3 Things All Dental Practices Need to Consider Before Renewing or Renegotiating a Lease.
Renegotiating or renewing a commercial lease can be a daunting task, even with a global pandemic lurking in the mix. Because of these circumstances, there have been large shifts in the commercial real estate (CRE) landscape. If you are leasing your space this article is for you.
Take a deep breath! This step by step, best practices guide will enable you to have all the tools for a successful renewal. The goal is peace of mind that your practice and its location are taken care of and you are getting the best possible deal.
1. You are an asset to the Landlord- it takes work for the best deal possible
Due to the COVID-19 quarantine, across the board in all product types, Landlords are working with Tenants to help give immediate relief. Here are a few of strategic methods that are being utilized to alleviate current pain points:
• Rental abatement
• Rent reduction
• Deferred rent
• Security deposit application towards rent
• Early renewals
We are advising our dental clients that if your lease is expiring in the next 24 months, now is a great time to leverage your renewal to get immediate aid.
It is important to keep in mind that landlords should have your best interest in heart and are willing to make deals to keep you in that space and satisfied. Both you and the Landlord have significant interest in you being successful in that space. Chances are, they will be willing to work with you in these challenging times and Yes, rent will likely have to be paid. However, this does not mean you have to lie down and accept whatever numbers are thrown your way or worse yet, default on your Lease Agreement.
Long term leases, in a successful space, serve to strengthen your practice and its value over the life of your practice. To secure the highest possible practice valuation, it is best to renew for as long of term and as many options to renew as possible. If you are to sell your practice, one of the greatest values to a practice is the location, so having little to no time left on a lease gives you minimal flexibility and a lower valuation.
2. Market research and pricing- do you really know your deal?
Market prices rise and fall all the time. Pricing is ever-changing and based on the supply, demand and external shifts in the market. It is important to know relative prices for the market and product type of your location(s).
Each commercial product type can have different driving factors and market shifts. Currently with COVID-19, the retail sector of the (CRE) world has been hit the hardest with a down shift in pricing and upshift in supply. Most medical office buildings, office buildings, and free-standing offices have not seen much shift in pricing or demand.
Market rate can be determined by looking comparable leases in the local market. Do not assume the rental number someone tells you is all your expenses, know the lease type, Triple Net, Gross, Modified Gross, or Full Service. It is also crucial to evaluate escalations over the life of the term.
Not doing market research can lead to overpayment, which means the loss of money which could’ve been invested back into your company.
3. Work with a Broker to handle renewals, renegotiations and expansions.
If the negotiation process seems too daunting or complicated, or there simply isn’t enough time to do the necessary research, it might be best to work with a specialized commercial real estate broker to take over lease negotiations. Working with a broker takes a tremendous amount of pressure off of a decision maker or executive team, while also saving them a lot of time and money.
A commercial broker can research the market, track recent deals, navigate product types, and pricing. Your Broker should also create a plan and negotiate with the Landlord on your behalf. A broker will be aware of other concessions available, such as free rent and tenant improvement dollars provided by the landlord. There is no added cost to hire a broker, the fees are built into the Lease Agreement regardless.
As mentioned above, Landlords are working with tenants across the board to give immediate relief. A broker can support you through this but can also position your renewal and any upcoming expansions of real estate to best fit your needs and work for you as your business grows.
Brett Shaw is a Senior Managing Partner at DTSpade Specialized Real Estate, LLC. His CRE market expertise, financial modeling, and negotiation skills have helped countless dentists and specialist around the South East make the best possible real estate decision.
Brett Shaw; (404) 939-9508; firstname.lastname@example.org
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