Finding a new location for your medical or healthcare practice can be exciting. The prospect of a newly designed office in a better part of town with the anticipation of growing your practice is an enticing adventure for many doctors. It’s fun to imagine and dream of what’s possible. This process can even start early as you drive past vacant properties with a ‘For Lease’ sign in front of the building. Your natural instinct is to ask the owner or listing agent “How much?” So, you make a call to inquire about the property. It seems harmless, right?

Believe it or not, doing just that without representation can cost you up to six figures.

As a reader, you might be saying, “Really? That seems like an exaggerated claim. After all, I’m a great negotiator. How hard can it be to work out a good lease deal?” You’re right. Great negotiation skills are not exclusive to real estate agents—many people are great negotiators instinctively, and the skillset can be acquired with knowledge and experience.

However, negotiation skills alone won’t ensure that a medical tenant or buyer receives the best possible terms on their office lease or purchase. For that, tenant representation by an experienced agent is crucial. In completing thousands of transactions annually across the country, here are common pitfalls we’ve identified when tenants call on properties without representation:

1. Losing Money On The First Phone Call

On the very first phone call about a property, the listing agent or seller/landlord is evaluating the posture of the prospect. Tone, interest level, experience level and options all come into play. Any perceived weakness or inexperience will be used against the perspective tenant as the deal unfolds to gain an upper hand.

Lacking real estate market knowledge is the foundation of a weak posture. In a negotiation with six to seven figures at stake, being able to decipher fact from fiction is essential to getting the best possible terms.

For example, listing agents routinely claim that certain concessions are rarely, if ever, offered by landlords. By doing so, listing agents can convince uneducated tenants to accept deals that do not include common landlord concessions such as tenant improvement allowance, free rent and more.

The reality is most landlords will offer attractive concessions, especially to long-term tenants who are properly represented. Landlords routinely provide a free rent period during construction, as well as an additional free rent period after the tenant opens for business in the space. They also typically contribute toward construction costs in the form of tenant improvement allowance or even a turnkey space. Knowing how much of these concessions to request requires market knowledge and experience. Landlords don’t provide these types of benefits if they don’t believe they are competing against other landlords and spaces, or if the tenant doesn’t know better.

2. Misunderstanding The Role Of Listing Agents

Here’s a hypothetical question: In an ideal world, would you go to court and defend yourself without an attorney? Obviously, No. No one does this unless they have simply run out of resources and can no longer afford legal counsel.

Listing agents have fiduciary responsibility to their client that is equal to that of an attorney. This fiduciary is to maximize the returns of the landlord or seller, and it’s critical to understand that a listing agent must do everything possible to protect their client’s best interests. As a healthcare provider who is on the other side of the table against them, your best interests are not in their consideration. Putting your interests on par with their client’s would violate real estate law.

When a tenant speaks directly to a listing agent without representation of their own, they are the customer of the listing agent, not the client. That’s an important differentiation. However, a good listing agent can make you feel like a client without violating their fiduciary to their true client, the landlord or seller. After all, they spend their days fielding phone calls from prospective tenants and perfecting the art of selling a space.

Why Does This Matter?

The listing agent has no loyalty to the customer, the prospective tenant or buyer. As noted above, a listing agent can propose terms to a tenant that may seem to be factual, when in reality they’re simply opinions or a perceived reality that heavily favors the landlord and/or the listing agent’s way of doing business. This doesn’t inherently make the listing agent a bad person or unethical. It just means they have a biased interpretation of the market that favors their client and leads to a loss of money and concessions for the tenant.

3. Sacrificing Expertise

As a medical tenant or buyer, you have the right have an expert agent represent you despite what your landlord might say.

So What Does It Really Cost You To Be Unrepresented?

Maybe you love real estate and you’re convinced you want to fully handle your next purchase or lease negotiation. Do you have anything to lose in doing so? Below are just a few things you might want to consider when it comes to having an expert agent represent you:

Non-Billable Hours: Dozens of hours are spent on a typical deal, hours that would otherwise cost the doctor and his or her staff. But it’s not just the non-billable hours that are costly to a practice, it’s the distraction: hundreds of emails and phone calls, online research, physical evaluation of the market, project file organization, communication records, financial evaluation of offers, coordination and administration of vendor relationships, and the list goes on.

Process & Resource Efficiency: You know the saying: to become an expert at anything requires 10,000+ hours of practice. With experience comes efficiency and nuance. What takes a healthcare real estate expert a few hours might take a person representing themselves 3-4 times as long. The process, technology and industry tools and resources allow agents to streamline the activity necessary to complete any transaction and ensure that critical issues are not overlooked.

Vendor Relationships: Assembling a strong team is a pillar of success in real estate. Attorneys, CPAs, architects, contractors, engineers, designers, practice consultants, equipment suppliers and brokers all work together to make a project a success. By using a broker who transacts on thousands of healthcare deals around the country each year, you save time vetting national and local vendors.

Free Services: Remember, a tenant or buyer agent’s fees are paid by the landlord or seller in any transaction. Sellers and landlords have already factored commissions into their cost of doing business. Not having an agent represent you doesn’t mean you’ll somehow save those commissions either. In fact, most unrepresented tenants and buyers end up paying more due to a lack of market knowledge, strategy, and experience.

Conclusion

Going it alone on any real estate transaction as a tenant or buyer without representation is costly. Whether you’re renewing a lease or starting your first practice, be sure to get someone on your side of the transaction who is a proven advocate for your practice type and specialty—and all at the cost of the landlord or seller.

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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. 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!

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“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 healthcare commercial 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 vital to maximizing profitability. 

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

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 missteps 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 the waters to see how informed you are of the process, and they are 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 in the market. 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 while saving you significant money. 

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. 

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.

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 CARR.us.

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.

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.

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