Adding Value: How Using a Commercial Real Estate Expert Can Benefit Your Practice
By Ensemble Real Estate Solutions
Do you need a commercial real estate expert for your practice? While the easy answer is yes, it may be a good idea to dig into why you should have representation whether you are a tenant or a buyer.
As an example, you would not enter into a legal document without your attorney providing oversight and recommendations for language to protect you from unnecessary recourse. You rely on your accounting team to make sure you’re in compliance with tax and reporting laws while leveraging potential tax advantages to increase your bottom line. These advisors have a couple of things in common; they are experts in their field and they provide their expertise in ways that allow you to focus on your business.
Think of your Real Estate expert in the same way; they bring expertise and local market/ industry knowledge in order to offer solutions around the many facets of real estate and use that expertise to garner the best lease/ sales price for your real estate needs. In addition a good real estate advisor will offer strong representation and be your voice at the negotiating table and because most landlords and sellers pay for the fees, it’s like your own real estate department but without the overhead.
Knowing you need a real estate advisor is only half the battle. You need to know that you’re working with the right professional so there are a few things you’ll want to consider.
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Use consultants with healthcare experience. It may seem like a no-brainer but it’s surprising to see the number of tenants who do not use real estate professionals with expertise in their asset class. Physicians and practices should use experts with a firm understanding of the nuances of healthcare space; parking requirements, electrical and HVAC concerns, permitted and prohibited uses, etc. The negative ramifications of entering into any transaction without a solid understanding the issues surrounding the use could be catastrophic.
Another point to consider is compensation. Most Landlords and Sellers will pay a commission fee to your representative as a part of the deal. That said, many times these fees are “per separate agreement” in the documentation and therefore, not fully disclosed. Don’t be afraid to ask for this to be outlined for you. While the Landlord/ Seller is paying the fee, it is still a factor in the economics of a deal. You have a right to know what your agent is making.
Regardless of whether you are a Tenant or a Seller, there are always helpful hints, thoughts and considerations that you can keep as discussion points with your real estate professional.
- IT security
- ADA compliance
Leasing strategies that create flexibility and yield win-win deals:
- Termination options
- Typically one or two fixed dates with termination fees that equal unamortized leasing costs (leasing commission, tenant improvements and legal fees) plus a fixed number.
- Relocation clauses (landlord or tenant relocation rights)
- Expansion clauses/ right of first refusal/ right of first offer on adjacent space.
- Renewal rights
- A percentage of market or Fair Market Value
- Keep a calendar of notification dates – this is the biggest “miss”. These dates pass and the tenant loses their opportunity to remain in the premises.
Avoiding T.I. build-out disputes in leased healthcare facilities:
- Be clear as to responsibilities of both parties as well as approval processes.
- Questions for shell versus second generation are different
- Make sure the work letter agreement accurately depicts the plans for the space
- Building standards
- Both parties should be clear as to what is and is not allowed
- Second generation space
- Be detailed about what gets fixed, replaced or re-built. Both parties will appreciate avoiding miscommunication about the end result.
Hot button issues in leasing outpatient care facilities in retail and office building:
- Personal/ corporate guaranty-is one needed; what are alternatives?
- Burn down for performance
- Check ground leases, non-compete clauses and carefully consider the use and restrictions in the lease.
- Can I do what I intend to do and do I have the flexibility I need to be able to modify my use in the future?
- In retail settings, pour through the uses and restrictions and overlay those against your current and future plans. While the current use may be approved, do you understand the CC&R implications for future uses?
- Operating expenses
- Cap the controllable expenses
- Gross-up provisions
- History of expenses in the property so no surprises on either side
- Be mindful that unless specifically negotiated, the cap will typically be cumulative and compounding.
- Be sure there is sufficient parking for the particular use
- Be clear where tenants, employees and invitees can park
- Existing building or land for development
- Restrictions in CC&R’s
- Sufficient for current and future needs
- Exit strategy
- Above all – get it in the lease/ purchase contract!
- Being thorough is necessary. In this age of mergers and acquisitions, the likelihood that either party to the original transaction will be the same throughout the term is slim. Get those deal points in writing! No one likes a laborious document but more than that, no one likes surprises.