NEWMARK KNIGHT FRANK

LEASING FOR DENTAL PRACTICES

Dental practices present a unique challenge in the medical leasing world. While other practice types may require high visibility, benefit from complementary practices, be sensitive to competition, or carry expensive (and very specialized) build-outs, dentristry is one of the only practice types with ALL of these needs. Miss on any of these factors up front, and a practice may pay the price for years to come. This article provides a high level overview of factors to consider and concludes by offering specific advice on how to best protect these interests.

When considering where to locate a dental practice, there are many factors – some unique to dentistry and some common to all medical practice types – to keep in mind. Decisions can be made in advance around several of these factors, while other factors must be handled reactively.

Decisions to consider in advance include:

  • Existing Space Condition. Can I afford the time and money required to custom-build a space, or do I need to find a pre-existing vacant dental suite?

  • Building Type. Do I prefer retail or office? Free standing or larger development?

  • Building Class. Do I want a high-end space?

  • Demographics and Geography. What areas and/or socioeconomics do I want to target?

Factors considered reactively include:

  • Visibility and Accessibility. Can a particular property be seen from the road? What signage does it offer? What are the traffic counts?

  • Competition. Who else is in the building or immediate area?

  • Complementary practices. Who in the area may refer me business?

  • Demographics and Medical Spend. Do the demographics and medical spend in this particular area support my requirements?

Once that perfect location (or locations) is identified, the lease process begins. In addition to the standard considerations of rent rate, lease term, and improvement monies, there are several other considerations that medical practitioners should consider. Death and long term disability, growth flexibility, exclusivity, signage, and hours of operation are a few. Co-tenancy may warrant consideration if one locates in a retail environment and is concerned about the overall quality of the development or a particular neighboring tenant remaining in place. In some cases, these matters can be addressed through lease clauses. In other cases, they can be addressed strategically, reducing exposure to the point that a specific clause is not needed.

The overlying consideration is execution strategy – is one better off using professional help or representing themselves? Before outlining the factors, it’s important to clarify that one does not have professional help if they find a property themselves and then allow a property’s listing agent to handle the leasing. The listing agent is contractually obligated to protect the landlord’s interests and will be very cordial, but will only offer what is necessary to secure the tenant and will err on the landlord’s side in all matters of discretion. Professional help in this context means engaging a tenant representative who is contractually obligated to protect the practitioner’s interests.

The key determinants in the strategy decision are cost, outcome, and process.

Cost. Practitioners can expect to save money by engaging a tenant representative. Many practitioners opt to self-represent because they either (1) don’t want to have to pay a tenant representative themselves, or (2) anticipate that a landlord will give them a better deal if the landlord doesn’t have to pay a tenant representative. What surprises these practitioners is that neither scenario is accurate. In regards to payment, the tenant representative is not paid by the tenant – the landlord pays the tenant representative’s fees. In regards to savings, the landlord’s expenses are not lessened when a tenant is unrepresented – the landlord’s representative simply collects a higher fee. The real net effects of not engaging professional representation are that the leasing agent makes more money and the practice’s interests are not effectively protected.

Outcome. A healthcare tenant representative is the most direct route to the ideal space with the ideal commitments at the ideal cost. Because they deal daily with medical markets, pricing trends, property owners, lease terms, and even listing agent personalities, practitioners can trust that they are leaving nothing on the table.

Process. The practitioner dodges a major distraction by only having to address key decisions. A specialized commercial healthcare tenant representative will begin with needs assessment (How much space do I need?), complete the tedious process of site selection and variable evaluation (economic and operational) and manage all lease negotiations, updating the practitioner regularly but only requiring their time at key milestones.

If you’d like to discuss your specific situation (or any of the factors above), please reach out to the Global Healthcare Services group at (404)806-2511. We will be happy to address your questions and/or identify a local resource to assist with your needs.

Written by GHS member John Cobb. John specializes in healthcare and technology tenant/buyer representation. His personal blog is www.healthtechre.com.

Download Our
Brochure

Sign Up for Our Newsletter

2017 Healthcare Real Estate Outlook