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. Not only are you gaining expert advice, unparalleled market knowledge, and negotiation skillsets with a buyer/tenant agent, but it also comes at no cost to do so. 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.