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.

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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.

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“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.

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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.


How What’s on The Outside Actually Does Count

In Part I of this series, we established how healthcare practices are not immune to the need to build a brand and establish their reputation, specifically with regards to an office and its location (i.e. the real estate). A patient’s office visit and their related experience undoubtedly forms their primary perception of the doctor, staff, and the practice.  Patient-experience and brand-friction, as discussed in Part I, will always trump advertising and media messaging.

The purpose of this article series is simply to offer an inventory of the most significant image and brand-friction factors to consider in your healthcare practice’s real estate.  The nuances in interpretation of brand-friction and patient perceptions as it pertains to the factors that follow are seemingly infinite. 

Each healthcare provider must make their own assessment of what’s important to them, their personal preferences, their budget, their brand, and their patient’s expectations.

Capital City Foyer - CARR commercial real estate

How What’s on The Outside Actually Does Count

The patient experience begins with location, as already noted. Once the patient arrives to the premises, both accessibility and the ‘look and feel’ of a building’s exterior attributes set a tone for and create an environment in which the patient will receive care.

6. Building Class

In commercial real estate, properties are typically classified as being Class A, B, or C.  The differentiation and standards between classes varies per market as the benchmark for a Class A property in an affluent metro area is different than that of a Class A property in a smaller rural market.

Generally speaking, property classes are categorized as follows:

  • Class A: newest and highest quality in the market, excellent finishes, nicer amenities, professionally managed, higher-class tenants.
  • Class B: older buildings or second-generation spaces with lesser finishes than a Class A building, but still respectable. The building may look a little worn and tired but can often be easily refreshed and potentially upgraded to Class A again with a quality remodel; good professional tenants.
  • Class C: the lowest class building in a market often in the least desirable areas, outdated architecture and infrastructure and in need of extensive renovation; bringing a Class C up to a Class A isn’t possible without a redevelopment of the property, and even then it may not be possible given the location within the market.

One might think that people shouldn’t judge by appearances – but they do.  The appearance of a doctor’s office both inside and out should be taken into serious consideration (with respect to branding) when choosing a property or space to buy or lease.

Does this mean that every practice should aim to locate in a Class A property?  Certainly not.  But they should locate within the best location possible within their budget that’s congruent with their desired image or brand standard and that meets or exceeds the expectation of the demographic they serve.  For some practices, this could be a Class B building.   For others, a Class A property is required. A Class C property, however, may not make sense unless a practice is strategically locating within an area to serve a specific demographic in which only Class C properties are available.

If you’re going to error, then error on the side of selecting a higher-class property.  It’s better to have a patient think more highly of the practice’s brand than lower because of the building you occupy.

7. Parking

Parking is big deal.  We all want convenience, especially in the United States. A sub-par parking situation at a medical office or retail center can be a real friction point for a patient.  Especially if that patient is dealing with accessibility challenges.

First and foremost, are there enough parking stalls to meet most medical standards (typically 4-6 stalls per thousand square feet)? Next, how often are they at capacity or left with only a few spaces available, and in less than ideal locations in the parking lot?

How old is the parking lot (or how old does it look)? Is it crumbled and faded with weeds sprouting up through the cracks? Or is it newly finished? Does the landscaping overhang into the stalls? How tight are the parking stalls? The driving lanes? What’s the traffic flow like in and out of the lot? Is it a maze to get from the lot to the front door, or does it provide easy and ample access points? What’s the accessibility like for patient drop off? Does it provide protection from the weather? Is the lot well lit (i.e. does if create a feeling of safety at night)?

8. Architecture

The architecture of a commercial property gives it personality.  That personality should match that of the practice. Older buildings can have more character than modern ones.  However, some older buildings look like they’re stuck in a former decade, and that impression spills over into the tenant’s brand.  Modernizing a building may be an option to restore an old building while preserving its historical features worth saving. 

9. Exterior Paint

Does the exterior paint need an obvious refresh? Is the color professional or off-putting? Paint is an easy fix, but some building owners neglect this simple cosmetic feature, and it can make or break the curb appeal of a building.

10. Windows

Windows are just as important as exterior paint to the curb appeal of a building, and they can definitely be out-of-date. A tired-looking building can have glass that’s stained or cloudy.  Modern, updated windows are more efficient and more attractive. What do the window lines and mullions communicate to patients on the outside of the building as they drive into the parking lot and walk up to the building? What do they also communicate when a patient is looking out of the window when they are in the practice’s space?

11. Roof

Many commercial buildings have flat roofs; however, some have visible shingles. Obviously, a roof needs to be free of leaks, and a Landlord should warrant this.  Make sure that’s covered in the lease, both maintenance and capital improvements. Cosmetics are important as well. Particularly in humid climates like Florida, shingles can have unsightly dark stains which send a loud and undesirable message that a property is not properly taken care of.  This can be a cosmetic black eye.

12. Landscaping

Landscaping that is unkept sends a signal to a patient that a property is lower class. It’s an issue of presentation. Nicely manicured landscaping is typically associated with higher-valued property.  This comes into play with attracting higher quality tenants as neighbors as well.

In summary, when choosing a new location for your healthcare practice, remember that the class of your brand is impacted by the class of the building and its exterior appearance. Error on the side of choosing a higher-class property while staying within your budget and aligning with the expectations of the demographic you want to serve for the life of the practice.


The Brand Experience Begins With Location

Have you ever wondered how the most recognized brands in a culture become dominant?  Books have been written on the topic and there aren’t enough words in a single article or blog post to cover all of the factors that contribute to building a five-star-brand.

While we might not be able to cover all the components, there is one key factor that is immutably constant in building an outstanding brand.  That factor is the ‘experience’ a customer, client, or patient has with a business.  More specifically, ensuring that the customer’s experience matches (or better yet, exceeds) their expectations.

Is Your Healthcare Real Estate Creating or Eliminating Brand-Friction?

Friction is defined as a force that opposes motion between two surfaces that are touching.  When a patient visits a healthcare office, two entities are touching, so to speak (the patient and the practice), and the encounter produces friction to varying degrees.

Brand-friction is a huge factor in customer-patient experience. On a conscious and sub-conscious level, every customer of a business is evaluating how much friction exists between getting what they want from a provider and what that provider is actually giving them.  Is this process of getting and giving easy and pain free (or better yet pleasant), or is it laden with friction and negative experiences? This is the essence of brand friction.

Just like in physics, friction causes heat. We have all experienced a phone call with a company’s customer service department where there was high-friction in getting what we wanted.  In a brand experience, this heat exchange is emotional, and it can leave a patient feeling hot or cold about a company or practice.   It’s been said that it takes as many as ten positive experiences with a brand to override one negative experience.  Regardless of the accuracy of the 10:1 ratio, no one can argue that a negative experience is difficult to get past and has more sticking power.

Brand-friction is highly subjective, as every human has his or her own views and tolerances for measuring friction in an experience.  However, there are some constants that can be agreed upon.

Mansfield Orthodontics

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

It may or may not bother an individual that a doctor’s waiting room is a little small and feels slightly cramped.  To some this might cause a feeling of anxiety, to others it may not even register.  However, everyone would agree that a healthcare waiting room that smells like cigarette smoke and has ashtrays on the end tables would be a major point of friction for a patient.  This is an extreme example obviously and non-existent in this era of healthcare, but it illustrates the point.

The majority of businesses pay far too little attention to brand friction points in their customer’s experience.  The ones that take full inventory of these points, with intent to make them better and continuously improve, are the brands that rise to the top of any vertical and dominate a market.

The Brand Experience Begins with Location

Ask anyone what one thing is most important in securing real estate and you’ll likely hear the adage “Location, location, location.”  It’s said so often it has become a platitude.  While it is not always the single most important factor, it is very important.  This is particularly true when location is interpreted to mean a collection of key location-factors as outlined here.

1. Town, City or Suburb

Choosing an area to locate a practice in is a big decision.  It’s not just a branding and image decision, it also has impact on demographics served, competition saturation, referral partners, lifestyle, and related stressors (e.g. traffic, drive time), doctor-patient interaction and relationship, and earning and retirement potential.

2. Proximity to Other Amenities or Businesses

Where’s the nearest hospital? Retail center? Office park? Grocery store? Airport? Hotel? Etc.

Depending on the type of healthcare practice, the distance from other practices or amenities could be a deal breaker.  For example, if a well-known surgeon has a large patient base that flies in for procedures, being located near a major airport is key.  Other practices thrive on pedestrian traffic, making a high-volume retail center or bustling office park an ideal location.

3. Access

Of equal importance to parking is access to the property from the nearest main road or highway. For example, some medical office buildings located on a hospital campus can be situated so far away from the nearest arterial road that it feels like driving through a labyrinth for a patient to access the office.  This is a frustrating experience for some patients, in particular a senior demographic that may not be as familiar with using GPS apps to find locations.  

4. Visibility

Visibility from the road is of great importance to certain types of practices, like optometry, and not as important for others.  With regards to branding, take into account how much of the marketing strategy depends on drive-by traffic (be it pedestrian or vehicular). A significant number of healthcare practices choose to invest in higher visibility properties as a form of marketing their brand.

5. Signage

Closely tied to visibility is signage.  Building, monument and internal directory signage all come into play.  Does the signage available align with the need for visibility? Does the signage permitted align with the practice’s brand standards?

Some properties might offer sign exposure so great that it warrants paying a premium for the space.  Keep in mind however that as with any advertisement, after a certain period of time, passers-by begin to ignore signs.  This is known as ‘banner blindness’ in online media, but it applies to physical signs as well.

In summary, the location of your office is a key factor in establishing your brand.  Hitting homeruns with regards to these five location-factors can be the difference between a mediocre practice that never realizes full potential and a thriving practice with an outstanding brand experience that becomes a market leader.


The Process of Dental Office Leasing

Leasing a dental office space is one of the most crucial financial initiatives a dentist will engage in for a number of key reasons. The dental office lease is typically the second highest fixed expense in a dental practice (next to payroll) and it represents a negotiable contract that impacts both the ability to maximize profits, via lease terms, as well as the ability to position a practice for long-term success.

There is much more to leasing a dental space than simply finding a great location and negotiating terms. And while identifying a location is important, there are many nuances to evaluating an office space within a market.

When it comes to lease negotiations, it is paramount that favorable economic terms are achieved. Since there is no standard or templated approach to negotiating a lease, each project is significantly different as the needs and opportunities for both the dentist and the landlord vary greatly with each property option. You must ensure you are considering the full cost of the deal, and not just comparing rental amounts. Sometimes a higher lease rate is actually cheaper in the long run when considering the deal as a whole.

It can be tempting to take the do-it-yourself approach when leasing dental space. To achieve the best possible terms though, it’s best to hire a firm that is an expert in the dental real estate market, has a proven track record negotiating dental leases and is connected to a team of advisors who are committed to your dental practice’s success. It is vital that you have a dental real estate advisor on your side to help you make confident decisions about your practice’s real estate.

Hiring a real estate agent that’s a dental specialist will also help protect you from numerous common pitfalls by employing their proven strategies and improving the process of finding and negotiating space. A dental specific agent can also introduce you to industry experts who can help you with everything from insuring yourself and your practice to confirming your practice is receiving the most up to date tax savings available. Most importantly, a dental agent will save you dozens of hours in non-billable time so you can use those hours to improve your business. Your agent should do all of this at no cost to you as real estate commissions are paid by the Landlord.

Dental Letter of Intent

Once you’ve toured the market and identified you’re top 3-4 property options, it’s then time to negotiate. This is done by submitting a non-binding Request for Proposal (otherwise known as an RFP) to the Landlord of your top properties. The RFP contains a list of financial and business deal points that you request if you are to occupy the space.

The landlord will then reply with an LOI, which is a non-binding document that stands for Letter of Intent. In the LOI, the landlord will counter any points that are not acceptable and, along with the lease rate, will present an offer based upon the terms requested. The reason for the RFP approach is to ensure you are getting things that are imperative for your dental office which are otherwise uncommon for a “standard use.”

Not only is it acceptable to negotiate on multiple properties, but it’s in the best interest of you as a Tenant. Submitting multiple offers creates competition between Landlords, ensuring you understand what other properties would be willing to offer you for your tenancy. It also gives you confidence in knowing that you will not need to start the entire process over if one property does not work out (which does happen in commercial real estate, in both up and down markets). Finally, this approach also allows the practice owner to rest assured knowing that the best options in the market were equally evaluated before committing to a location and terms.

A Letter of Intent serves as a high-level agreement between the Landlord and the Tenant prior to preparing a lease draft which will ultimately become a binding contract. Taking this approach saves both parties time and money by not getting to the legal negotiations too quickly, thus saving billable hours for what an attorney would otherwise have charged in a situation where the parties are too far off on the main business points to proceed any further.

The most common business points include but are not limited to: the name of the Tenant and their intended use of the space, lease type, lease term, lease and rent commencement dates, base lease rate, common area operating expenses, exclusivity, free rent periods, annual escalations, tenant improvement allowance, signage, HVAC and electrical needs, renewal options and condition of the premises (also commonly referred to as the landlord’s work).

Your dental agent should gather all of the LOI’s and put them into a comparison spreadsheet which takes into consideration not only the unique terms offered by each landlord, but also the remaining costs of the deal for the practice, including the cost to build out the space, cost of funds to pay for improvements, along with other important considerations. In doing so, you will obtain a clear picture for which deal makes the most sense overall. Often times there are multiple rounds of negotiations to ensure that there is nothing left on the table.

Once all Letters of Intent are evaluated, and best and final terms are agreed to, your agent will provide a comparison of the final offers, and then you will decide which is the prevailing property. At that point, the Landlord will supply a lease draft for legal review by your real estate attorney.

Dental Lease Agreements

Upon receiving a dental office lease agreement from the Landlord, it’s time to engage a real estate attorney to perform a lease review. Your attorney should begin with the LOI to ensure that not only did the business points make it into the lease, but that they are communicated in a way that makes them binding on both parties. Your attorney will also then review the remainder of the lease, which often includes such points as:

  • Assignability and permitted transfers
  • Force majeure and/or pandemic clauses
  • Maintenance responsibilities of both parties, including HVAC
  • Subleasing restrictions (i.e. to a specialist)
  • Personal Guaranty burn-offs
  • Death and disability
  • Relocation (within the property)
  • Access to the property after normal business hours
  • Common area maintenance
  • Landlord’s work and delivery of the premises
  • Liability insurance requirements
  • Other matters pertinent to a dental office

Dental lease agreements vary in length from ten pages to fifty pages or more. The depth of the lease is largely dependent upon the type of Landlord that owns the property (e.g. and institutional landlord vs. a mom and pop owner) along with the size of the property or master-planned development. In every case, no matter how short and seemingly simple the lease is, only licensed attorneys are permitted to give a client legal advice.

Your real estate agent should not, and legally cannot, perform a legal review of your lease. It is a breach of both legal and ethical state statutes for a real estate agent to practice law. Practicing law constitutes the giving of legal advice, including but not limited to the evaluation of a legal document (or lease) and then advising a client on potential outcomes or strategies to proceed. Bottom line, real estate licensees are not permitted to practice law.


Following these strategies will ensure that you get the best possible outcome and maximize your profits when leasing dental office space:

  1. Understand that there are pitfalls to calling on properties without representation and avoid the temptation to do it yourself.
  2. Hire an expert dental real estate broker that only represents tenants and buyers, and therefore has no conflict of interest otherwise created by agents that also work with Landlords.
  3. Look at all of your viable options including the possibilities of leasing or owning. Look at retail, office and stand-alone buildings. Cover all your ground and compare your top three to five options before making a decision.
  4. Assemble an expert team of dental advisors and vendors to help you complete your office project. Your team may include an Attorney, CPA, Architect, Contractor, Engineers, IT Professional, Designer, Practice Consultant, Equipment Supplier, Financial Planner, and more. Your specialized dental real estate agent can help you secure your entire team, and ensure you have the most qualified and efficient professionals working on your behalf.


What 2 out of 3 People Don’t Know About Commercial Real Estate

There’s a staggering statistic with regards to real estate transactions that was published by the Consumer Federation of America. This statistic reveals a misconception that can lead to a number of pitfalls in any real estate transaction, most importantly, a potential loss in tens to hundreds of thousands of dollars in a single transaction.  

Given that 65% of the market has this misconception, it is important that you understand this article as if it were a check made out to you with several figures before the decimal point.

What’s the statistic?

“65% of consumers believe the agent on the other side of the deal is always or almost always required to represent their best interests, simply because they are working on the transaction.”

What Role Does The Listing Agent Really Play?

Here’s the plain and simple truth: A listing agent does not (and cannot) represent your best interests as a tenant or buyer.  In fact, they are required to do the opposite and represent the party with opposing desires in the transaction.

This is an important distinction, because in any negotiation, all parties want to get a good deal.  And a great listing agent can make a tenant/buyer feel like they’re being represented and receiving a great deal from the property owner, when in fact, they may not be.  To the contrary, they may be leaving hundreds of thousands of dollars on the table.

  • Real estate agents are regulated and licensed by their state and have fiduciary responsibility to their clients, equal to that of a what an attorney has with their client.
  • Unless explicitly communicated, a tenant or buyer is a ‘customer’ of a listing agent, not a client, and the listing agent does not have loyalty to the customer.
  • A listing agent’s client on the other hand is the property owner, and they must make every effort to achieve their client’s agenda and maximize their returns as directed by them, in spite of what it may cost the tenant/buyer (the customer).
  • The only exception to this rule is if the listing agent discloses their fiduciary responsibility to you as the tenant, and you then ask for them to represent both you and the landlord within the transaction. This would be akin to being the defense in a court of law, and asking for the prosecuting attorney to represent you (which does not happen). Not only would this be a terrible approach, but it is also illegal in the vast majority of states.
  • Many states require disclosure of agency on every transaction because many cases brought in front of real estate commissions across the country are a matter of uneducated buyers or tenants not understanding the listing agent had a fiduciary requirement with the opposing party until it was too late. Despite this requirement, this disclosure does not happen in many transactions.

Understanding fiduciary roles and the distinction between a customer and a client in a real estate transaction is paramount.  Even though a listing agent might make you “feel” like a client, it is a violation of real estate law for them to put your interests as a tenant/buyer on par with or above their client’s interests (when those interests are in opposition).  It’s a violation of their fiduciary duties that could result in penalties, disciplinary action, or even a loss of their real estate license.

What Obligations Does A Buyer‘s or Tenant’s Agent Have?

When you hire an agent as a tenant or buyer, that agent is obligated by the same laws that a listing agent is obligated to when representing the landlord or seller, which includes a full range of real estate services (i.e. fiduciary duties).  As a client, not a customer, they must provide you with a high level of service and care in helping to achieve the best possible outcome. The role of an agent is a weighty endeavor.

In most states, any agent that represents you as a client in the transaction must:

  • Treat you honestly and fairly
  • Obey you and following instructions, as long as it is lawful, during the transaction
  • Remain loyal to your interests above the property owner’s, and even their own interests
  • Disclose known material defects relevant to the property
  • Disclose any other information that would further your interests
  • Diligently and competently handle all research, communication, documents, funds, etc.
  • Keep sensitive information confidential, both during and after the sale or lease
  • Account for all funds received and disbursed
  • Comply with all state and federal laws

A good and reputable buyer’s agent takes these roles very seriously. Not doing so could otherwise lead to harm for their client and substantial penalties for the agent or brokerage.

What Benefits Are There To Hiring A Buyer‘s or Tenant’s Agent?

There are many benefits to hiring an agent to represent you in a purchase, a new lease, and even a lease renewal. Below are just a few.

It Saves (And Doesn’t Cost) The Buyer or Tenant Money: In residential and commercial real estate alike, sellers and landlords have agreements with listing agents to pay commissions for both parties in the transaction.  The property owner has already factored this into the deal. Not having an agent represent you doesn’t mean you’ll somehow save money equal to those commissions either. In fact, in the vast majority of transactions, the unrepresented tenant or buyer ends up costing themselves more in the deal due to a lack of market knowledge, strategy, and experience.

It Ensures You Have A Solid Game Plan: If you have a property you are looking to lease or sell, you want someone who has finalized dozens or even hundreds of listing contracts. This ensures you have someone you trust who has seen as many hurdles as possible, and can help you effectively navigate this type of transaction. Conversely, if you are seeking to lease or purchase a space as a tenant or buyer, you want someone who has a game plan specific to your transaction and can deliver you the highest amount of concessions at the lowest possible rate.

It Unlocks Lease Concessions Otherwise Unknown:  Without fail, when given the chance to review a lease that was negotiated without the assistance of an agent, you will find there was significant room for improvement in the business and economic points of the lease.  With effective strategies, posture, and thousands of hours of experience negotiating commercial deals, a tenant’s agent can help you realize significant monetary concessions that wouldn’t be offered otherwise.

It Saves Valuable Time & Resources: Dozens of hours are spent on a typical transaction, hours that would otherwise cost the business owner and their staff. What takes an expert agent a few hours might take a person representing himself or herself 3-4 times as long. Process flow, technology, and industry tools and resources provide a service that allows clients to avoid wasting non-billable hours on work that’s a distraction to them and their staff’s daily routine.

In summary, the most successful approach to achieving the best possible terms in any commercial real estate transaction is to hire a tenant/buyer’s agent that’s an expert in the market and can competitively advise you while procuring terms from multiple properties, giving you the client several options to choose from and make an informed decision on. 

It is costly to believe that the agent on the other side of the deal is “always” or “almost always” required to represent your best interests, or equally to take a do-it-yourself approach in a specialized industry like healthcare real estate. Whether you’re renewing a lease, buying a property, or leasing a new office, make sure your practice’s next real estate transaction is handled at the highest level.