The Power of Understanding Terminology in Healthcare Real Estate

Language is our primary means of communication. It’s used to shape thoughts, to encourage ideas, to evoke emotions, and even affect the perception of reality. So it’s no surprise that if used efficiently, it can be very powerful. When it comes to the language you may find in a lease, your basic understanding of the terms can either cost or save you thousands.

Evaluating the terminology used in leases can be daunting for even seasoned professionals. Unlike residential real estate, where industry-recognized purchase templates are common, commercial real estate leases differ drastically from property to property—there’s no standard format, structure, or length, and you can expect most agreements to be drafted in favor of the landlord.

That’s why understanding variations in lease structures as well as the lingo present within them is vital to ensure you’re not making costly mistakes. The money you make or lose on a lease is more than a lease rate (it’s negotiating tenant improvement allowances, build-out periods, free rent, lease and rent commencement dates that support your design, permitting and construction timelines, and more). Far too many times, a client will focus on getting the lease rate down by 50 cents but fail to focus on clauses, concessions, and other language that can cost the practice tens to hundreds of thousands of dollars over the term of their lease.

To move forward confidently with a lease decision, check out our glossary below and consider hiring a healthcare real estate professional (free to tenants) to ensure you’re maximizing profitability on your next lease.

Lease Structures

NNN vs FS: The most common commercial lease structure, Triple Net Leases (NNN) feature costs associated with operating the property (taxes, property insurance, and operating expenses) as a separate monthly expense from the base rent. You add the two numbers together to get the total lease rate; but many times, the NNN costs are hidden, or underquoted.

Another structure you might come across is a Full Service Lease (or Gross Lease), which combines the base lease rate and operating expenses (property taxes, insurance, and common area maintenance) into one monthly number. Questions when looking into a FS Lease include: are utilities or janitorial expenses included, or are they billed separately? How will increases in operating expenses be passed through to you, the tenant, in subsequent years? These are questions your real estate agent will ask on your behalf and often negotiate.

Lease Clauses

Escalation: Does your lease have an Escalation Clause or an Annual Increase Clause? You might see an Escalation Clause referred to as an Annual Increase or Annual Rent Increase, and it allows the base rent amount to be increased each year by the Landlord. This can be a set percentage increase or tied to a Consumer Price Index. Understanding which scenario is best and negotiating minimal escalations can be handled by your healthcare real estate agent. While annual increases are a fairly standard concept in most leases, the difference in the amount of annual increase can affect your total rent significantly.

Death and Disability: One way to protect your practice and those around you from potential liability is with a Death and Disability Clause, which states that if a healthcare practice’s primary practitioner dies or is no longer able to practice because of a disability, the tenant can be released from the lease under certain circumstances. You will want to be sure your real estate attorney is confident with the language to protect you in the case of needing to exercise the clause.

Lease Assignability: This is another fully negotiable clause, and a great addition if your goal is to one-day sell your practice as an exit strategy (retirement or earlier). It’s critical that your office lease won’t affect the sale by prohibiting you to assign the lease to a new owner, or come with exorbitant fees and requirements to transfer. Negotiating a lease that also releases you from the personal guarantee, or limits the amount of guaranty, is important as well.

Lease Concessions

The process and specific real estate strategies and negotiation tactics used by real estate agents are highly specialized and very unique to your lease. For instance, incentives, discounts, or benefits given by the landlord to a tenant (known as concessions) are often found in a lease transaction and are very specific to your medical practice. Whether you’re a prospective tenant or one renewing a lease, concessions are deal points negotiated along with the lease rate and could include free rent periods, lower lease rates, substantial tenant improvement allowances, free installation of new HVAC systems, electrical upgrades, personal guaranty burn-offs, and more.

These are just a sample of the 50-plus clauses and terms in a lease that, if overlooked, can cost the practice substantially. Additional terms you might want to know include “force majeure” and “personal guarantee” clauses, “cold gray shell” vs. “warm vanilla shell”, as well as “demising walls”, and more. These terms, and more, can be found on the Glossary page on our website at

As you evaluate real estate opportunities for your practice, hiring a professional who knows this terminology—and how to negotiate properly using it—allows for the most informed leasing decisions.

Landlords Have the Upper Hand in Negotiation

The first question a landlord asks its agent is whether or not the tenant is being represented professionally, and if not, whether they appear to have market knowledge (or in a renewal situation, if they’re willing to leave). If the answer is no, the landlord’s negotiation strategy changes immediately. When working with an unrepresented tenant, landlords will often make an offer that contains margins they’re comfortable with. That way, when a tenant inevitably counters, the landlord doesn’t lose much. But the tenant walks away thinking they’ve successfully negotiated, even at an over-market price point.  

Without representation, no one is protecting a tenants’ interests. If any of the above sounds daunting, healthcare tenants always have the option to hire an experienced commercial real estate professional at the landlord’s expense. And as a practice owner or manager, tens of thousands of dollars are on the line, which means it makes the most financial sense to have a professional represent your interests in negotiations and help you find a space that meets your needs and saves you significant money.

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.

5 Underrated Considerations Before Signing Your Next Lease

For healthcare tenants, choosing a property is about much more than just the lease rate.

Location is critically important for healthcare providers, and many are moving services closer to where their patients live, work, and even shop to create the most convenient overall experience. (In fact, data from the Future of Family Medicine Project noted that patients consider “convenient location” as one of their top five criteria for selecting physicians, and that’s typical across a variety of healthcare industries.)

But there are many things beyond location to consider when making real estate decisions. Some are obvious, like lease rates and length, but others are less so. To make sure you’re bearing in mind the full client experience (and your bottom line), don’t miss these underrated considerations when signing your next lease. 

Healthcare-Tailored Spaces

Whether you’re a veterinarian who needs a surgery suite, relief area, and private exit or a dentist who may require operatories, a laboratory, and sterilization area, the location you choose will need to be tailored to your practice. Does the space have sufficient power to run your equipment and technology? Are there restrictions for certain types of healthcare uses? Is there sufficient HVAC supply to recirculate the air at the desired rate for a healthcare practice? Is there emergency access to the office space? If there are elevators, are they operational 24 hours a day?

Why it’s important: All these factors can play a role in the success of your practice. And if something isn’t available, remember, your agent can negotiate concessions. These might include money for tenant improvements specific to your practice’s needs, lengthy build-out periods to support your design, permitting, and construction timelines, and even free-rent periods once your space is ready for occupancy. The concession negotiations are highly specialized and very unique to your practice.

Parking Availability

Inconvenient, limited, or inaccessible parking can be major points of friction for patients. Adequate parking for high-volume practices means access to about 5-7 parking spaces per 1,000 square feet of occupied space. Once you determine whether the available parking is sufficient, you should determine whether the type of parking suits the needs of your patients. For instance, does the location have access to parking 24 hours a day? Is it a parking lot or garage? If the building has access to a parking garage, are discount parking validations available for patients? What’s the accessibility like for patient drop off? What’s the traffic flow like in and out of the property, development, and area?

Why it’s important: Parking is a big deal, and the patient’s first impressions of an office visit, its convenience, and its accessibility will help form their opinion of your practice.

Visible Signage

As healthcare providers, signage and exposure can drastically impact your business—we’re talking building, monument, and even internal directory signage. While First-and-Main exposure might not be necessary for every practice or specialty, visibility and signage is a huge plus and should be a consideration in your search. So what does the exposure look like at the locations you’re considering? Will potential patients or customers drive or walk past your practice signage on a daily basis? In addition to branded signage, does the location offer easily identifiable road signs, cross streets, or landmarks nearby? If the space has been developed with high-traffic flow in mind, it might make it easier for potential patients to access and find your office.

Why it’s important: For medical practices, well-placed signage can generate additional exposure, customers, and revenue. Equally important is ease of accessibility—assisted by well-planned street signage—which can help smooth the patient experience (someone who’s frazzled because they couldn’t find your office is not starting their appointment or new relationship well).

Retail or Medical Office Building Neighbors

If you’re debating between a traditional office space, a retail or shopping center, or locating inside a medical office building, consider the range of tenants who might drive traffic near your space—and how that could impact your practice. Beyond offering market knowledge, property viewings, and negotiation, your healthcare real estate agent should also take a deep dive into what potential patient traffic looks like at each location you consider.

Why it’s important: Might restaurant patrons, grocery store shoppers, or other service-based business-goers be potential patients of yours? If so, retail spaces may provide you with more visibility to potential patients. Would stores in the retail center you’re considering also be of interest to your patients? If so, that might be an added convenience for patients to frequent neighboring retailers and businesses in the same trip. Likewise, neighboring healthcare providers can be excellent referrals sources of new patients in a healthcare building or plaza.

Usable vs. Rentable Square Footage

Usable Square Footage (USF) is the size of the space you’ll actually occupy as a tenant, while the Rentable Square Footage is your occupied space plus a portion or percentage of the property’s common areas, such as hallways, public corridors, restrooms, etc., that you’ll pay rent on. The cost of the common areas are often divided on a pro-rata scale among the building’s tenants at about 1 – 1.2 percent of the usable square footage cost.

Why it’s important: One common mistake tenants make is mistaking the RSF number advertised (which includes common areas) for the USF they hope to have in a space. The difference can be substantial if your design is off by 20%, so be sure to clarify the number before wasting time evaluating spaces that are too small for you.

To move forward confidently with a lease decision, hire a healthcare real estate professional (free to tenants) who knows the nuances of the industry in relation to your specialty, and can ensure you’re maximizing profitability on your next real estate decision.

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.

4 Ways Landlords Benefit When You Don’t Have Representation

Looking for a suitable office space for your healthcare practice takes time, effort, and for many, can be a daunting task—one with astronomical financial implications. Real estate is typically the second highest cost for a healthcare practice. So finding a suitable property at the best possible price and negotiating a lease rate that fits your budget is a must. Unfortunately, it’s not as simple as just reviewing listings and visiting a few spaces.

This is where a healthcare real estate agents come in. One of the keys to successfully negotiating a lease is to take advantage of the free services of a real estate broker or agent. Most landlords are in the real-estate business and tend to have the upper hand when negotiating directly with tenants. But representation (and having someone acting on your behalf with your interests in mind) comes at no cost to the tenant, as the landlord pays for the services of both agents. So, if you’re serious about finding a space that not only meets your practice’s needs and makes sense for you financially, hiring representation can save you significant money in both the short and long-run. While you can represent yourself and do the work on your own, tenants statistically end up paying more by not negotiating the right concessions and terms, and losing during negotiations. Because hiring a healthcare real estate agent is a smart move, consider these ways landlords benefit when you’re not represented.

It’s Easier for Landlords to Convince You They’re on Your Side

Remember: Financial gain is the end goal. Even the friendliest landlord—he or she might even be your patient—intends to make the most amount of money possible, renting or leasing a space. Just like the nicest tenant seeks the lowest lease rate. Without representation, convincing tenants that the landlord is looking out for them, that they’re on the same side, becomes much easier—and can create costly financial mistakes for the tenant. Landlords are no more likely to voluntarily reduce lease rates in a renewal or give up extra cash through concessions in a new lease negotiation as you would be to voluntarily pay more for equipment or increase your costs on utilities.

It’s Easier to Keep Lease Rates Above-Market

The idea that a lease renewal is not negotiable is a tactic many landlords employ. Any landlord who says the terms for a renewal aren’t able to be negotiated is most likely testing to see how ignorant you are, and doing so to make more money. Or, when you exercise the option to renew, instead of negotiating new terms or specific concessions, they win.

Annual increases in lease rates typically compound year over year, and more often than not, they outpace inflation and cost of living escalations. So when you go to renew your lease, you’re typically paying an above-market lease rate—higher than what a landlord might have listed the space for if it was vacant. Similarly, a landlord is not going to suggest you negotiate concessions when renewing, but a lease renewal negotiation should always contain concessions similar to what you would ask for as a new tenant.

To be certain your lease terms and concessions are the most competitive, understanding market availability and comps is vital. How will your renewed lease rate compare to current market rates? How does your current space compare to other top available options in the market? And that leads us to the next point:

Landlords Don’t Have to Worry About Accurate Market Evaluation

Landlords know that without market knowledge, tenants have no baseline against which to compare a lease offer. Whether you’re renting a new space or renewing your lease at your current location, market knowledge is key to a successful negotiation. Healthcare real estate agents are generally experts on the local commercial market and compile available vacancies, any recently completed transactions in the area, and future available spaces—often properties that are never listed in online databases. Having information about other properties (What are they charging? How do they appeal to you? How does their value compare to others?) will not only help healthcare tenants decide on a new property vs a lease renewal, it’s also vital to the negotiation process.

The only way to effectively negotiate is to ensure the landlord knows you’re pursuing (or have the option to pursue) a variety of spaces on the table. If you’re renewing, you’ll also want to know the lease terms and concessions that new tenants in your building are receiving from your landlord. Creating this type of posture will ensure any terms thrown out to the tenant are truly competitive.

Landlords Have the Upper Hand in Negotiation

The first question a landlord asks its agent is whether or not the tenant is being represented professionally, and if not, whether they appear to have market knowledge (or in a renewal situation, if they’re willing to leave). If the answer is no, the landlord’s negotiation strategy changes immediately. When working with an unrepresented tenant, landlords will often make an offer that contains margins they’re comfortable with. That way, when a tenant inevitably counters, the landlord doesn’t lose much. But the tenant walks away thinking they’ve successfully negotiated, even at an over-market price point.  

Without representation, no one is protecting a tenants’ interests. If any of the above sounds daunting, healthcare tenants always have the option to hire an experienced commercial real estate professional at the landlord’s expense. And as a practice owner or manager, tens of thousands of dollars are on the line, which means it makes the most financial sense to have a professional represent your interests in negotiations and help you find a space that meets your needs and saves you significant money.

In Healthcare Real Estate, Losing Time Equates to Losing Profitability

“Time is money.” The basic idea behind the phrase is that we have a limited amount of both, and we should spend them efficiently—wasted time can mean wasted money. But for healthcare professionals wearing multiple hats, it also means a minute spent doing one thing is a minute that’s not spent doing something else. It’s why you guard your own time for your best work. It’s why you hire experts—an expert landscaper, accountant, lawyer, and when negotiating the second-highest expense in your practice, a real estate agent. 

Healthcare professionals are becoming increasingly more aware of the importance of a real estate strategy to increase profitability and save time. Commercial real estate agent’s services are free for tenants and buyers (typically paid for by the landlord or seller), and they’re vital to maximizing profitability, efficiently.

Here’s a look into the value of time during commercial real estate transactions—and how agents can save you both precious minutes and money.

Timing Discussions With Landlords

For every negotiation and transaction, there’s an ideal timeframe to follow. Identifying top lease and purchase options or negotiating a mutually agreeable deal can take several months. Add on a few more months for legal reviews of contracts, finalizing important details with architects, contractors, lenders and equipment providers. Then follow that up with any necessary build-out processes or renovations—space design, permitting, engineering plans, construction and more. All that to say: the real estate process takes time, and beginning it too late can set into motion costly issues, including holdover penalties if you’re not able to vacate your previous space or losing the opportunity to negotiate multiple spaces at once.

If negotiations—and their timing—are not handled properly, the results can mean decreased profitability. That’s where healthcare real estate agents come in. While the timing may vary whether you’re renewing a lease, purchasing your first space, looking to relocate or expanding your office, our rule of thumb is to begin the process 18-24 months in advance.

Negotiating Multiple Spaces at One Time

A great real estate agent will not only help you avoid costly delays, they’ll also save you dozens of hours of valuable time during the market evaluation process.

Each transaction begins with a detailed game plan aimed at maximizing opportunity, time and spending. If timing the real estate process is step number one, then step number two is creating a strong posture. By leveraging a local real estate professional’s expertise and then dictating favorable terms to a landlord, tenants and buyers yield consistently more favorable terms.

That’s because the foundation of a successful negotiation starts with understanding market availability and area comps. Whether you’re planning to renew your lease, looking to buy or considering relocation, you must understand the viable options available in your area. How do they compare to each other? How can you leverage those spaces at the negotiation table?

Healthcare real estate agents analyze all available properties that suit your healthcare business’s needs. They tour a significant number of them to determine which ones are best-suited for your workforce and patients. And they negotiate no fewer than four spaces simultaneously. Why? So they don’t have to start at the beginning if a property falls through. So they can pick up with the next best option without losing a beat. And because calling and touring one property at a time is never efficient. Just like you wouldn’t cook Thanksgiving dinner one dish at a time, expert agents aren’t negotiating one property at a time—it’ll all come out cold.

Doing this allows agents to efficiently deliver multiple, legitimate options and build a better posture. Having a credible willingness for buyers and tenants to choose another property creates an environment where landlords and sellers compete to attract and retain quality tenants and buyers. It also ensures they get the most competitive terms.

Time is Money, Let An Expert Take Care of the Real Estate

As a healthcare professional or manager, your practice’s success is dependent on time management. Spending unnecessary hours completing market analysis, analyzing properties, leases and offers to make sure your deal is competitive and handled properly is not the best use of your time.

Because while getting the best possible deal or lease terms is vital, so is ensuring you don’t waste your own time—time that could have been spent on your business. Hiring commercial real estate professionals who specialize in healthcare will not only protect your valuable time, it’ll also allow you to identify the very top options, negotiate the most favorable terms and save you a substantial amount of money in the long run.

Is the Deck Stacked Against You?

Whether or not you have ever played poker, you’ve likely heard the term “having the deck stacked against you”. This phrase is used for explaining how an unexperienced or unsuspecting player gets taken advantage of by a more experienced player. When someone knows more than you do, and when they hold the cards to the game, it becomes challenging (or even nearly impossible) to get a fair shake. And while one hand of cards might not impact your livelihood, one bad practice or real estate negotiation certainly could.

Your practice’s real estate is typically the second-highest fixed expense on your balance sheet. If you enter negotiations without proper representation, then the deck is already stacked against you. To then bluff your way through a transaction, hoping that you’ll get a fair deal is a blueprint for disaster. Those missteps could cost you tens-to-hundreds of thousands of dollars. With that large of a line item a stake, it’s important to approach your office space negotiation with market intel, a proven strategy, and experienced representation in your corner.

Let’s look at how you can turn the table back to your favor when it comes to negotiations.

The Power of Market Intel

To effectively win at poker or any card game, you first need to have access to the right information. You need to know the rules of the game, you ideally want to know who you are playing against, and you certainly need to watch the other players, so that you know what moves make the most sense. In the same way, the right intel and information can mean the difference of tens of thousands of dollars through lowered lease rates and increased concessions for your practice real estate.

Gaining access to market lease and purchase comps, along with intel on concessions like free rent, build out time, tenant improvement allowances, etc., gives you the power position in the negotiation. You know where to start the discussion and what you can expect throughout. Without this information, you’re taking an unnecessary gamble for your practice.

Winning with a Proven Strategy

Understanding how the game is played is equally vital to a successful negotiation. The same way you can’t win a poker hand if you don’t understand the rules and procedures of the game, you can’t win in commercial real estate unless you are aware of how landlords process information, how they think, what makes them concede for some tenants but not for others, etc. It all starts with developing a strategy that is built upon a foundation of you, the practice owner, considering multiple options. In the game of commercial real estate, whoever has the most viable options, wins. If the landlord doesn’t think you can (or will) move, they win. If they know you are fielding other (potentially more appealing) offers from other landlords or sellers, you win.

How you build that strategy is unique to each practice’s situation. Are you leasing, but wondering if purchasing is a better option? Have you been in your space for 15 years, and your lease renewal is coming up again? Is it time to look for nicer space that aligns closer with the vision you have for your practice? Each one of these scenarios requires a customized strategy to help you gain the upper hand. You can’t go into your next practice office space negotiation without a strategy. That’d be like playing a high-stakes poker game without a plan to win—just betting on chance, which is a losing game plan.

Assembling the Right Team

The favorite “hand” of a landlord is when they start negotiating directly with a tenant who is unrepresented. This is their royal flush, as they know an unrepresented tenant means they don’t have access to the same market insight and intel, they likely don’t have a strategy, and the landlord can bluff and play with no pushback. The landlord knows they win nearly every hand played directly against a tenant.

On the other hand, when a tenant comes armed with information, a proven game plan, and a team of expert advisors, the odds become much more balanced. A real estate attorney, a CPA, and a commercial real estate agent focused exclusively on representing healthcare tenants and buyers will ensure you’ve got the right team advising you and walking you through the transaction. Landlords are in the real estate business, transacting dozens to even hundreds of times per year, and yet that is exactly what their team looks like. They know winning in commercial real estate has everything to do with surrounding yourself with the right representation.

While poker is ultimately a game of luck and chance, there are techniques you can employ to increase your odds of walking away the victor. The same is most certainly true in healthcare real estate. Looking at market intel, developing a proven strategy, and assembling your team of advisors will help you confidently go “All-In” on maximizing your profitability through real estate.

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 find an expert agent representing healthcare practices in your area.

Thinking Like A Landlord

When it comes to making real estate decisions for your healthcare practice, there’s a lot to consider. Should you rent or buy your office space? What is the most ideal location for your patients and referral sources? Should you choose a traditional office, retail center, or condo? Should you select a property with a NNN lease, modified gross lease, or full-service lease?

These decisions can seem overwhelming from a medical tenant’s perspective. However, there’s a way to reverse engineer this line of thinking that puts you back in the driver’s seat of your business: thinking like a landlord.

Put yourself in the shoes of a landlord and ask yourself if you would rent to you. Then, use this exercise as an impetus to pull the value levers you bring as a tenant. The better you understand a landlord’s point of view, the better you and your Agent can package your value in a Letter of Intent— and structure the best deal in a way that gets the landlord interested in stretching further for you as a tenant.

In order to think like a landlord, consider the following questions a landlord is asking themselves and talking through with their listing agent.

city of angels lobbyQuestion #1: Is the tenant achieving a market rate to maintain or increase the building value?

Have you ever driven by a space that’s been vacant for a couple of years and thought to yourself, “I could probably get a screaming deal here — it’s been vacant forever!”?

That’s a very natural assumption, but in reality, a lower lease rate would lower the entire value of the building if the landlord took in a lower lease rate rather than just keeping it vacant and waiting for the right deal. When it comes to investment real estate — real estate owned by landlords for lease — the value of the property lies in the lease rates landlords are bringing in, rather than the brick and mortar itself. The lower the lease rate, the more devalued the overall building becomes.

So, if you’re a landlord, you’ve likely got a “floor” to the rental rate you’ll take from a new tenant. If you took anything lower, you might help your short-term cashflow, but you’d be devaluing your entire building. A key role of a healthcare real estate agent is in part to provide you with market intel, like lease and concession comps, so you are confident you are as close to the landlord’s “floor” rate as possible. When evaluating properties where landlords are more sensitive to a specific lease rate, your objective is to then capitalize on the highest amount of concessions in lieu of a lower rate.

Question #2: Are the lease escalations consistent with inflation?city of angels oporatory

Again, commit to putting yourself in the mindset of a landlord. A landlord is going to want to keep annual escalation as high as possible to protect their investment. A tenant, on the other hand, wants the annual increase in lease rates as low as possible. Costs of ownership in a building (taxes, insurances, maintenance, etc.) typically increase slightly each year and are often, but not always entirely passed through to the tenant in the operating expenses already. Thus, landlord’s desire to protect against those increases by securing annual escalations.

The question here isn’t “can I get a lease without increases”, as a lease without annual increases in commercial real estate is extremely rare. The right question is, “how can I lower the annual escalation as much as possible in the negotiation?”

Many times, landlords tie the escalations to a Consumer Price Index of some sort. Tenants should be wary of this for a number of reasons including inability to forecast future increases and costs accurately, determining which index is utilized each year, seasons of higher inflation, etc. Healthcare agents typically negotiate to set fair annual increase of 2-3% annually to help protect their clients over the length of the lease term.

city of angels office 3

Question #3: What’s the creditability of the tenant and securitization of the deal?

As a landlord, checking a tenants’ credit worthiness is a standard due diligence step. When a Letter of Intent is asking for lower rental and escalation rates, high amounts of tenant improvement allowances, and additional free rent for build out and upon opening the new space, the landlord needs to determine if the deal (and tenant) is a “secure bet”.

An experienced healthcare realty agent will not only package the letter of intent appropriately, but will deliver key information to the landlord regarding the tenant’s background, banking approvals, strength of the healthcare industry, low default rates, etc. Many times, the landlord needs to be educated on why it would make sense to invest hundreds of thousands of dollars into a start-up practice or additional office location for a provider. This process shouldn’t catch you off-guard as a tenant. You want all the tools lined up and ready to go when approaching the landlord.

Question #4: Are there referral networks this tenant brings that add value and synergy to the building/center?

Landlords are usually in the commercial real estate business for the long game. They’re not just worried about collecting rent every month, but also to continue building value within their property for years to come. As a landlord, you would seek out practices and tenants that “make sense” in your space and will draw profitable customers and patients for years to come, along with adding value to other tenants in your building or center.

As a tenant, understanding that landlords are invested in the long run can give you an edge in your negotiations. For example, if your potential landlord already has a dentist in their complex, and you’re an oral surgeon, you automatically bring value and synergy to the center by attracting patients to both businesses, given the related nature of your work. Again, your healthcare agent can communicate the strength of synergy and stabilization you bring to the building and other tenants.

Question #5: What’s the Tenant’s longevity in the Space?city of angels lab

Landlords don’t like dealing with turnover. Not only does it take time to release a space, it also generally causes the landlord to lose significant money during tenant transitions. That’s why landlords are so concerned with the overall “longevity” of a tenant in a specific space. Longevity in real estate equates to how invested the tenant becomes in a property and how long a space will satisfy the needs of a tenant or business. Thus, communicating to the landlord how much the tenant will be investing into the build out, what the average tenure of the tenant’s industry is for landlords, etc., will help get the landlord to stretch further and give you greater concessions.

By thinking like a landlord, you can empower yourself and your healthcare real estate agent to better prepare, negotiate, and close on your deal. The key is to use the landlord’s perspective to spur you to build value for your practice, understand and prepare for inflation implications, secure credit in advance, position your value through “synergy,” and demonstrate your tenant longevity. This perspective shift can save you tens-to-hundreds of thousands of dollars by packaging your practice and negotiations effectively.


Maximize Your Profitability Through Real Estate

Let’s start with some basics:

  1. Unless you own a mobile clinic, you will need an office space to see patients
  2. A practice’s office lease or mortgage is typically it’s second-highest expense
  3. In today’s economy, maximizing profitability is not only a desire, but it’s also essential for most practices to stay in business

Now let’s dig in further. If you own a practice, you most likely have an office. That office carries with it many expenses: the most obvious is the monthly rent or mortgage. With an office space also comes staff and payroll as well. These two items are not only needed to have a practice, but are also the two highest expenses for most practices. That being the case, only one of them is really negotiable. You may decide to cut staff, but when it comes to payroll, you either pay people what they are valued at, or they go somewhere that will pay them.

Real estate however, is 100% negotiable. You can decide if you want to be in an office building, retail center or medical office building. You can decide if you lease or own. You can determine the size, location, and amenities your space will offer. You can choose to be in a stand-alone or multi-tenant building. You can determine the length of lease, concessions you ask for, economic terms, business terms, etc.

So if real estate is your second highest expense behind payroll, and if there are so many options and choices to make when it comes to your office space, how can you maximize the opportunity?

To start, you need to understand how the game is played. As a healthcare professional, the playing field is not level. You are a healthcare professional who might engage in 2 to 6 commercial transactions in your career; whereas most landlords and sellers negotiate professionally for a living. You specialize in your field; they specialize in their field. If the outcome was based upon understanding medicine or providing a health related service, you would probably win.

However, the process and outcome are instead based upon comprehensive real estate market knowledge,authoritative posturing, and negotiation expertise. Winning requires having more options, understanding the correct timing, posture and negotiation tactics that landlords use, and in many cases, being able to withstand the stress and conflict that many landlords and sellers use to exploit unsophisticated tenants and buyers.

Let’s focus on a few of these concepts. If you start the transaction at the wrong time, you lose leverage and posture. If you don’t know the market, you are simply begging or bluffing. If you can’t handle conflict, you will most likely receive even more pressure and stress from the landlord or seller to make you uncomfortable and force you into making a decision that you will regret.

And even if you could overcome all of these, without professional representation you are going to be viewed as a novice and are not going to receive the respect that is necessary to achieve the most favorable terms available to you.

Nearly all landlords and sellers hire or consult with professional commercial real estate brokers to give them even more leverage so they can win. Why? Because they understand what is really on the table when it comes to each negotiation. For them, if they give up unnecessary concessions or go lower on rates than they need to, it costs them tens to hundreds of thousands of dollars of profit per lease. The reality is, those are the same items you are trying to maximize and capitalize on.

Large national tenants and buyers understand this concept as well. If you polled fortune 500 companies, you would find they either hire professional representation on every transaction, or they have a team of in-house professionals who are trained and equipped to maximize the opportunity. They understand the potential upside or downside involved in every transaction, and they are committed to getting the best possible terms in every transaction.

Most doctors and administrators don’t understand that commissions in commercial real estate are typically paid the same as they are in residential real estate: by the seller or landlord. This means representation does not cost the practice more money. Fees are set aside in advance and are either used to provide each party with representation, or the landlord or seller keeps that money or gives their broker a double commission.

If you are looking to maximize profitability, start by understanding how much is on the line with your lease or mortgage. Then, make the choice to hire representation that is 100% free to you. Select a commercial real estate broker that understands healthcare, only works for you as the tenant or buyer, can help you find the most options, has the strongest game plan, and who can take and absorb the conflict and confrontation that is inherent in every negotiation that involves a lot of money. In doing so you are positioning yourself to win.

The bottom line is there are tens to hundreds of thousands of dollars available to either be won or lost in every commercial real estate transaction; especially with healthcare real estate. Your profitability affects your patients, your staff, your family, and many others. Maximize every commercial real estate opportunity by taking advantage of the best resources available to you. Winning on your next commercial real estate transaction can transform your practice!


Real Estate: The Second-Highest Expense In Your Practice

When it comes to managing expenses in your practice, there are dozens of categories to evaluate: equipment, technology, loan costs and interest rates, sundries, marketing, and on and on they go.

Many practice owners are quick to shop-out what they believe are the most obvious expenses, but few understand the impact of one of the largest expenses and how it can be dramatically reduced to increase profitability. The highest expense for most practices is payroll, followed by real estate. Real estate encompasses your monthly rent or mortgage payments, along with the property’s operating expenses, maintenance fees, utilities, and janitorial costs

If you consider these top two expenses, payroll and real estate, only one of them is really negotiable. With payroll, you can either pay people their value or they usually find another job that will. You may decide that you can cut staff, but if you need people you need to pay them what they deserve or they will eventually leave.

Real estate however, is 100% negotiable. You have the choice of leasing or owning, as well as being in an office building, retail center, a stand-alone building, or large medical complex with many other providers. You can choose the size of your space, the design, and the landlord you want to work with—or to be your own landlord. And if you do own, you get to decide whether to buy an existing building, an office condo,or to develop your own building from the ground-up.

When negotiating the economic terms of a lease, you get to have a say in the length of lease, the desired concessions including build out period, tenant improvement allowance, free rent, lease rates, annual rate increases and many other provisions.

With this many choices to evaluate and understanding that each one affects the final economic outcome, why is it that so many practices fail to capitalize on their real estate opportunities? The short answer is that most practice owners and administrators simply don’t have the knowledge and expertise in commercial real estate to understand how to make the most of these opportunities. They view real estate as a necessary evil instead of an incredible opportunity to improve profitability, reduce expenses and improve the quality of their patients’ experience. When the correct approach is taken, you may actually look forward to it instead of dreading your real estate negotiation.

Let’s take a look at three key ideas that will help you make the most of your next real estate transaction.

1. Timing

Every type of transaction has an ideal timeframe to start the process. When starting too early or too late, you communicate to the landlord or seller that you don’t really know what you’re doing. When that message is communicated, it hurts your ability to receive the best possible terms. For example, don’t wait for your landlord to approach you on a lease renewal negotiation. Start by consulting with a professional

2. Representation

Landlords and sellers prey on unrepresented tenants who don’t really know the market or what their options are. If the tenant was a Fortune 500 company, the landlord would approach them with a high level of respect, expecting that they either have a real estate broker hired to represent them or have a team of professionals internally that are well equipped to handle the transaction.

In contrast, when a landlord or seller starts speaking with a tenant who isn’t represented, and who they don’t believe knows the market as well as they do, that tenant is not going to get the same level of respect through the process. This is because the landlord senses an opportunity to take advantage of a small tenant who is not an expert, doesn’t have a full complement of real estate knowledge and skills, and who doesn’t have adequate representation.

When you understand that commissions are paid in commercial real estate just like they are in residential real estate—they are set aside in advance for two parties, not just one—then you understand there aren’t any savings by not having a broker. And if there aren’t any savings by not having a broker, then showing up without one only further detracts from your credibility.

3. Leverage and Posture

It is nearly impossible to emerge victorious from a negotiation without leverage and posture which are created by having multiple options in the market. If you limit yourself to one property, you are at the mercy of that owner. Since most landlords and sellers negotiate professionally, it is easy for them to know when you don’t have other viable options.

Simply telling a landlord that you have a proposal from another landlord won’t give you a strong enough posture. Most landlords look at unrepresented tenants and assume they do not know the market, do not understand all their options, and are not really serious about making the landlord compete for their business. Leverage and posture are created when you have the right timing, professional representation, an understanding of all your available options, and a detailed game plan of what you want to accomplish in order to capitalize on the market.

These three key ideas are the first of many factors that allow healthcare tenants and buyers to reduce their second highest expense which dramatically impacts profitability and cash flow.


Opinion vs. Authority: Why Authoritative Representation Matters in Healthcare Real Estate

Opinions are everywhere. Millions of voices exist both in real life and on the internet on every topic imaginable. The age of information and social connectivity has made distinguishing fact from fiction or helpful advice from crowded noise extremely hard. And this isn’t just an issue of digital literacy. Opinions from family, friends, and colleagues come at you too, often well-meaning, whether or not you solicit any advice.

But there’s a difference between opinion and authority, especially in real estate and in the medical world. For example, you read Dr. John Doe opining on a dedicated Facebook group about why leasing makes no sense for a new practice owner. But while this may have been true for his practice, how many start-ups has he helped? What kind of purchase vs. lease analysis did he run to come up with his conclusion? How does he account for the differences in economic conditions from one market to another across the country? Or maybe you read a message board thread on the importance of choosing a high-cost retail location over a professional office park. Did that author take into account your specialty? What about your specific market or the available inventory in it?

Listen politely to opinions, but take them in conjunction with the advice and counsel you get from a trusted team of advisors who have helped a significant number of healthcare practice owners in the past. Dr. John’s advice might be well-hearted, but his experience opening one office doesn’t give him the insight necessary to advise you. So read the advice, educate yourself on other healthcare professionals’ experiences and then turn to your CPA, your attorney, your healthcare real estate agent, and develop a strategy and execution plan specific to your needs, one that will help you maximize profitability through real estate.

The Power of an Experienced Team

One of the most significant business decisions a healthcare provider can make is strategically choosing an office’s location, whether you’re starting your first practice or relocating an established business; and this remains true regardless if you are leasing or purchasing your office space. And paramount to that success and profitability is assembling the right people around you for support—people whose authority is valued over opinions.

Having the right team protects your valuable time and your bottom line, and the best teams marry trust and expertise in a variety of roles, specialties, and industries. And just as important as finding collaborative partners you trust, is finding people with the right amount of authority in an area that’s beneficial to you. Choosing an attorney who specializes in commercial real estate, for example, will ensure that all legal terms in the lease or purchase contract are drafted to protect your interests in the short and long term. When it comes to lending, many offices require financing for additional build-outs, equipment, furniture, and more, so a lending specialist with a proven track-record lending to healthcare providers is also essential.

Extensive experience is also required of commercial real estate agents, who will provide guidance when choosing locations, evaluating market conditions, vacancies, and costs, offering purchase vs. lease comparisons, managing timelines, and negotiating the most competitive rates and terms. Experienced healthcare real estate agents should create a full market evaluation, providing a snapshot of a competitive market, and even negotiating three to four properties at once in order to offer a side-by-side view of what’s achievable when you have a detailed negotiation strategy.

That type of experience is a powerful tool and part of the due-diligence healthcare providers should receive from an authoritative agent. It’s worth far more than an online opinion about whether leasing or owning is the right move—it’s the research and information that becomes paramount at the negotiation table. As you build your team, look for experienced professionals with a corporate focus to fill each role.

The Power of Specialization

Beyond finding corporate partners with expertise in their field, finding people who specialize in healthcare is vitally important. A commercial architect who focuses on healthcare practices, hospitals, or medical campuses, for example, can ensure that your space is developed based on the needs of patients, healthcare workers, and the communities they serve.

Commercial real estate agents who specialize in the world of healthcare can provide that same specialization. These agents are familiar with the medical industry and understand a doctor’s world, from a real estate perspective. They grasp the nuances in every medical provider’s office that make finding the best space for a dentist or dermatologist drastically different than industrial, traditional office, or retail tenants. Healthcare-specific real estate agents understand the healthcare world. They understand medical lending programs that maximize a practice’s profitability and cashflow. They understand what key concessions can save your practice tens to hundreds of thousands of dollars. And they understand the unique needs required by practices across the board. Agents not only save healthcare professionals significant time and money, they also help avoid costly complications, delays, and obstacles that arise in large real estate transactions.

Specialization also means that there should be no conflicts of interest—your healthcare real estate agent should be exclusively occupier-focused, meaning they’ll never represent landlords or sellers. When an agent represents both sides of the transaction (tenants and landlords or buyers and sellers), which is typical for the majority of real estate firms, there’s a major conflict.

By representing only healthcare tenants and buyers, agents can not only find tenant-specific solutions (like extending build-out periods or improvement allowances), they can also negotiate much more aggressively. This specialized experience can mean tens to hundreds of thousands of dollars saved beyond your lease rate at the end of the day.

The Power of Authority at No Cost

Fortunately for tenants and buyers, healthcare real estate agents come at no cost—and that’s not opinion, that’s fact. Like residential real estate, commercial landlords and sellers agree to pay for an agent’s services on your behalf, whether you’re negotiating a lease renewal, signing a lease at a new location, or purchasing your first medical office space.

At no cost, a healthcare real estate agent’s services can save dozens of hours of valuable time, and just as important–-they have the potential to save your bottom line. Deciphering between opinion and authoritative advice can be the difference of a costly mistake and savings to the tune of hundreds of thousands of dollars. And with so much at stake, the only person who should be offering advice on your commercial real estate transactions is an expert who advocates for healthcare providers and who fully understands the uniqueness of your specific requirements and market.

What’s On The Inside Matters Too

In Part I and II of this article, we discussed the location, physical appearance, age, amenities, etc., of a building that impact a patient’s perception of a healthcare practice.  These factors are otherwise known collectively as the “Class” of a building. Generally speaking, commercial buildings are categorized as a Class A, B, or C property.

We also reviewed that on a conscious and sub-conscious level, every patient is evaluating how much friction exists between getting what they want from a provider and what that provider is actually giving them (i.e. brand friction).

In our culture, it’s important to remember that your patient’s standards and expectations of brand excellence are defined by their favorite brands from which they frequent the most.  These brands are going to be the market leaders in categories other than healthcare.  The point being that as a healthcare provider, the competition for being measured against isn’t just the healthcare provider down the street, it’s brands like Apple, Nike, Amazon, Nordstrom, etc., that are delivering an excellent experience to your patient on a regular basis.

Garlock 3

“There can be as much value in the blink of the eye as in months of rational analysis.”

– Malcolm Gladwell

Malcolm Gladwell’s insight into what a customer assesses in the blink of an eye is ever true in healthcare also. With this in mind, let’s examine additional real estate brand-factors that impact a patient.

What’s On The Inside Matters Too

Once a patient steps inside your building, the brand experience continues.  If their experience outside was less than ideal, it can be overcome with a pleasant indoor environment. Ideally, there’s a positive branding continuum from the exterior all the way to the exam room.

12. Odors

Odors can trigger emotions, and it can be intense. Have you ever left a sandwich shop only to smell like a grilled Panini for the rest of your workday? Not a great residual experience.  Something this simple can deter repeat business.

Some commercial buildings, particularly older Class C properties, have an unpleasant smell.  Neighboring tenant odors can also bleed into a medical space and be a problem, like a Thai restaurant or sandwich shop for example.  Don’t make the mistake of ignoring odors with regards to your brand, especially within your own office suite, and the common areas of your building.


13.  Cleanliness

Messiness doesn’t offend everyone. But cleanliness offends no one.  A clean and tidy commercial office speaks volumes about the occupant.   The quality of janitorial services provided for common areas is just as important as in-suite janitorial. 

Are the restroom’s waste receptacles overflowing with paper towels?  Are the soap dispensers nearly always empty? Is the hallway paint scuffed and dirty? Are the corners and baseboards dusty?  A patient with an eye for detail will notice these small details when they enter your space, interact at the reception desk and waiting room, and once they enter the main space and are waiting to be seen.

14. Directories

Does the common area directory look modern or is it dated? Is it in an obvious, noticeable location? Or is it difficult to find?

A high-class directory is a great compliment to an entryway. Surprisingly, some nicer B-Class buildings aim to get by with hand-written directory listings taped to a board or outdated cases with letters you push into a frame.  Again, not everyone cares but this lack of excellence either adds to or subtracts from a brand and impacts a patient’s experience.

15. Flooring

Is the carpet modern and fresh or old and stained? What about the tile?  Flooring is just as important as paint.  And in medical buildings, both sterile and non-sterile environments must be accounted for in flooring design choices. The moment a patient walks into a space, they are observing the floors which communicate loudly as to cleanliness and sanitation of the practice.

16. Elevators

As mundane and brief as riding an elevator can be, they do have an emotional influence on people.  One can experience a spectrum of emotions on an elevator, from feeling nothing at all to feeling social awkwardness, impatience, boredom, insecurity, even fear, or anxiety.  The primary concern for an elevator should be its condition, namely does it feel old and unsafe or well maintained.

Garlock 2

17. Artwork

Artwork on the walls, both in common areas and in office suites is not insignificant in creating experience. Wall hangings that look like they were salvaged from a Days Inn circa 1990, for example, will have a radically different impact on patients than stunning landscape photography on large formats that bring the outdoors inside.

18. Doors

As a reader, you’re probably thinking, “How could doors possibly affect my brand?”  It may seem a stretch to think so, but they do.  Understanding that patients are keeping an internal tab on all the things they like or dislike while at your office, doors do come into play.

For example, some people are germ-conscious everywhere they go.  Do the restroom doors open in or out? Do you have to grab the handle, or can you do it with your foot? If your hand is required, is there a paper towel dispenser and trashcan next to the door for the germaphobes.

What about noise? Some people are highly sensitive to noise. Do the doors slam loudly in the hallway?

19. Furniture

Having furniture that is congruent with your brand is critical.  Not just the look, but also the comfort.  The type of healthcare practice plays into interior design choices in a major way.  Hygiene and infection control obviously matter in a physician’s office. A white leather modern couch may work well in a med spa, but would be a total misfit in a pain management practice where the patient demographic may need more pain-friendly seating options.

20. Interior Finishes & Fixtures

The interior design of a building and an office collectively has the power to speak thousands of words. As noted throughout this article, there can be as much value in the blink of a patient’s eye as there is in months of rational thought (or months of advertising campaigns for that matter). 

Entire businesses have been built around interior décor, finishes, and fixtures.  Hotels and restaurants are a great example of this.  The bar for a well-designed doctor’s office keeps rising as increasingly more practices are aiming for a competitive edge in delivering outstanding patient experiences.

21. Equipment

The list of equipment needed in healthcare is long: exam equipment, diagnostic equipment, millwork, furniture, lab equipment, electronics and technology equipment, emergency equipment, etc.

The equipment in an office integrates into the overall look and feel of the practice.  Is it outdated?  Is that obvious to a patient? Or is it the latest and greatest with a nice look and the best of features?  All of this impacts patient-perception of the practice.  And it impacts profitability, as the right piece of equipment can add hundreds of thousands in revenue.

In summary, remember that a patient can assess more about the practice in the blink of an eye than months of advertising, messaging, or rationalization. Make every effort to choose an office for your healthcare practice that raises the level of your brand and enhances the patient-experience. Doing so will result in happier patients and increased market dominance and profitability of the practice.