Three Real Estate Questions Every Healthcare Organization Should Ask Themselves
1) What concessions are possible for my expiring lease?
Every situation is different, but most landlords will get aggressive to keep a strong tenant and will offer the same concessions on a lease renewal that they would offer on a brand new lease (reduced rent, improvement allowance, free rent, etc.). By committing to a longer term, you’ll allow the landlord to get more aggressive in what they’re able to offer. Given the current uncertainty in the real estate market, we’ve seen clients save hundreds of thousands to millions of dollars on lease extensions as landlords are getting more aggressive to secure strong tenants in the healthcare sector. The key is leaving yourself enough time, typically 12+ months, and leveraging real estate professionals to help ensure you get the best deal.
2) Who should I talk to for help?
A real estate broker and a good real estate attorney. A real estate broker knows the market and can help guide you through what business terms are realistically achievable and what terms are not. Every market and every landlord are different. A good local broker will have the pulse of the market and can help push for the best possible terms. You should always consult a broker anytime you sign a lease extension because they will level the playing field to help achieve the best possible outcome, and it doesn’t cost anything to have them handle negotiations for you. An attorney can then be used to iron out the legal language of the extension and possibly review the original lease to see if there’s any outstanding legal issues that need to be addressed.
3) Why are such savings possible on a renewal?
We typically find healthcare organizations pay too much in rent for several reasons. It starts with the higher cost of construction for a medical/dental office vs general office. If a landlord is contributing money towards the buildout, they’re likely building it into the rental rate, which inflates their rent when compared to neighboring tenants with less costly buildouts. Typically, the lease escalations outpace the market, and when you combine this with the fact that medical practices tend to stay in the same location for many years it compounds the issue. Because of this, it’s not uncommon for us to negotiate tens to hundreds of thousands to millions of dollars in savings at the time of a lease renewal. However, it all starts with assembling the right team of professionals and leaving yourself enough time to apply maximum pressure on your landlord.
Stefan Zelich, President/Founder
FOCUS Healthcare Realty