Timing for Medical Office LeasesBy Todd Perman
Time is money when it comes to negotiating a lease renewal or new lease. If you do not get started early enough, you might be forced to accept whatever keeps your practice in operation. If you wait until your landlord contacts you regarding your lease renewal, your negotiation leverage is already comprised. Generally, landlords purposely do not contact you in time for you to have other options.
Whether you’re initial desire is to renew, move or purchase, there are many factors to weigh and consider. Of all of the critical items timing is the most important. Most physicians are very busy and starting the process too late is the most common mistake. To make the best decisions for your practice, you want the power of knowledge and timing on your side.
Like other professions have always done, more physicians are now engaging the benefits of professional tenant representation services. If your “tenant rep” is experienced in the health care industry and given sufficient time, the added value can be tremendous.
How much in advance you start the process depends largely upon your mission and the size of your practice. If your initial desire is to negotiate a lease renewal in your current space, usually one year in advance is sufficient. Should you have a large practice or if you would like to consider purchase options, a longer time frame would be to your advantage. To illustrate the process, here is an example timeline of the process and considerations that should be allocated once your healthcare real estate advisor is engaged:
Week 1 — 2
- Engage your healthcare real estate advisor
- Review current lease economics, location, floor plan, services, areas for improvement, practice growth and future plans for practice
Week 3 — 4
- Research, review and compare the economics and other benefits of available properties that most closely match the mission objectives to choose which properties to arrange for tours
Week 5 — 6
- Tenant rep preview, and client tours of prospective properties
Week 7 — 8
- Request proposals and submit letters of intent to begin negotiation for final analysis of at least the three best choices
Week 9 — 10
- Evaluate and compare the economics of the top choices using occupancy cost comparative analysis software and the other potential impacts on your practice
Week 11 — 14
- Negotiate on top space choice or choices
- Continue to monitor market for optional spaces
Week 15 – 18
- Negotiate the actual lease document with the assistance of tenant rep and legal counsel and execute the lease contract
Week 19 – 24
- Work with space planners and others to design the build out, furniture, equipment placement, flow and finishes
Week 25 – 29
- Obtain contractor estimates, negotiate contractor and vendor agreements and obtain building permits. Timing varies depending on the situation and county
Week 30 — 46
- Construction of build-out, equipment and furniture placement
As you can see from the time line illustration, a year in advance is generally a safe time frame to start the mission as long as you stay on track. The time frames will vary depending on the specifics of your mission and situation. The important factor is to have time on your side.
There is a service available to help track your lease renewal options and deadlines. It’s called “Lease Administration Services” and is available in most cases free of charge at www.physiciansadvocate.com. Then based on the required timing of your particular situation you will be notified along with a current market analysis in your area.Todd Perman is a principal with Healthcare Real Estate Advisors, a division of Lynx Real Estate, Incorporated. For more information contact them at 404-477-2044, or www.PhysiciansAdvocate.com.