By Darren Lizzack, MSRE, Associate Vice President, & Randy Horning, MSRE, Senior Associate
This article originally appeared in the March 30th edition of Mid-Atlantic Real Estate Journal
Medical practitioners today who are seeking out new locations to either relocate their office, expand, consolidate, or even “Right Size” their space program are faced with many challenges. Team Lizzack/Horning focuses on healthcare commercial real estate, and during the past year, we have worked with many medical practice tenants who are realizing this is a difficult feat to accomplish. Even something as simple as knowing how much space they really need is an obstacle to overcome.
Doctors and office managers are accustomed to running their practice, not finding space. Often times doctors ask their office managers to take on this challenge, and when they find out they have been summoned to the task, they do what most of us would do: run a search on Google to see what’s out there. If they are fortunate to come across a healthcare broker/advisor/consultant, it usually takes a lot of hand holding and trust building for them to hire you and work with you. If you are in the opposite seat and are a building owner, consider bringing in a healthcare broker/consultant for you and your tenant to make sure both sides are receiving a fair deal, there is a comfortability factor on both sides, and to also make sure the process from finding the location to opening for business is as smooth and efficient as possible, including the project management.
Both landlord and tenant should have a consultant they can count on to educate both sides throughout this process. We cannot stress the importance of this educational experience and even more so, the right communication. The process takes on average six months or longer from the time the tenant identifies your property for consideration and begins the tedious process of negotiating all the business terms to be outlined in what is called a Letter of Intent (LOI), and creating a “test-fit” study to see if the tenants program fits into the space being considered.
Simultaneously during negotiations, the landlord or tenant needs to price out the construction to negotiate the terms in good faith. Our team will help guide you each step of the way during this process and once all the terms and conditions are agreed to, a lease will be prepared for negotiations with two (or more) attorneys. During this time, financing, moving, IT, furniture, and hiring the right contractor to get the construction done in a timely manner is crucial so the space is ready for occupancy and is ready on schedule and within budget.
The process of identifying and securing space is a strenuous and tedious process. If the tenant is also trying to figure out whether to purchase or lease, we as your trusted advisor will illustrate, via financial models, to provide a full understanding of what the financial picture looks like for this transaction. “Time is money” is a phrase you are most likely familiar with; make sure you don’t waste any time finding the right team to assist you from the very beginning. In speaking with other healthcare real estate professionals and experts, they believe there will be an increase in medical construction by at least 10% over the next year. However, medical vacancy rates are still low, and it is our prediction that interest rates, labor, and material will rise meaning the cost of construction and rent will increase. Contact us today for a free consultation. We welcome friendly introductions even if you want to pick our brains on what the temperature is in this every evolving healthcare marketplace in New Jersey.