Category: Real Estate Insights

In part 1 of this series we explained why doing commercial real estate yourself will cost you time and money. In part 2, we cover why doing commercial real estate yourself requires significant expert knowledge and experience in order to avoid common pitfalls.

Knowledge

This is the most important part of representation. We live in a world where “knowledge” is at our fingertips. The problem is, the knowledge that is available is often a cheap knockoff of the real thing.

Have you ever had a patient confidently give you their diagnosis of what is happening to them because they looked it up on WebMD? When you explain to them their actual diagnosis, they say, “Are you sure?” 

They are trying to compare your thousands of hours of experience with their 15 minutes of Googling symptoms. There is a monumental difference in your experience versus theirs. Be careful getting too frustrated, though, because many doctors and practice administrators do the same thing when it comes to commercial real estate.

Those same doctors and administrators who are frustrated with a patient’s self–diagnosis, will hop on a commercial real estate website for 15 minutes, and think they are a commercial real estate expert. What they fail to acknowledge is that anyone can find properties or call or email a listing agent to get a property brochure. The part where expert guidance and knowledge is needed is during the negotiations.  There is much more to a negotiation than the lease rate or purchase price. 

The importance of knowledge is also important in deciding how you select your agent. Many doctors fail to realize the complexities of commercial real estate and imprudently hire a residential real estate friend or patient. That is similar to having a tooth ache and going to the veterinarian for help. Sure, they may have some dental experience (on felines), but it’s hardly the same thing.

You might say, ‘Ok, I need an agent. How do I go about picking the right one?’ 

Here is a quick guide to ensure you are covered.

Good: Having a commercial real estate agent represent you in your real estate transaction. 

Better: Having a commercial real estate agent who only represents tenants and buyers represent you in your real estate transaction. This prevents any potential conflict of interest and also ensures you will see every potential property available to you. 

Best: Having a commercial real estate agent who only represents healthcare tenants and buyers represent you in your real estate transaction. This ensures you of their unwavering loyalty to you against any possible landlord but it also ensures you have someone who understands your real estate needs and how to structure a deal that best suits your unique situation and needs as a healthcare provider. 

When it comes to ‘do-it-yourself’ real estate negotiations, you don’t save any money. Instead, you stand to lose a fortune. Hiring an agent will at a minimum save you a substantial amount of time. Hiring the right agent can ensure you get into the best possible location with the right terms that could potentially save you tens to hundreds of thousands of dollars in your next transaction. 

Experience

Some tenants and buyers balk at the idea of hiring an agent to represent them in a commercial real estate transaction through an agency agreement. Those people typically don’t understand that agency is a term created by governmental bodies to protect the consumer (you). If you don’t have an agent involved to exclusively represent you in your transaction, then there is no real estate expert who has a fiduciary responsibility to protect your interests.  

The vast majority of landlords have an agent and other experts they regularly consult with that work diligently to ensure the landlord receives the best deal possible. 

Think about that for a moment… The landlord, who has done hundreds of real estate transactions and whose entire livelihood is based on real estate, hires an agent so they can leverage that agent’s experience. Why would a healthcare buyer or tenant who will only transact a few times over the course of their career try to do it alone? 

Additionally, there is a big difference in hiring a general commercial real estate agent vs a healthcare real estate agent.  Do you know how many healthcare real estate transactions your agent has completed?  They may have general commercial real estate knowledge but do they have healthcare specific commercial real estate knowledge?  When it comes to your practice’s real estate, make sure you hire a qualified agent who has both the knowledge and experience to successfully represent your needs. 

To contact an expert agent near you to maximize your time and financial savings, click here.

To begin a free lease or purchase evaluation, click here.

Are you one of the rare healthcare providers or administrators who understands how much is at stake in commercial real estate negotiations? If so, then you probably know that commercial real estate is the highest negotiable expense for your healthcare practice. Consequently, most healthcare providers fall into the statistic that tells us that 80% of healthcare practices still take a ‘DIY: do-it-yourself’ approach to these crucial negotiations and site selection process.

Let’s review a couple reasons why doing commercial real estate without representation will likely cost you a significant amount of time and money.

 

Time

The average commercial real estate transaction takes dozens of hours to complete. When you calculate the hours of research, driving the market, communicating with listing agents, touring properties, negotiating letters of intent (LOI’s), negotiating lease contract terms, printing / signing / mailing documents, and the dozens of other miscellaneous tasks you encounter in almost every commercial real estate deal, you can easily spend 30-40 hours or more on a single transaction. That equates to an entire week of work! 

Given the fact you have a full-time job already, you have two options as to where you will find those hours:  

1. During normal business hours (when you could otherwise be generating revenue) or  
2. During your valuable time off that would normally be spent with your family, relaxing, taking care of personal errands or making memories with those you love.

Neither option is a good one, especially when you consider how much money you could be making per hour if you invested that time into your practice. Since time is a commodity you cannot get back, it’s important to invest it where it will yield you the highest return.

Money

The ‘do-it-yourself’ approach can cost the average healthcare practice tens of thousands of dollars.

The vast majority of commercial real estate transactions have a listing agent assigned to the opposing side of you in the transaction. That agent has a fiduciary responsibility (legal and financial obligation) to the landlord to ensure they get the best possible deal and that their interests are protected and paramount over any other party in the transaction – meaning you!

The listing agent is also the person who collects a commission on the transaction. The commission amount is set aside before the property is even listed, and it will either be paid to the listing agent or split between the listing agent and the agent you hire to represent your needs. Often times if there is no agent representing the buyer / tenant (you), the listing agent gets paid the full commission, rather than splitting with the agent who should be representing you. This means the listing agent is receiving a ‘double commission’.

If you take the ‘do-it-yourself’ approach, someone else is making the money for doing the job you did yourself. The craziest part is, the person making money is opposing you in the transaction! And, you just helped that person collect twice as much as they would have if you would have hired an expert agent to represent your needs and protect your interests!

This could be because you don’t fully understand everyone’s role within a deal. After all, when you called the name on the sign, they told you they wanted to help you get into the space!

The problem is, to them you are just a customer. The landlord is their only client in the deal. That might not sound like a big difference but it has a HUGE impact on the outcome of the terms that each party receives. The listing agent has a legal obligation (called a fiduciary) to ensure the landlord gets the best possible deal within your transaction. They have no such obligation to you, since you are not their client.

Without representation that looks out for your best interests, you are almost guaranteed to leave a significant amount of money on the table during negotiations.

To contact an expert agent near you to maximize your time and financial savings, click here. 

To begin a free lease or purchase evaluation, click here. 

Despite some of the challenges many healthcare providers are facing as they navigate through COVID-19, there is good news about what we are seeing in markets across the country. We are 100% committed to protecting and advocating for practice owners, and doing all we can to help you Maximize Your Profitability Through Real Estate®!

Here are three principles we believe will help shape the healthcare and real estate landscape moving forward.

1. Most Landlords Are Working With Tenants Through COVID

Landlords don’t want vacancies, especially healthcare spaces that wouldn’t have occurred outside of COVID. The cost of releasing vacant space, waiting for the next tenant to show up, and all the associated expenses of evicting a tenant are dramatically higher than simply working with quality tenants to get through this challenge. While some landlords are easier to work with than others, the majority are doing their best to get through this issue with their tenants.

2. The Healthcare Industry Is Only Going To Get Stronger

While many industries are going to struggle getting back up and running, healthcare is one of the most resilient industries in the country and has weathered the last 5 economic recessions / market corrections at the highest rate. While we don’t personally see this current ‘forced pause’ looking anything like the last several market corrections, we do believe healthcare providers will bounce back as fast as any industry.

3. The Commercial Real Estate Market Will Most Likely Soften

Many traditional companies are going to reel-back and cut overhead by not bringing back as many employees, reducing the amount of office space they need as well as eliminating excess locations. This should result in the commercial real estate market softening; which in turn will cause lease rates to go down, concessions to increase, and also has the possibility to reduce construction costs as well.

FREE EVALUATION     Find An Agent 

In working with thousands of healthcare professionals on lease renewals, one of the most common statements we hear is: “My landlord told me they don’t give lease renewal concessions” or “I’ve never gotten any concessions on a renewal from my landlord in the past”.

From a landlord’s perspective, the approach is simple yet brilliant: tell a doctor or administrator that you have a policy and then hold firm. After all, policies can’t be broken, right? Wrong!

The reality is, their ‘Policy’ is no more than a hope that you will believe and do what they say without making any objections or pushing back. If you do push back, they might throw their weight around by using emphatic statements or making things uncomfortable for you.

Would a landlord act that way to Starbucks, Chipotle or Charles Schwab? Not a chance.

Why not? Because tenants of that nature are too savvy and experienced to be swayed by illogical statements that aren’t actually true or fair.

National tenants are involved in too many transactions and have too much experience to fall for those types of statements. The difference is that they know better and ultimately won’t do business with someone that tries to push them around or take advantage of them. They also know that new tenants get concessions, so why wouldn’t they on a renewal?

National tenants aren’t going to accept an inferior deal or terms that are worse than a new tenant would receive, and as a healthcare professional, neither should you.

With proper representation that includes a detailed strategy, you should expect to receive the same fair terms that a new tenant would receive. You shouldn’t be penalized for having been a good tenant who has paid faithfully for the past 5, 10 or 20 years.

When preparing for a lease renewal, the first step is to ensure that you start the process / transaction at the appropriate time. Beginning too early or too late can both cost you dearly. (see our recent blog on timing) Next, hire a qualified and trained agent / broker that understands your needs and specializes in helping doctors and administrators like yourself.

You don’t need to be a national tenant to be treated with respect. Contact one of our expert agents representing healthcare providers in your area to learn more. Find an Agent

To hear more about why it is so important to have expert representation, watch the video below.

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. carrusoldtheme.wpengine.com

If your healthcare practice is thriving, then it’s exciting to think about what’s next.  What future growth will come?  What innovations will you adopt? And what kind of footprint will you need for your practice to reach its full potential?

Those are exciting questions to consider and if that is you, you also may be thinking, ‘As soon as my lease ends, then…”  If you think your lease is preventing you from taking the next steps in growing your practice, it’s not. Most people think the costs and penalties associated with breaking a lease are too much to even consider.  However, that isn’t always the case.

Let’s look at this more closely and start with a scenario where you have several years left on your lease and let’s say it will cost you $50,000 to break your lease.  That number seems like a lot of money until you consider the alternative.  Let’s consider the true cost of not breaking your lease and trying to save that money.

Construction Materials

Construction materials and labor are steadily climbing and have increased roughly 5-7% per year since 2015.  Construction costs in 2015 to build an $800K building would cost $1M – $1.1M for the same building today in 2019 in the majority of markets across the country.  These increases are almost guaranteed unless the market has a substantial correction.  If this is you and you wait even 1 year, it could easily cost you roughly $50,000 – 75,000/year in increased construction costs for the same product you could have today.

Interests Rates

Interests rates are another important factor to consider when thinking of taking the next step for your business or practice.  If interest rates increase by .5% – 1% between now and 1-2 years from now (which is likely), this will have a significant impact on the cost of your loan.  On a $1M project, a 1% increase in financing means $10K per year every year for the next 20-25 years.  A ½% = $5K per year every year over the next 20-25years.  This is a $100K – $200K impact on your bottom line. 

Lost Revenue / Production

Finally, the cost of lost revenue / production and new business / referrals generated by doing a new and larger office could be substantial.  By not moving forward now, there is a guaranteed loss of production.  Say an exam room, operatory or needed extra space costs a minimum 50% of full capacity.  Two additional operatories for a Dentist could gain over $80K in production at ½ capacity.  This is production that is lost every year moving forward is postponed. Additionally, the sooner you get a new office, the sooner you receive new internal referrals and growth that everyone knows comes from doing a new office.

Loss of Prime Location / Competition

Prime locations and opportunities don’t last forever.  Have you considered that someone else’s lease may finish before yours or that they may break their lease to grab the same opportunity you are waiting for?  Opportunities and locations will not wait for you, they are on a first come, first serve basis.  If you wait, you may miss the chance to secure the best location for your next endeavor.

Additionally, the cost of real estate itself follows the same trend of increasing interest rates and construction costs.  Waiting to purchase or build on a piece of property could be a wash when considering the cost to break your lease versus the increased value of a piece of property from one year to the next.

In all, the increased costs due to construction can easily cause the lease savings to be a moot point or a near wash.  Then, the risk of increased interest rates and lost productions could end up costing hundreds of thousands of dollars, in addition to missing an opportunity that could be taken by someone else.

If you are in the scenario where your business or practice is growing but your lease isn’t going to expire soon, it’s important to sit down with an expert agent who can give you a detailed analysis of the costs vs savings of moving now vs later and to help you execute the best plan moving forward.

Finishing your lease and doing your next project in several years could be your best option. Alternatively, you may find yourself in a position to save tens to hundreds of thousands of dollars by putting together a new project now. As is the case in many aspects of business, you should take a much closer look through the eyes and mind of an expert to capture the true cost and savings of each opportunity.

To find an expert agent near you to discuss your terms and options, click here.

Healthcare tenants or buyers may think “If I don’t have a healthcare real estate agent, I’ll get a better deal”. Listing agents frequently insinuate or make this comment with the goal of keeping the tenant or buyer uneducated about their medical real estate.

An uneducated or under-educated tenant or buyer means more money for the owner and listing agent. In most cases, when a tenant or buyer does not have a healthcare real estate agent, the listing agent will get paid the full commission set aside for both brokers who close a transaction. They are incentivized to get the highest price, lowest concessions and to work alone. Sometimes the owner will simply pocket that money. This leaves the tenant or buyer in a position where they do not save money at all, and what’s worse, they typically receive a substantially inferior deal by paying more and receiving fewer concessions than they should have.

Many owners and listing agents understand that everyone wants to feel like they are getting a better deal without representation. The reality is, 99% of the time, they are not. Landlords are in the business of making money, real estate negotiations are how they do that. It’s common for a landlord and listing agent to put together a “padded offer” that contains a lot of room for negotiation. This gives them freedom to encourage the tenant or buyer to counter their offer so they feel like they are really ‘negotiating’ and have made significant progress with the terms. The tenant or buyer leaves with the impression they have saved money without representation, not realizing this is all part of the owner’s or listing agent’s strategy. When a commission has been set aside by the owner, your broker or representation should split it with them. This keeps the economics of the deal the same and gives you the representation and protection you deserve as well as the best possible outcome.

Summary: Commissions for the tenant’s or buyer’s agent are built into the vast majority of commercial real estate transactions. Going without representation typically results in the tenant or buyer losing money and receiving substantially inferior terms, while sacrificing dozens of hours of their valuable time that could have been better invested in their practice.

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

Owning a home can create one of your largest assets and is typically seen as a relatively safe investment opportunity. Conventional wisdom says the same is true for commercial or medical real estate as there are legitimate benefits to owning, such as paying down the loan principal and building equity, receiving loan interest and property tax deductions and more. When running the numbers for owning, leasing is often labeled as “throwing money away” compared to building equity through ownership.

While these and other reasons are compelling aspects of ownership, there are many reasons why leasing your space might be a better decision than owning. This is especially true when considering the stage of your career, your ideal practice location and the quality of building you can afford.

Don’t misunderstand, owning commercial or medical real estate can be a great investment. If many items check the list, owning may be the obvious decision for your practice. However, there are many important factors often overlooked at first glance that should be evaluated prior to making a conclusion about the choice of your medical office space.

Here are a few questions to ask when considering if owning or leasing makes more sense:

• Can I qualify for the loan of owning or building my own space?
• Is this the location I want to be in for the next 15 to 20 years?
• Is it better to lease a smaller space for the next 5 to 10 years and then purchase or develop my ideal building when my practice is ready?
• Is the increased payment and debt warranted to own if it costs more than leasing?
• Would my practice be more profitable if I leased and received a large tenant improvement allowance, free rent and build out period?
• What is my exit strategy if I need to get out due to an emergency in 1 year or when I retire in 20 years?
• Are there any purchase opportunities available in the area where I ideally want to be?
• Will my practice suffer if I choose to own my space or build in an inferior area versus leasing in a more desirable location?

Those are several of many questions to consider.  Now let’s dig into one of the questions further.

Will you need more space in the future?

Many healthcare practices have the desire to grow and wonder, “what can I afford and how much space will I actually use over the next few years vs. what will my practice’s needs be in 10 years?” Like many scenarios, there is a ditch on both sides of this question. If you are too conservative, you can end up in a space that you will outgrow which will choke your profitability. The lost income from reduced patient volume could end up costing you ten times what the expenses would have been to manage a larger space if you would have planned better. Also, the smaller your practice and revenue is, the lower the value of your practice.

Conversely, if you go too big, you can end up paying for a large portion of space that doesn’t get used for anything except storage; which isn’t desirable either.

Moving and build out costs are the main reasons why long-term leases typically present the best opportunity.  For one, they eliminate the uncertainty of ‘deciding as you go’ in a short-term lease. To know which option is best for you, it is wise to surround yourself with market experts that can help you accurately project the amount of space needed.  The main consideration for the ideal size of space is having the upside of growth but not obtaining too much that you can’t expand into it in a reasonable amount of time. This is another clear example of there not being a ‘one size fits all’ approach to commercial real estate; especially for healthcare practices. If your space needs will continue to increase in the near future, leasing could be the best option for you now while considering a purchase or new-build when you are more certain of the size you will be content with long-term.

Owning can be a great opportunity and decision for your practice. There are scenarios where the numbers prove that purchasing a building or space and paying for a brand-new build out could cost significantly less than leasing. Even if it costs more, it can be worth owning if the quality of the building, finishes, location or synergy of neighboring businesses make it the best opportunity.

Or, it can be a completely wrong decision for you practice, based on many factors.

There isn’t a ‘one size fits all’ approach to owning vs. leasing and what is right for one practice may not be right for yours.  However, there is a ‘best approach’ to ensuring you make the right decision for your practice. This includes hiring professional representation from someone who fully understands healthcare real estate and won’t have any conflicts of interest, due to them representing landlords and sellers. Next, you need to fully understand all your options in the market, both leasing or purchasing. Don’t assume you have to pursue only one specific scenario. Allow your agent to fully educate you while running detailed analysis on the cost to enter and maintain each option, and ultimately what the pros and cons of your exit strategy would be in either decision. Lastly, make sure you have peace of mind in your final selection. As the second or third highest expense behind payroll, there is too much on the line with your commercial real estate decisions to not maximize every opportunity you have.

Click the button to begin the process of a free, no-obligation purchase vs. lease analysis to help determine the best course for your practice.

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. carrusoldtheme.wpengine.com

To hear more about the impact we make in healthcare practices across the country, watch the video below.

Most leases provide an option for the tenant to renew their lease when it expires, and may even detail the exact terms of the renewal.  However, it is important to understand that your lease renewal is negotiable; even if you have lease renewal terms specified in your current lease that outline items such as the length of lease term, lease rate and annual increases.

The lease renewal option is just that, an option. If the option contains economic terms that are competitive and fair for the ‘then-current market’, exercising or agreeing to the renewal terms without negotiating may be an acceptable process.

However, if the lease renewal terms are less favorable than if you negotiated a new deal, don’t be fooled by a landlord or listing broker trying to convince you otherwise.  When a party who is on the opposite side of a negotiation tells you that you can’t negotiate, refuse to be taken advantage of. Hire representation and ensure your interests are first and protected.

If a landlord wouldn’t accept a ‘below-market’ deal… why would you accept an ‘above-market’ deal?

A landlord who says you cannot renegotiate the terms for your lease renewal is hoping you roll over and not push back in order to keep you paying more.  They would much rather you exercise the option to renew your lease instead of negotiate new lease terms.

The only way to be certain you have the best possible terms for your lease renewal is to compare those terms with other viable options in your current market.  This vital step is often missed by healthcare professionals entering the lease renewal process alone.  An expert agent will be able to provide you with a free evaluation and ensure you understand the terms you ultimately decide to move forward with are in the best interest of you and your practice.

To find expert representation, contact an agent near you by clicking the following link – Find An Agent.

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. carrusoldtheme.wpengine.com

There are many factors that impact lease rates and terms for commercial spaces:

• Current and upcoming vacancy in a specific building or market
• Qualilty of the building and space
• Length of lease term
• Amount of tenant improvement allowance, free rent and additional concessions needed
• Financial strength of the tenant
• The landlord’s short-term and long-term plans for the building
• And many additional items…

Several of these considerations are specific to spaces for healthcare tenants, highlighting the need to be represented by a real estate professional with expertise in healthcare.

Landlords and listing brokers will often tell healthcare practices they are getting the best possible lease rate and terms for their space. However, this is rarely the case for healthcare professionals who are unrepresented or are solely looking at lease renewal terms and haven’t thoroughly evaluated the open market.

The first scenario is fairly simple and has been adequately covered in previous blogs. Summary: healthcare providers who attempt to represent themselves will most likely lose a significant amount of time and money while being exposed to costly mistakes.

The second scenario, dealing with negotiations during a lease renewal, is less understood. The summary here is that most healthcare providers make the simple mistake of assuming that if they are in a building they like, then they must be receiving a ‘fair deal’. The reality is, most healthcare professionals are paying much higher than they should be and are leaving large amounts of concessions on the table during lease renewals.

Compounding this further is when landlords or listing brokers attempt to convince a tenant they are not allowed to negotiate their lease terms, tenant improvement allowance or for free rent.

Healthcare professionals that try to obtain a better lease rate and terms without fully understanding the immediate market and the top options available, are often left to ‘bartering’ with their landlord or even ‘begging’ to get a better deal.

The good news is that there is a much better process and game plan if you are properly represented. It is the equivalent of letting a doctor diagnose and create an appropriate treatment plan vs. a patient ‘guessing’ or ‘winging-it’ themselves.

Proper representation will help ensure you truly are receiving the most competitive lease rate and terms for your specific transaction by properly understanding the current market and overall opportunity.

Click the following link to find an expert agent representing healthcare providers new you – Find An Agent.

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. carrusoldtheme.wpengine.com