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PRACTICE MANAGEMENT
Maximize Your Profitability Through Real Estate
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By Fred Schaard
Carr Healthcare Realty
Let’s start with some basics:
1. Unlessyouownamobile clinic, you will need an office space to see patients
2. Apractice’sofficeleaseor mortgage is typically it’s sec- ond-highest expense
In today’s economy, maximizing profitability is not only a desire, but it’s also essential for most practices to stay in business
Now let’s dig in further. If you own a practice, you most likely have an office. That office carries with it many expenses: the most obvious is the monthly rent or mortgage. With an office space also comes staff and payroll as well. These two items are not only needed to have a practice, but are also the two highest expenses for most practices. That being the case, only one of them is really negotiable. You may decide to cut staff, but when it comes to payroll, you either pay people what they are valued at, or they go somewhere that will pay them.
Real estate however, is 100% negotiable. You can decide if you want to be in an office building, retail center or medical office building. You can decide if you lease or own. You can determine the size, location, and amenities your space will offer. You can choose to be in a stand-alone or multi-tenant building. You can determine the length of lease, concessions you ask for, economic terms, business terms, etc.
So if real estate is your second highest expense behind payroll, and if there are so many options and choices to make when it comes to your office space, how can you maximize the opportunity?
To start, you need to understand how the game is played. As a healthcare professional, the playing field is not level. You are a healthcare professional who might engage in 2 to 6 commercial transactions in your career; whereas most landlords and sellers negotiate professionally for a living. You specialize in your field; they specialize in their field. If the outcome was based upon understanding medicine or providing a health related service, you would probably win.
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However, the process and outcome are instead based upon comprehensive real estate market knowledge, authoritative posturing, and negotiation expertise. Winning requires having more options, understanding the correct timing, posture and negotiation tactics that landlords use, and in many cases, being able to withstand the stress and conflict that many landlords and sellers use to exploit unsophisticated tenants and buyers.
Let’s focus on a few of these concepts. If you start the transaction at the wrong time, you lose leverage and posture. If you don’t know the market, you are simply begging or bluffing. If you can’t handle conflict, you will most likely receive even more pressure and stress from the landlord or seller to make you uncomfortable and force you into making a decision that you will regret.
And even if you could overcome all of these, without professional representation you are going to be viewed as a novice and are not going to receive the respect that is necessary to achieve the most favorable terms available to you.
Nearly all landlords and sellers hire or consult with professional commercial real estate brokers to give them even more leverage so they can win. Why? Because they understand what is really on the table when it comes to each negotiation. For them, if they give up unnecessary concessions or go lower on rates than they need to, it costs them tens to hundreds of thousands of dollars of profit per lease. The reality is, those are the same items you are trying to maximize and capitalize on.
SEPTEMBER/OCTOBER 2021 | WWW.OCMS-MI.ORG