NEWMARK KNIGHT FRANK

IS SPACE SHARING RIGHT FOR MY PRACTICE?

Space sharing is a viable option for healthcare providers seeking to increase their service area without opening a new dedicated office. Under the right circumstances, it can be very effective.

For the unfamiliar, space sharing occurs when different practice groups use the same medical office space non-concurrently. Monday, Wednesday and Friday may be a family practitioner’s time and Tuesday and Thursday may be an ENT, for example.

There are primarily three ways space sharing is executed. Often, to reduce their costs at an underutilized location, a practice with full control of a space will sublet the space to other providers for specified time windows. In other cases, a third party (owner or hospital as a master lessor) controls the space and offers it to multiple users in increments as small as a half day. This arrangement is analogous to an “executive suite” office arrangement. A third, less common approach is for two practices to approach a landlord corporately and lease the same space in conjunction with one another.
Since a practice’s commitment (and associated risk) is limited in the executive suite scenario and no one tenant “owns” the space, it will NOT be the focus of this discussion.

For practices that consider approaching a landlord about a partnering arrangement, there are several questions we advise asking. Among these are:

◆ Are the practices similar in size and scope?
– Are the right type and quantity of exam rooms in place?
– In case of an imbalance, will the revenue from the smaller group be adequate over the long haul?
◆ How will telephone and computer systems be handled?
– Who will own them? Are any HIPPA issues created?
– Will a 2nd “set” of phone numbers and/or computer logins be needed?
◆ Will they generally use similar amounts of water, electricity, HVAC, waste etc.?
◆ Are their respective hours of operation similar?
– As with other areas, any imbalance should be considered for its operational and economic impacts.
◆ Is the space available during the hours both groups need it?
– If the landlord shuts off the HVAC at 6pm, for example, it may be a problem for some practice types.
◆ What portions of the space will be shared?
– Are any space modifications required? Who will pay for them?
◆ Is there adequate parking for both groups?
– Are there any restrictions in the master lease that need to be addressed?
◆ Are there referral relationships between the tenants ans/or landlord that may create Stark or Anti-Kickback issues?
– The sharing of exam rooms, for example, may be an issue in certain cases.
◆ What are the parameters around signage, branding, etc?
◆ What is the duration of the arrangement?
◆ Will the economics of the arrangement be adjusted occasionally, or are they fixed for the entire relationship?
◆ How will consumables be handled, such as refreshments, bathroom supplies, etc?
When approached realistically, space-sharing arrangements are a great way to reduce real estate overhead (for a master lessee) or to ease into a market in a cost effective manner. As with all real estate matters, the key to success is a solid framework from day one.

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2017 Healthcare Real Estate Outlook