Three Key Concepts Of Real Estate Representation

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

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

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

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

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

Tenants or buyers may think “if I don’t have an agent, I’ll get a better deal”. Listing agents frequently insinuate or make this comment as well. However, the tenant or buyer is not listing a property ‘for sale by owner’ where they are choosing to sell the property without representation and can control if they save a portion of the commission. Instead, in most cases when a tenant or buyer does not have an agent, the listing agent will get paid an inflated or double commission; or the owner will simply pocket that money. This leaves the tenant or buyer in a position where they do not save money and typically receive a substantially inferior deal by paying more and receiving less concessions than they should have.

Many owners and listing agents understand that everyone wants to feel like they are getting a better deal. The reality is, 99% of the time, they are not. Landlords and listing agents often put together offers that contain additional margins and encourage the tenant or buyer to counter their offer so the tenant or buyer feels like they are really ‘negotiating’. The tenant or buyer leaves with the impression they are saving money without representation and have really ‘cut the price’. However, this is all part of the owner’s or listing agent’s strategy.

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

There are very legitimate healthcare consultants spanning nearly every healthcare industry. They can specialize in helping you open your first practice, scale to multiple locations, increase profitability, hire and train staff and beyond. However, the best consultants don’t try and do other professional’s jobs. Instead, like a coach or general manager, they assemble the best team.

There are some consultants who will try to be the ‘jack-of-all-trades’ and venture into specialties that go beyond their reach. Whether offering to be your real estate agent as part of their fee or accepting the standard fee from the landlord or seller, you should avoid consultants who don’t have the expertise or experience to ensure you receive the most favorable terms possible.

Understand that the consultant, if even aware of it, is not going to tell you they left tens to hundreds of thousands of dollars on the table, missed finding you the best locations or forgot to include key concessions that you should have received. Instead, they will tell you they took great care of you. Unfortunately, that is rarely the case. A great consultant will advise you to hire the best partners you can for your team, including: CPA, lender, real estate agent, attorney, etc. and will not try to be those people for you.

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

Because lease and purchase contracts are legally binding documents, you should always have an attorney, who understands real estate law, review your contract to advise and protect you. However, just like your real estate agent should not be giving you legal advice, your attorney should not be telling you what building or space to choose, how much to pay and negotiating terms for you. Unless an attorney spends 40 to 50 hours per week evaluating the market and negotiating on properties, they are likely unqualified to play real estate agent. Similarly, your real estate agent should not be drafting language in a binding contract.

The best teams of agents and attorneys have a high-level respect for what each party does. They complement each other, instead of trying to do the other’s job. Additionally, if you are paying your attorney to be your real estate agent, you will spend thousands of dollars in unnecessary fees.

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

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

A good real estate agent should save you dozens of hours of your valuable time by helping you avoid costly pitfalls and delays, while ensuring you receive the most favorable terms possible. It is very common for a healthcare specific real estate agent to save you tens to hundreds of thousands of dollars over a ten-year period. With that much at stake, ensure that you hire the absolute best agent you can. And… NEVER pay a consultant, negotiator or attorney to do what your real estate agent will do for you for free.

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Three Common Mistakes Healthcare Professionals Make

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

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

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

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

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

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

3. Not Knowing Market Availability And Comps

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

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

Conclusion

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

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Failing to create a strong posture | Pitfall #3 to Avoid

Understanding the market, the correct timing and comparable business deal points positions you and your agent to begin the process with a high-level of anticipation for success. However, any preparation will quickly amount to nothing if you do not have a focused negotiation strategy.

The key to an effective negotiation posture is most clearly found when you have multiple options on the table and are willing to pursue those options.

One of the first questions a landlord will ask its broker is whether the tenant has professional representation. If the answer is no, they will ask if the tenant appears to know the market and is educated on the business points they are seeking. In a renewal situation, they will ask if the tenant is seriously willing to leave. If the landlord and its broker sense any weakness in the posture created by the tenant, they will not offer terms that are truly competitive as compared to other options in the market.

Landlords also see it as weakness if a consultant or out-of-state attorney is handling the negotiation for the tenant because they know there is no local market knowledge present. Landlords come to the same conclusion when tenants attempt to represent themselves.

Also crucial to posture is beginning negotiations at the proper time—ideally one year before the current lease expires. If there is insufficient time to plan and build-out a space, the landlord will assume the tenant’s options are limited, weakening the posture.

Strong posture causes the negotiation to be more favorable than merely bartering with a landlord. Leveraging a local real estate professional’s expertise and then dictating favorable terms to a landlord yields consistently more favorable terms to a tenant than simply asking for a lower price.

Strong posture is not about bluffing or threatening. Having multiple legitimate options and a credible willingness to choose the other property creates an environment where landlords compete to attract or retain quality tenants and ensure they get competitive terms.

Expert representation by a real estate professional will help you avoid all of these pitfalls while saving you time and money.

Avoiding these pitfalls will help healthcare tenants achieve more favorable terms for their practice and bottom line.

For more information about how you can maximize your profitability through your next real estate transaction, visit our FAQ page or click the following link to start a conversation with an expert agent representing healthcare providers in your area: Find an Agent

CARR Healthcare 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. carrusoldtheme.wpengine.com

The location of your practice is important to your success

There are several critical factors often overlooked by healthcare providers in the attempt to save their practice money by paying lower rent. One of those factors that could make paying a higher lease rate a better financial decision is a property’s location.

Practice Location — Demographics and neighboring tenants are two importance factors to consider when choosing your location.

If you have ever worked with a commercial real estate agent, you have likely heard them say, “location, location, location.” This is the most cliché term in real estate for a reason. Location is one of the most important factors in a healthcare practice’s success. There are two factors regarding your location that need to be considered: The first involves demographics, visibility, access, signage, etc. and the second is the quality of neighboring or anchor tenants.

Having a strong anchor tenant, such as a leading grocery store or large national retailer can significantly impact the rate you pay. However, higher rent premiums can be worth the increased expense when you consider the amount of potential new patients a strong anchor tenant can attract. A space with a better location and higher rent has the potential to increase the number of new patients per month to the point where the increased profit would be greater than the cost of the higher rent. Thus, the value of your practice would arguably be worth more upon a sale, as most practices are valued and sold based upon a percentage of annual revenue. If you can take home more money and increase the value of one of your largest assets, paying more in rent could be seen as a strategic investment versus simply an expense.

The same logic can be said of paying more for increased visibility, traffic count, accessibility, signage, etc.

You have the potential to save tens to hundreds of thousands of dollars and receive the benefit of having an expert who will evaluate your top options.

To learn more about why it is so important to have expert representation, click the button below.

To receive a free, no-obligation evaluation of your current terms and/or available options, click the button below. When you do, complete the simple form and an expert broker will contact you right away.

What Does ‘NNN Lease / Triple Net Lease’ Mean?

There are many forms of commercial real estate leases, due to the fact that there is not a universal lease template or standard form at a state or national level.  Unless you are dealing with the same landlord on the same property, the odds of seeing a lease agreement that is even relatively similar to a prior lease agreement is very rare. Even the length of a lease varies widely; and shorter is not always better. All this makes understanding the terms and conditions of a lease agreement even more vital.

One of the most common lease structures you will see is called a triple net lease (or NNN). Whether it’s a triple net lease, a double net lease, a single net lease, full-service lease or even a gross or modified-gross lease; they are all indicators of who pays for things like taxes, insurance and common area maintenance. As you can probably imagine, this has a substantial effect on the overall cost of leasing the property. In this blog, we will explain exactly what these terms mean, how they affect both the tenant and the landlord, and how a triple net lease can give you more bargaining power in lease negotiations.

Understanding Commercial Real Estate Leases and Clauses

Even though there is no standard contract or universal form for leases, it’s important to realize that nearly every lease agreement will be drafted heavily in favor of the landlord. Since evaluating leases can be daunting even for seasoned professionals, the best thing you can do to prepare yourself is to understand the different types of lease structures along with the benefits and obligations that accompany them. It’s not just important to find the right property, it’s important to achieve the right lease terms to ensure your practice can maintain proper cash flow and account for all ongoing expenses.

First and foremost, you should always hire a qualified real estate attorney to represent you in reviewing any lease or purchase contract. If you are signing a legally binding document that is drafted by an opposing party, it needs to be properly reviewed and explained to you.  Finding an experienced tenant/buyer representative who understands the ins and outs of each type of net lease will provide you, not only peace of mind, but typically tens of thousands of dollars or more in savings from lower rent costs and higher concessions over the lifetime of your lease.

Prior to agreeing on terms for a property and moving forward to a draft lease, it’s important to understand the different types of lease structures and clauses. Those clauses affect how much you are going to pay for base rent and what other obligations or expenses get charged to you in the future, such as property taxes, insurance, and common area maintenance costs. Understanding this will help you properly evaluate all your options so you can confidently move forward with a particular property.

WHAT IS A NNN LEASE / TRIPLE NET LEASE?

A Triple Net Lease or NNN Lease is one of the most common lease structures in commercial real estate. In addition to the tenant’s base rent, a Triple Net Lease contains a provision that says the tenant is responsible for certain costs associated with operating the property. Those costs are outlined in three “Nets”.

Each “N” or “Net” stands for;

Net = Property Taxes
Net = Insurance
Net = Operating Expenses

Operating Expenses are often also referred to as CAM – Common Area Maintenance and are the expenses it takes to run the property. Those expenses include repairs and maintenance costs, trash removal, snow removal, landscaping, parking lot maintenance, security and fire safety, elevator maintenance, property management, exterior lighting and more.

Depending on the property, utilities and janitorial may also be included in the Operating Expenses or CAM. With a Triple Net Lease, you typically pay the landlord one check per month, but that check is broken down into two main categories:

The Base Rent Amount
The Triple Net Amount (or NNN)

Both your base rental costs and your triple net lease expenses are calculated on the square footage of the property that you occupy and lease. For example, if you leased a 2,000 SF space with a $24 per SF Base Rent (or lease rate) and $8 per SF Triple Net, the breakdown of payments would be:

Base Rent: 2,000 SF x $24 per SF = $48,000 per year or $4,000 per month
Triple Net: 2,000 SF x $8 per SF = $16,000 per year or $1,333 per month

Total rent would be $5,333 per month; with the Triple Net being $1,333 per month.

* Some states such as California break down their lease rates by price per SF per month.

Why Triple Net Leases Are Popular

Triple Net leases are the most common type of lease you will find in retail properties, newer medical office buildings, hospital campuses, and the majority of traditional office buildings. The next most common lease is a Full-Service Lease, followed by Gross Leases and Modified Gross Leases.

Triple Net Leases are popular for a number of reasons. They’re easier for tenants to secure, because they take some of the burden of property oversight and investment off of the landlord, such as building insurance and maintenance expenses. Since the tenant absorbs at least part of these expenses, they are able to secure a lower monthly rent for the base lease rate.

Triple Net Lease: Risks and Benefits

Like most things in life, Triple Net leases have both benefits and additional obligations. Let’s dive into each, so you can make a more informed decision regarding whether this option might make sense for you and your practice.

Benefits of Triple Net Leases

In most states, the rent is calculated on a per square foot per year cost. However, states like California charge rent on a per square foot per month cost. So, $24 per SF per year in Florida is the equivalent of $2 per SF per month in California.

This straightforward pricing is a major benefit of Triple Net leases, on top of that fact that — as mentioned above — they are often easier to secure for the tenant. Thanks to this structure, Triple Net leases can be a great setup for you as the tenant, especially if your location is fairly new and well-maintained. As, an added bonus, you can use this structure in your favor when participating in lease negotiations, particularly if you have high credit, strong financials, and a solid payment history.

Obligations of Triple Net Leases

There are also additional obligations s to Triple Net leases you need to be aware of. In exchange for receiving a lower price per square foot on your monthly base rent, the tradeoff is that you must be willing to take on the risk of the unknown. There could be a natural disaster that causes significant damage to the property — for which you are now responsible. Or there could be a system or machine failure, such as the HVAC goes down (heating, ventilation and air conditioning) that requires you to invest a large amount of money into repair costs or increased rent and utilities. 

It’s important to assess all of these obligations and potential risks along with their likelihood ahead of signing a Triple Net lease, although it shouldn’t deter you if you feel the gross lease savings are worth the risk of taking on the responsibility for taxes, insurance, and operating expenses.

Confidential Conversations

Our CARR team is happy to have confidential conversations with you regarding all these considerations and how they apply to your actual practice. We pride ourselves in advocating on your behalf to help you make decisions that are in your best interest and set you up for the highest level of success for years to come.

Partnership

No matter what stage of your practice you’re in, professional tenant representation is a necessity. We’re here to keep your healthcare practice safe from financial liability and extra expenses to ensure you’re set up for the most successful future. 

The Benefits of a Key Advisor

The commercial real estate industry is nuanced and complex, and we want you to delegate navigating this space to us! This allows you more time to focus on the complexities of the other aspects of your practice, while leaving the negotiation, site selection, due diligence process of commercial real estate to us. It’s what we’ve done for decades and you can be confident that we are advocating exclusively on your behalf in all areas.

Marketability

Your location says a lot about your practice, and effects every area of your business, such as staffing, patient retention, referrals, and much more. It’s incredibly important that you locate and market your practice appropriately. Our experts are here to help you dig into the marketability of each location, property and space you are considering in order to leverage your commercial property for the maximum benefit of your practice.

Managing the Process

Throughout this process, our experts are committed to walking alongside you every step of the way. We’ll help you see through the process from start to finish, including vetting properties during site selection and due diligence, to negotiating leases and purchase contracts with the most favorable terms possible, to assembling the most qualified and experienced team or partners in the industry. It’s our goal to act as your trusted advisor and advocate in order to help you achieve the results you deserve.

Negotiating

With a Triple Net lease, you as the tenant have an immense amount of negotiating power. Because the tenant pays more of the property’s expenses and takes on more risk, you can negotiate a lower monthly base rent, especially if you have a strong track record of high credit, and other signs of credibility. We can help you understand the best ways to leverage these attributes as you negotiate your lease.

In part 2 of this series, we will cover Full-Service Leases. Beyond that, there are additional types of leases such as Gross Leases and Modified Gross Leases, as well as dozens of additional lease terms.  Each of these lease options comes with their own breakdown of what the tenant is responsible for and what the landlord takes on, resulting in huge differences in price per square foot and ongoing expenses. This terminology is important to understand as you evaluate real estate opportunities for your practice.  Understanding each term will further equip you to make the most informed decision benefiting your practice.

To review additional commercial real estate terminology, click here.

For answers to frequently asked questions about commercial real estate, click here.

Vital Commercial Real Estate Strategies To Protect Your Practice During The COVID-19 Pandemic

In part 2 of this series, we cover more vital keys to protecting a healthcare practice’s commercial real estate position during the COVID-19 pandemic. It is worth noting, these key strategies and concepts have always been important for reducing exposure for a practice in the short- and long-term. In times past of strong economies and no major threats to the state of business, many practices and professionals overlooked these strategies or placed less importance on them. In light of all that transpired in 2020, they are more important now than ever before.

3. Pandemic and Force Majeure Clauses

Another important clause to protect your practice is Pandemic and Force Majeure clauses. Force Majeure clauses are common in commercial leases and protect both landlord and tenant parties from certain obligations during extraordinary events or circumstances beyond a business’s control. Having navigated the mandated shutdowns and slowed government or regulatory processes affiliated with COVID-19, the need for tenants to address disease outbreaks, endemics and pandemics in a lease is more apparent now than ever before.

Two key points to negotiate and insulate a practice in a force majeure clause are: (1) the construction period prior to occupancy and (2) the payment of rent during a forced closure.

If permitting, construction or completion of tenant finishes are delayed due to local, state, or federal COVID-19 regulations, then build-out periods prior to occupancy and the commencement date of free rent should be extended for an equal duration for the tenant.

In the event of a force majeure event, a tenant should negotiate to defer its fixed rental obligations until the business can reopen. Terms of repayment are also negotiable and should commence after the tenant is able to resume business in the premises, or upon the expiration or termination of the lease (if earlier).

As with other legally binding clauses, attorneys for both parties can prepare language to address these issues in a way that best protects their client.

4. Surround Yourself with Quality Advisers and Partners

As the ancient Proverb states, “Plans fail for lack of counsel, but with many advisers they succeed.” This truth is amplified amidst the changing market conditions of a pandemic. With good counsel obtained from a solid team of professional experts, you can prevent blind spots, misinformation, or a lack of expertise as you work through a commercial real estate transaction.

The temptation of do-it-yourself in commercial real estate can lead you down a bumpy path with consequences that are painful, costly—and entirely avoidable. Given that real estate is most often the second highest fixed expense in a practice, viewing each of the following experts as a partner in your next real estate transaction is paramount to avoiding pitfalls and ensuring success.

Healthcare Practice Lenders: Banks that specialize in healthcare loans and other financial services tailored to the medical field are often one of the initial steps in making sure your real estate project is on the right path. The financial needs of a healthcare practice are unique, and healthcare lenders understand this and have products and processes to accommodate accordingly. Financing for real estate purchases, tenant finish improvements, equipment, and operating cash is best obtained from a bank versed in healthcare lending. The results include better deal terms, lower interest rates, smoother processes, guaranteed timelines and closings, and money and time saved.

Healthcare Tenant Brokers: Some healthcare practices don’t know where to find an expert healthcare tenant broker, and default to a do-it-yourself approach to real estate negotiations where they attempt to represent themself. By doing that, not only are they forfeiting expert real estate experience offered by an expert advisor, but also a broker’s localized and specialized knowledge of the market. This is an inferior strategy that will cost a practice more than it will save in time, energy and money, severalfold. It’s vital to hire a healthcare-specific agent who understands your real estate needs and will represent you as your exclusive buyer/tenant agent without any conflict of interest. You are gaining expert advice, unparalleled market knowledge, and negotiation skillsets with a buyer/tenant agent – it’s a no brainer that should result in savings of tens to hundreds of thousands of dollars.

Real Estate-Specific Attorneys: There are two pitfalls to avoid when performing a legal review of a lease prior to the execution of it. The first, is expecting your real estate agent to give you legal advice. An agent isn’t permitted to practice law. The giving of legal advice, including but not limited to the evaluating of a legal document (or lease) and then advising a client on potential outcomes or strategies to proceed is a punishable violation for a real estate agent.

The second, is expecting your business law attorney, or any attorney without extensive real estate experience, to perform a lease review. Hiring a general attorney could potentially be just as damaging to the outcome of your real estate transaction as not hiring one at all.

Not-So-General Contractors (and Architects): By now, it should be abundantly clear that it’s in a doctor’s best interests to avoid hiring a generalist for any piece of the real estate transaction. This applies equally to hiring a contractor or architect.

An architect is responsible for providing office design plans that a general contractor will then implement. Both play critical roles in a successful office build-out. Even on smaller projects (when it may seem like an architect is not required), architects need to sign off on construction plans so that permitting may be obtained prior to construction.

Hiring a medical or healthcare specific architect and general contractor who can work as a team is critical. Given their collective experiences with medical clients and the local governing authorities, they provide tremendous value in helping a practice design and implement efficient office layouts tailored to the healthcare industry; avoid zoning or permitting restrictions, and oversights that would otherwise delay or kill a project; managing the construction process to a predictable and successful end, and more.

Successfully getting to the finish line in any commercial real estate transaction is dependent upon having a well-rounded team of experienced advisors. Lenders, real estate agents, CPA’s, contractors, architects, consultants, and others should be viewed as business partners in putting your next real estate deal together. Each team member can advise you on the state of the market and the strategies needed to limit your liabilities and achieve the best possible outcomes in the short and long term.

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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 so you can use those hours to improve your business.

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.

Conclusion

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

Understand that there are pitfalls to calling on properties without representation and avoid the temptation to do it yourself.
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.
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.
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.

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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

Fortunately for tenants and buyers, healthcare real estate agents are experts in medical real estate, whether you’re negotiating a lease renewal, signing a lease at a new location, or purchasing your first medical office space.

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.

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You don’t need a real estate broker if you have an attorney

Healthcare providers often confuse the roles of real estate brokers and attorneys. They may see their expertise as overlapping and look for their broker to provide legal guidance or their attorney to negotiate real estate terms.

Your real estate agent should not be giving you legal advice and your attorney should not be telling you what building or space to choose, how much to pay or negotiating terms for you.

Lease and purchase contracts are legally binding documents and should always be handled by an attorney who understands real estate law to review, advise and protect you. Your real estate agent should not be drafting language in a binding contract. Similarly, unless an attorney spends 40 to 50 hours per week evaluating the market and negotiating on properties, they are likely unqualified to act as your real estate agent.

Agents and attorneys function most successfully as a team when they have a high-level respect for what each party does and the expertise they bring to the table. They should complement each other, instead of trying to do the other’s job.

Additionally, if you pay your attorney to be your real estate agent, you will spend thousands of dollars in unnecessary fees. Your agent should not cost you anything as commissions are paid by the landlord or seller.

Summary:

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

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

1. Unmasking the Complexities

2. Cost-Efficiency Guardian

3. Leveling the Playing Field

Beyond Finding Space

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

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

3. Not Knowing Market Availability And Comps

Conclusion

Understanding Commercial Real Estate Leases and Clauses

WHAT IS A NNN LEASE / TRIPLE NET LEASE?

Why Triple Net Leases Are Popular

Triple Net Lease: Risks and Benefits

Benefits of Triple Net Leases

Obligations of Triple Net Leases

Confidential Conversations

Partnership

The Benefits of a Key Advisor

Marketability

Managing the Process

Negotiating

3. Pandemic and Force Majeure Clauses

4. Surround Yourself with Quality Advisers and Partners

Dental Letter of Intent

Dental Lease Agreements

Conclusion

The Power of an Experienced Team

The Power of Specialization

The Power of Authority

Summary: