A practice’s second highest fixed expense behind payroll is typically its lease or mortgage. This expense is also the most negotiable. Negotiating the right terms can set your practice on the right path by minimizing overhead and out of pocket expenditures. By effectively restructuring your lease, you could drastically improve your bottom-line without working more hours, seeing more patients, buying more equipment, or cutting more expenses.
Evaluate long term priorities. Look at your big picture to determine whether it makes sense to buy, renew your lease, relocate to a new space, add another office, or none of the above. Consider your business plan and if the space allows you to grow at the pace you anticipate with flexibility for expansion, if needed.
Negotiate. When renewing or extending a current lease, it is imperative to take full advantage of the opportunities afforded in today’s commercial real estate market. Landlords are offering concessions to tenants (lower rental rates, free rent, tenant improvement allowances) that if negotiated correctly can be a windfall for the practice. The current state of the market has afforded tenants and buyers of real estate to lock in at rental rates before they continue to increase or purchase property at good values.
Boost economic factors. There are many economic factors that can affect a lease. Depending on the needs of the practice perhaps free rent, a lower base rate, or lower annual escalations can improve the cash flow of the practice. Tenant Improvement dollars from the landlord could help update and modify the space to be more current. Depending on the type of lease and building, an updated base year should be reviewed.
Mitigate risk factors. There are risk factors in a lease that should be analyzed. Was there a personal guarantee that was originally signed with the lease? With each lease renewal another lease renewal option should be negotiated. Finally, is there assignment language and subletting language in the lease that is favorable to the tenant.
Enlist the help of an advisor that specializes in healthcare real estate. There’s barely enough time in the day to see all your patients, much less worry about real estate. Don’t go at this process alone or you likely will not be able to get the best terms the market has to offer. It is wise to have an experienced professional on your side navigating this process. Look for an advisor that works exclusively on your behalf to solely represent your interests and not the interests of both you and the landlord. A tenant only broker is compensated by the seller/landlord so you don’t have to pay for their services and yet benefit from them greatly.
Dental, medical, and veterinary offices have their own unique requirements that differ from other tenants. It is important to enlist the expertise of a real estate professional that has experience with healthcare providers and understands your business and the specific needs of your practice. With the right advisor on your side to leverage the market on your behalf, you could literally add thousands of dollars to your bottom-line. Without one (or the wrong one) the opposite could happen. You could potentially put your business into an oppressive lease or compliance nightmare.
If you are considering renegotiating your existing lease (or even if you are not), ask a healthcare real estate specialist for a complementary lease review. You may be surprised by how much of your profit is flying out the window.
About the Author
Andrew Riepe is President and Owner of Crown Tenant Advisors, a regionally based boutique healthcare real estate firm. Andrew has spent his entire commercial real estate career focused exclusively on representing the interests of healthcare providers and has a comprehensive understanding of the unique requirements of dental and medical tenants. He utilizes a strategic approach to real estate, and his expertise lies in providing market knowledge and in depth financial and comparative analyses to achieve optimum results.