of requirements when it comes to commercial real estate. Beyond choosing a physical location, analyzing everything from visibility and accessibility to a community’s infrastructure, physician density in the area, property maintenance (different for a medical office vs. a restaurant, for instance), neighboring tenants, parking, medical districts, and more is crucial.

It’s about the full healthcare experience for patients—and that will look different from specialty to specialty. While the physical location is not always the most important factor, it is very important, and the property itself should fit a variety of needs for your business. Real estate will, after all, impact your referrals, doctor-patient relationships, and especially your bottom line. So before re-signing your next lease or choosing your next facility, hire a healthcare-specific, tenant-focused agent. Specialized agents will help you consider standalone properties, multi-tenant retail spaces, offices or medical office buildings, while also giving you a complete view of the market. Consider the following when choosing the best property for your practice.

One of the most common questions that healthcare providers ask is whether they should look at retail centers or standard office buildings. Many people make predetermined decisions one way or the other, but that’s not something we suggest—there are pros and cons to each.

With a retail space, you’re going to gain exposure, signage, and often more accessible parking, but you’re going to give up window lines, natural light and the synergy you might otherwise get with tenants at a hospital campus or medical office building.

Retail may cost more than an office building, but you may determine that the exposure from vehicles heading in and out of the grocery store parking lot next door or the foot traffic from the ancillary retailers outweigh the added cost. Conversely, if you’re referral based, maybe that foot traffic doesn’t mean anything to you and you’d prefer to put that savings into a targeted marketing campaign. You might prefer the natural light and windows on more than one side of your space found in an office building, or the patient confidence that dedicated medical spaces can generate. There are too many variables to determine which property (retail or office) you want to transact on ahead of time, so it’s vital to do your due diligence and consider the pros and cons as they relate specifically to your practice and patient base.

Whether or not your healthcare practice can thrive in an area is dependent on a location’s accessibility and infrastructure. Your practice likely requires adequate parking, but whether it’s a surface lot in shopping centers or an adjacent garage is a practice preference. While one practice may require more reserved spots for people with mobility issues or pregnant patients, another may need ample space for patient drop-offs or enough property to accommodate emergency vehicles. Substantial traffic flow and easy access off of major roads and easily identifiable cross streets are also factors to consider.

We’ve already discussed the benefits of high foot-traffic areas, which can be a major asset from a marketing standpoint. But medical facilities near shops and restaurants also offer significant benefits to employees (who might want to grab lunch or run errands during breaks) and patients (who can make one trip for both their appointment and shopping needs at adjacent businesses). The more venues are near your practice, the more the physical location becomes an amenity for both your employees and patients.

There are downsides, of course. Consider your neighbors. There are types of retail uses that could be undesirable as adjacent neighbors: While a barbecue joint next door sounds great at mealtime, will your patients enjoy the scent of smoked brisket at their 9 a.m. appointment? If you’re a pediatric physician or pediatric dentist, you probably don’t want to be located next to a vapor shop or liquor store. If you’re going into a retail space, your agent may be able to help negotiate certain exclusivity clauses that regard neighboring tenants.

How many medical providers surround the area you’re considering? What are their specialties? How big are their practices? Do they complement your practice (functioning as a network for referrals) or compete with it? If the area is saturated with specific healthcare providers, how similar are their services?

Finding a space that’s well-known to patients for medical practitioners can certainly be an advantage since it also often comes with a peace of mind and security—people are used to traveling there for medical appointments. But just be sure it’s not saturated with your competitors.

Signage and exposure will impact your business. But while well-placed signage can generate additional exposure, revenue, and customer; maximum visibility for you might mean an office off a major road or thoroughfare, or it could mean a medical office building where potential patients are always visiting. Additionally, you’ll want to consider the potential first-time patient experience. Is access to your space assisted by well-planned street signage or a directory? How can signage and visibility help smooth the customer experience?

In most retail properties, the tenant is responsible for the utilities. That means if the HVAC unit goes out, you’re calling the technicians, scheduling their services, paying the bill, and if it needs to be replaced, cutting a check. Healthcare providers are also typically contracting janitorial services directly, since there’s a substantial difference in cost between a clothing store and a dentist who needs a space cleaned and sanitized more frequently.

For many multi-tenant office buildings, especially ones that share HVAC systems and common areas (such as restrooms, vestibules, lobbies and meeting spaces), it’s more common for the landlord to contract utilities and janitorial expenses, which might be included as part of the lease rate or through the operating expenses.

Location is only one of many factors to consider when leasing or purchasing real estate. Confidently make your real estate decisions with a professional agent (free to tenants) who understands the healthcare industry and can ensure you’re considering every option available.

Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.

1. Unmasking the Complexities

2. Cost-Efficiency Guardian

3. Leveling the Playing Field

Beyond Finding Space

1. Believing The Landlord Or Seller Will Simply Offer Their Best Terms

2. Determining Market Value By Asking What Your Neighbors Are Paying

3. Not Knowing Market Availability And Comps

Conclusion