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2. Determiningmarketvaluebyasking 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.
...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.
3. Notknowingmarketavailability 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.
Summary
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.
CARR Healthcare Realty is the nation’s leading pro- vider of commercial real estate services for health- care tenants and buyers. Every year, thousands of healthcare practices trust CARR to achieve the most favorable terms on their lease and purchase negoti- ations. CARR’s team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, and practice transitions. Health- care practices choose CARR to save them a substan- tial amount of time and money; while ensuring their interests are always first.
Visit CARR.US to learn more and find an expert agent representing healthcare practices in your area.
DECEMBER 2021/JANUARY 2022 | WWW.OCMS-MI.ORG
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