Is Now the Time to Renegotiate Your Lease Terms?

PRACTICE MANAGEMENT

Cutting fixed costs can help the bottom line

Real estate is the second highest expense behind payroll for most healthcare practices. The benefits of capitalizing during lease negotiations can include a healthy raise through increased profitability, reduced debt, a nicer office and more. While there are many key concepts and strategies you should always do prior to and during any lease or purchase negotiation, there are an equal or greater number of mistakes you should avoid. Here are three of the most common mistakes:

#1: Believing The Landlord Or Seller Will Simply Offer Their Best Terms

Landlords and sellers are in business to make money. They are no more likely to voluntarily reduce lease rates or give up any extra money through concessions as you would be to voluntarily reduce your reimbursement from an insurance company or cut your patient fees if you didn’t have to. While it sounds pleasant to hear a landlord talk about giving a ‘fair deal’ or ‘reasonable price’, your odds of getting either are bleak without truly understanding the market, entering the negotiation process with multiple other options and having the needed guidance to capitalize.

Trusting a landlord or seller without the help of professional representation will most likely result in the forfeiture of tens to hundreds of thousands of dollars that could have stayed in your checking account. Case and point: if you were about to sell your home and a fair price was $400,000… but your agent told you a buyer would pay $500,000… what would you list or sell it for? The “fair” price of $400,000… or the most you could get for it? Exactly. You would sell it for the most you could. Your landlord will treat you the same way. They will charge you the highest they can while giving you the least they can get away with.

#2: Determining Market Value By Asking What Your Neighbors Are Paying

While reviewing the lease terms of a doctor who had been in a building for 20 years, we learned they were paying $30 per SF, and had not received any free rent or tenant improvement allowance in their last negotiation. When we posed the question: “Do you believe $30 per SF with no concessions is

a good deal?”, their response was: “I believe so.” “Why,” we asked? Their 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 the landlord got away with convincing five different practices the market was far higher than it re

ally was, and 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.

#3: Not Knowing Market Availability 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. Don’t be taken advantage of during your next purchase or lease negotiation. Hiring professional representation may help you level the playing field for you and your partners.

This article was contributed by CARR, the nation’s leading provider of commercial real estate services for healthcare tenants and buyers. For additional information, visit www.carr.us.

COVID from page 5

must do what we can to ensure our ability to stay healthy while also meeting the needs of our patients.

Support Public Health Initiatives

We will continue to work with public health officials as they provide evidence-based guidelines on how to manage our testing, treatment and overall management of our patients and staff. This is a time for the house of medicine, public health, insurance companies, government payers and society in general to work cooperatively to minimize the havoc that this pandemic is causing.

FRONTLINES from page 8

able to donate materials for face shields to the STEAM lab at UNC-Asheville, who were also making shields but had run out of certain materials.

Medicaid’s Shannon Dowler, MD - NCAFP Past President Dr. Shannon Dowler, Chief Medical Officer for North Carolina Medicaid, is helping lead Medicaid’s COVID efforts, and is playing a key role in helping to

SILVER LINING from page 8

into an open lap, “Here’s Peanut. I was telling you I adopted a cat!” I see makeshift home offices, stockpiles of food, clean and dirty kitchens. I ask how they are faring during this “stay home” order and learn some of my elderly patients have no family in town to help with groceries or prescriptions. Or no one for working parents to rely on for child care while they juggle children and work from home. The unique challenges of this pandemic are visible as I go virtually from house to house throughout my day.

I suspect my patients see the joy I get from connecting with them as well. We too, us doctors, are practicing social distancing and are struggling with the burdens of isolation. Some patients say, “I’m sorry to waste your time. I know you have very sick patients to help.” But thus far, the main role of a family physician continues to be By the time this is published perhaps the worst of COVID-19 is behind us. My hope is that this pandemic will inspire tens of thousands of eager young people to want to solve future problems by becoming great new physicians and nurses. They may aspire to become family physicians on the front lines, physician leaders, or public health experts. The health of our country will improve if many of them decide to become family physicians.

educate patients on the power of telehealth, as well as rapidly modifying 100’s of policies and billing codes to allow for telehealth for physicians, behavioral health, PT/OT/ST, audiology, diabetes educators, lactation consultants, optometry, etc.

CCNC’s Thomas Wroth, MD – Dr. Wroth is helping spearhead Community Care of NC’s efforts around educating physicians on the financial assistance programs available to practices.

providing care to all patients. No one should hesitate to reach out for fear of wasting my time. I am grateful for every familiar face.

Although I believe that moving forward there will forever be a role for video connection, a time will come when we will return to mostly in-person office visits. When that time comes, I’ll look back on this period and be grateful for what I have learned by meeting with people in their own homes. Anything that strengthens a relationship with a patient is a win for me as a family doc.

Dr. Genevieve Brauning is a family physician at Novant Health SouthPark Family Physicians in Charlotte.

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