Healthcare: What Does Tomorrow Look Like?

Healthcare in the United States is currently undergoing the greatest paradigm shift in one-half century. Where is it going? How will it be delivered? What will the hospital look like?

1. Hospitals will be used for the highest level of acuity patients. Integrated care will be around the patient with an emphasis on prevention and wellness. Due to less invasive procedures and advancements in research, ultimately, a reduction of hospitalizations will occur. Systems will continue to push further into the suburbia with different models. Specialty areas of medicine will be available within a certain corridors; don’t expect redundancy though.

2. Size is strength. Systems will consolidate in which community hospitals may cease to exist and systems will be vertically integrated. As the differences between for profit and not-for-profit continue to shrink, they may partner or merge, and not-for-profits could lose their tax-exempt status.

3. An oft-used phrase in the healthcare real estate environment is the “patient-centered continuum of care”; this is the cornerstone between treating disease and illness and prevention and wellness. Medical homes and ACO’s are early responses and will jump-start this model.

4. Specialty areas will focus on those practices that have the greatest profitability. These include cancer, heart, orthopedic and neuroscience, and tied into needs of baby boomers.

keep calm5. IT is forcing change. Telemedicine, home monitoring systems, point of care testing, EMR, and data management will impact how infrastructure and physical space is designed. In turn, demand for off-campus land for medical use and small scale medical building components will continue to be impacted negatively.

6. Projects within hospitals will have to become more sophisticated and mission critical, thus, the re-purposing of existing facilities will occur. Under the reimbursement rules, patient satisfaction factors into reimbursement rates. We expect facility directors of older property to meet these challenges when new development is not cost effective or physically possible.

7. The industry now expects sustainable practices. LEED, for a short while, was seen as adding an unnecessary additional expense, but “green” and energy efficiency are now coveted for purposes of costs, community and care.

8. Demographics are of huge focus, both for expanding or maintaining qualified staff and for the diverse, aging patient population. 

9. As reform is instituted and buildings become a complex authority for the administration of care, medical real estate will develop into a vast submarket within its own parent, commercial real estate. Actively engaged, specialized contractors will compete to provide innovative, yet more cost effective solutions.

During our conference calls, it is apparent healthcare providers are instituting new policies that make them more competitive over the long run, rather than building the landmarks of the past. This is important as budget conscious US lawmakers and corporate heavies want to see their respective burdens lifted.

Health Providers: Create Wealth Through Real Estate

chainsReal estate is the number one long-term, wealth-building vehicle available to an established healthcare syndicate. Yet, more often than not, many organizations resort to paying into long-term variable rent models in new developments or improve existing buildings that offer small allowances for reconstruction.

As an example, one function of our comprehensive real estate service package includes that of development, in which we continue to field inquiries from well capitalized healthcare organizations that would rather turn over their keys to us and lease, than partner in the development of healthcare real estate. Yet, and as any lender will tell you, any associated risk in buying a medical building or performing a development is negated by the relative stability and/or strength of the organization. And in this environment, where capital is inexpensive and abundant, those organizations that utilize developers’ capital exclusively for building a medical project are simply not willing to accept the long term risk of their own business decisions. In other words, they should not be expanding. 

As real estate advisors to health professionals, we believe in a partnership-oriented approach to further strategic financial objectives through real estate holdings. And, indeed, your organization should view itself as a source for wealth creation outside of the traditional models of revenue production. In certain respects, this requires a paradigm shift in the way a healthcare organization views growth in revenue. It is clear that the majority of independent physicians just want to work, treat patients and arrive home at a decent hour. However, in a loose monetary economic environment, even these physicians are realizing the potential for inflation diluting their work earnings.

Over several years, we have heard a variety of misconceptions from medical professionals about why they do not participate in real estate ventures. Accordingly, let us help to disprove some of these arguments.

Real estate is too expensive. This has to be the largest misconception. As an example, how many times have you said, “If I bought that building or property 10 years ago, I would have 3X, 4X, 5X, 10X my original cash investment?” The truth is that money is relative and determining an entry in real estate usually occurs upon purchase or development a piece of property. Trust real estate counsel that can provide thorough comparable sales information, by area and product type. All information should be used to benchmark an investment when locating a property to develop or purchase.

Real estate requires too much money . After several years, one of our clients came back to us regarding his 15,000-square-foot medical office building that we assisted in site selection and development. Their total cash investment on this project was approximately $325,000, split evenly, and the remaining was financed through bank debt of $2 million + $75,000 interest for a total cost of $2.4 million, mi. After 5 1/2 years, the building appraised at $3.4 million and our client was able to refinance this building and receive triple their original investment.  And, to conclude, we are now responsible for the off-market disposition of the facility at a price that exceeds the refinanced amount with multiple bidders.

By no means, do organizations need excess capital to own real estate, especially within the medical arena. A good credit score, a successful care syndicate and a solid reputation in the community are the right ingredients for any institution to finance your investing activities in real estate.

Real estate is too risky. This may be more of a generational problem than anything and the risk averse tend not to be invested in real estate at all, rather recounting one person’s story.

For an example, if real estate is so risky, why are banks willing to give you 80 to 90 percent of a building’s value to buy or build your own medical office building or invest in healthcare real estate? Would they provide you with 80 percent of the value of a stock in the stock market? Likely not.

Banks inherently comprehend the value of real estate and are currently willing to lend to healthcare professionals. They know that as an industry care organizations work very hard to keep up with demand, rarely goes out of business and do not tend to transfer locations once established in a referral base and/or community.

Debt is too risky. There is good debt and there is bad debt. Good debt is used to accrue assets that generate income, appreciate in value and provide passive income. Bad debt is tied up in assets that do not generate income and depreciate in value over time.

Personal bad debt is another thing. It needs to be said that members of high stress, high reward work environments are notorious for spending their earned income on frivolous, short term items that depreciate upon purchase or soon thereafter. With inexpensive debt funding collateral (real estate), which will remain in place for decades, it is possible to create true wealth through real estate investment in a reasonable time period.

To conclude, contact MREA for all your healthcare real estate questions or concerns. Pair our knowledge of the real estate industry with your care organization’s spatial needs to start or further your personal wealth.

Locating Medical Real Estate: The Request for Proposal (RFP)

searchDuring an organization’s planning process, a consideration of how medical space should be acquired will be determined. Whether by lease or purchase, via development or existing retrofit, the option selected should be derived by the real estate’s ability to provide the desired utility at the lowest cost. The financing function will determine how to fund the space acquisition, whether through existing capital, mortgages, or operating lease.

For reasons of flexibility, timeliness, economies of scale, and availability of funds, leasing is a better decision. Otherwise, when cash flows dictate the opportunity to purchase an existing facility, a simple step should be undertaken to diligently search for the property that best fits the criteria.

For the purposes of targeting existing facilities to meet the specified criteria, reduce time, improve clarity, as well as  bargaining position, it is important to utilize a document that is called a Request For Proposal (RFP). This, as a precursor to the landlord’s formal proposal, and which will answer the following general questions:

  1. Who will occupy the space or property?
  2. What type of space or property is required, leased or owned?
  3. What growth space will be required, now or future?
  4. When is space requirement needed?
  5. How long will the current need for such space last?
  6. Where should the property be located?
  7. What are special requirements?

For examples of purchase RFPs, please contact us here. As for acquiring lease space, items to consider in a Lease or Sublease RFP commonly are:

  • Premises requirements (rentable or usable square feet)
  • Term of the lease
  • Commencement date
  • Rent abatement (Free or deferred rent)
  • Rental commencement date
  • Rental rate
  • Escalations or adjustments
  • Improvement allowance
  • Space planning and design services
  • Expansion option(s)
  • Renewal option(s)
  • Property management and tenants
  • Operating hours
  • ADA compliance and access
  • Extended or after hours HVAC
  • Telecommunications
  • Security
  • Parking (# per 1,000 square of rentable space)
  • Asbestos
  • Nondisturbance
  • Response to RFP due date
  • Exhibits (if applicable)

Are you seeking an example of our Medical Real Estate Request for Proposal (RFP)? Require real estate guidance for a purchase or lease of a medical building in Texas?

Contact: 

Robert S. "Bob" Lowery 
Managing Partner
MREA Medical Real Estate Advisors
1200 Smith Street, Suite 1600
Houston, TX 77002

713.701.7900
office@mreausa.com

Building a Medical Facility

Building a healthcare facility from scratch, similar to modeling a custom home, offers an opportunity to control the entire design to fit the particular needs of the medical provider. While the list of preparatory items is long and requires adequate time allotment and abundant resources to carry out, the opportunity, as part of a rebranding strategy is tremendous.

First, we suggest engaging a firm that is focused on relationships within the healthcare real estate sector. No, this does not entitle a medical professional to utilize a proprietary database to forge relationships independently for purposes of pitting one qualified real estate service provider against another. Rather, it allows for the opportunity to streamline the development process for the purposes of time expediency and future financial gain.

For small to mid-size healthcare providers that are initiating contact with real estate developers, it is vital to seek a real estate group that is knowledgeable in land management. Issues such as utility needs, zoning restrictions, detention requirements, along with developer demands and building or regulatory stipulations can quickly overwhelm these providers, especially if exhaustive planning was not prerequisite. Other items such as locale, comparable developments, leases or sales should be documented, and client, whether specialist group or primary care, should be made aware.

For most specialist physician groups, geographic awareness is an integral part of the entire value equation. The need to be within close proximity to a hospital or medical center is routinely the highest priority. Certain specialties will seek companionship with the hospital for benefits that are simply too costly for stand alone facilities that do not experience a high volume of patient care. Thus, seeking land or redevelopment opportunities that are well situated near hospital system is imperative.

As for primary care, locating within, or contiguous to, a hospital is not as important, especially if access is provided to hospitalists. Family practice organizations, which are now in highest demand by patients, specialists and large healthcare systems, are realigning themselves within medical centers for physician growth, referral and patient demand. This, especially as the financial incentives are too lucrative to ignore. To remain independent, some family practice physicians are seeking space in alternative uses such as retail centers or condominiums.

A unique development opportunity for healthcare providers is that of medical condominiums. This assemblage, or community, of buildings offers healthcare providers an opportunity to realize the equity and tax benefits of real estate ownership. The demand by physicians seeking such opportunities outweigh those pursuing traditional medical office space 2 to 1 these days; convenience taking precedence over compartment.

While this style gained favor in the medical community throughout the last decade, several medical providers have engaged our firm to assist in expansionary endeavors. As condos are built a certain size, the shape typically cannot be reconfigured. Also, condominiums are commonly built with unique features that are non standard. Any proforma sale analysis will have to include a longer sale schedule or reduction in price relative to added, exclusive amenities.

As specialized consultants that are unique to the commercial real estate industry, our assignment is to help chart the course for smooth sailing. We will assist healthcare providers through our unparalleled database of contacts and relationships. By streamlining the development process and assisting with routine financial and market surveys, we will minimize the risk of the provider while adding significant contributory support and value to the final product.

Lease Renewals for Medical Professionals

An important clause not to be overlooked within a lease contract is the renewal option. Renewal options pertain to the potential extension(s) of the lease upon the date of lease completion. Renewal options will contain language regarding lease rates going forward, concessions such as free rent and tenant improvement allowances and operating expenses. All of these terms are negotiable and will play an important role in the complete structure of a lease renewal. Renewal options are meant to provide flexibility for the tenant in the future. So, being aware of how to strike the right balance, within the lease as well as the renewal, will grant medical professionals the greatest flexibility and financial outcome for their real estate interests. 

One of the most common errors healthcare providers make is negotiating lease renewals without the help of a commercial real estate professional, specifically those who specialize in healthcare lease and renewal transactions. Most healthcare groups tend to be self-reliant and entertain lease interactions from within their office. The reasoning is fairly simple, which real estate investors are aware; the majority of medical providers will rely on referrals by way of other medical providers. So, if location (even space) can be identified by referral patterns, then the use of real estate counsel is unnecessary. Or, if location will remain the same, then negotiations of a renewal may be handled in-house.

But, rather, successful medical groups, large and small, understand that in order to achieve growth, they need leverage. Landlords, especially those that are in the real estate business, negotiate with professional guidance from real estate professionals. For healthcare providers, selecting their own representation, one that has performed the same real estate surgery with multiple instruments time and time over, to advocate their position will assist in influencing the outcome favorably. Furthermore, because landlords authorize a split of the commission between the landlord’s broker AND tenant/buyer broker, providers have the opportunity to receive representation from a healthcare real estate professional at no out-of-pocket cost.

MREA is a full service, healthcare real estate firm headquartered in Houston, TX. MREA provides commercial real estate services to healthcare providers and commercial real estate investors throughout the State of Texas.

3 Development Strategies for Healthcare Providers

Hospitals and physician groups are embracing third party ownership, management and development of real estate because it has the ability to preserve capital resources for acute care needs, eliminate the conflicts that arise in the landlord/tenant relationship and minimize the potential legal and regulatory challenges associated with leasing space to referring physicians.

Many partnership synergies and dispositions have been publicized through our organization’s newsletter, but a new trend is occurring in which small providers up to large systems are utilizing third parties to develop and own new medical real estate projects. This trend has the potential to have a significant impact on capital structure decisions for going forward.

The use of outside capital to fund non-core real estate assets has been used with improved adoption in corporate America to facilitate growth and expansion. Retailers such as Wal-Mart, CVS and Walgreens, which are becoming stronger competitors in providing healthcare, have all increased liquidity and implemented cost efficiencies using third party capital and development expertise to fund billions of real estate expansion over the last few decades.

As for the development of medical facilities, healthcare providers may choose a few approaches that have been highly successful.

One. Providers may select to develop a project internally using an owner’s representative in place of the traditional developer. The owner’s rep determines the size and scope of the project and works with architects, engineers and the general contractor to build the facility. The provider is responsible for procuring entitlements and utility easements and covering the costs for the site preparation process. In this scenario, third party consultants may be employed to assist with these individual processes. The hospital is also responsible for the leasing and management of the building, although it may appoint a property management firm.

Two. Another approach is through the use of a third party to develop the medical facility for a fee. The third party will receive a fee for its services. In this case, the provider is contracting the developer’s expertise, which commonly includes feasibility analysis, project guidelines, pre-leasing, management of the entitlement process, value engineering for the project, negotiating the contract with the general contractor, as well as project management.

Three. A third party developer and owner both develops and owns the building through its completion. The developer/owner performs all the same functions as the fee-based developer. The main difference is that the developer assumes all of the risks and benefits of the development process and the ownership. A fee-based developer may have an incentive to reel the project in at a contracted cost and within a specified timeframe. The developer-owner has the same incentive, but is likely to strategize on ways that will lower costs of the long-term ownership, because this will ultimately determine the owner’s total cash flow and return on investment. Furthermore, a developer-owner has an incentive to minimize the size of the building to assure high occupancy rates, which has the ability to create conflict with the providers longing for vacant space to accommodate future needs.

If you should have any questions or require a proposal for a medical development under one of these three proven commercial real estate development strategies, please contact MREA at 713.701.7900.

The Leasing Process: Medical Office Building

Of utmost importance to a medical building’s ultimate success is the recruitment of physicians. For medical office projects, our group will complement management, administration or business development to embrace and add value to the overall objectives of each project. Because we are acquainted with physicians, to which we have lent our professional lives, MREA maintains a vast working knowledge of how each medical business is positioned within Texas’ commercial real estate landscape.

Along with dedicated research, our leasing unit has developed a proprietary leasing program that connects physician specialties, their locations, potential hospital affiliations to assist in determining the size, location and ideal tenant mix within medical office buildings. Furthermore, our medical real estate leasing specialists are actively engaged in the process. We take note of the objectives for each MOB project and tailor marketing strategies, advertising, and public relations campaigns to champion physician prospects for each available space.

Our healthcare real estate group begins each assignment with purpose and direction which involves:

    • A thorough understanding of the medical office market which includes competing hospitals, physicians, medical services, rents, operating expenses, improvement allowance, concessions and limitations.
    • A firm comprehension of hospital healthcare delivery objectives such as use restrictions and tenant mix to determine how a medical office will meet the needs of the prospect with respect to the competitive landscape.
    • Developing a plan of action based on a set of facts, assumptions and the objectives of stakeholders and comparing those to present market conditions.

This exhaustive analysis is essential to the most successful medical office projects. Our healthcare leasing unit’s preliminary due diligence enables our organization to properly position any property in the market to meet client objectives, as well as physician needs, all while preparing for future negotiations that will exist.

Because there are several parties involved in a successful medical office leasing program, communication is of vital importance. Our communication process involves frequent gatherings with key management, administration or business development executives and a detailed format for briefing on the status of our progress. This proprietary medical office leasing and communications process enables us to track tenant leasing progress, summarize the status of each prospect, provide next steps and assign responsibility. Our reports will provide a snapshot of the available square feet and that which is leased at any given point in time.

MREA is very open and considerate to incoming calls regarding medical office lease projects and would certainly appreciate the opportunity to vie for your existing, future development or acquisition projects.

Healthcare Real Estate Transactions: A Few Considerations

Healthcare is real estate heavy. Not until healthcare reform was formally introduced were the majority of private and public healthcare providers scrutinizing their swelling real estate portfolios with similar risk assessments and accountability measures as their employee-dense corporate industry peers.

Over the past decade, healthcare providers have increased outpatient care, both close to hospital campuses and, more recently, in retail settings. Inevitably, the growth will have to continue to accommodate the transfer of patients into more efficient care settings. Yet with statistics such as: 1/3 of all hospitals will need to find alternate use, healthcare costs and infections are at an all-time high, and technology rapidly reducing redundancies, any new or adaptive real estate use will certainly be scrutinized.

Given the tremendous task of analyzing a property or portfolio in today’s capital complacent, regulation rich healthcare real estate environment, it is important to note that the potential buyers and sellers of these transactions take note of the following:

Real estate, which may consume up to 50% of providers’ balance sheets, is valued at book value. So, determining the fair market value (FMV) of a portfolio may be difficult without true comparisons especially noting the separate and distinctive build-outs in the field. This lack of transparency typically favors the seller, especially in locations where a lack of supply and pent-up demand exists.

Currently, hospitals with whom we are speaking are more interested in monetization now, than possibly any time in the last decade. Determining what to keep and what to sell is commonplace. With regards to a future merger, the real estate assets are being used as a source of financing for the transaction. Thus, determining the hierarchical distribution of assets as they pertain to compensatory value is necessary. We are noticing that most providers typically sell their weakest ancillary units first. Some buyers may look past their first few purchases for future consideration of a larger portfolio.

Healthcare is very attractive as it holds a high barrier to entry. Large amounts of capital have been raised over the last few years all the while interest rates have been moving lower. This allows providers that are seeking to sell real estate the opportunity of selecting several long term capital partners or buyers at attractive prices, especially when given the credit of the provider is strong. EBITDA’s are certainly shrinking for all medical real estate deals.

To grasp what is moving and why -or- to request a proposal for a property or portfolio, please contact MREA for one of our experienced medical real estate advisors.

Easements Explained

Easements are complicated. The law of easements has its own unique language, and being privy to the terms will provide a foundation for understanding the how your building arrived onto the property.

The top 10 most commonly used easement terms are:

  1. Easement: A legal interest or right which one party has over the land of another.
  2. Affirmative Easement: An easement that allows the holder to perform certain actions on the land of another.
  3. Negative Easement: An easement that allows the holder to prevent the owner from performing certain actions on his own land.
  4. Easement Appurtenant: An easement that attaches benefits the property owner, rather than the individual.
  5. Easement In Gross: An easement that benefits an individual, rather than the property.
  6. Prescriptive Easement: An easement acquired through continuous and open use over a period of time.
  7. Easement By Necessity: An easement that is necessary for access to the dominant estate after it has been created out of the servient estate.
  8. Easement By Implication: An easement that is necessary for the reasonable enjoyment of the dominant estate after it has been created out of the servient estate.
  9. Dominant Tenement: Land that is benefited by an easement.
  10. Servient Tenement: Land that is burdened by an easement.

There are a certain ways by which easement rights arise. For a few examples, easements can be acquired: 1) by an express grant; 2) by prescription; 3) by necessity; 4) by implication; and 5) by condemnation.

  1. An express grant refers to the granting of permission by the owner of the land where the easement would lie.
  2. A prescriptive easement arises if someone uses a portion of another’s property without his or her permission for a statutory period of time.
  3. An easement by necessity arises when a property is landlocked and the easement over the servient estate is necessary because the dominant estate is not accessible by other means.
  4. An easement by implication is be necessary for access, but arises when an existing, open, and continuous use of one parcel is necessary for the reasonable enjoyment of the other parcel.
  5. An easement by condemnation arises when it is taken by the government or an entity with condemnation authority that has exercised its right under eminent domain.

Most often an attorney will be asked to draft an easement into a deed or instrument that will be recorded in the applicable registry of deeds. The registry of deeds is the appropriate place for recording an interest in real property.

If you require assistance for an easement pertaining to healthcare real estate related issue, please contact MREA either for past reference or recommendations to counsel.

Issues That Can Arise When Leasing Medical Space

ImageYou feel fortunate to have negotiated a favorable rent on behalf of your physician group, with free rent and options to renew, a generous tenant improvement allowance, and your contractor is ready to start building out the office. You have also negotiated with your contractor a reasonable price for the tenant improvements, and you have obtained a loan from your lender to cover all of your construction costs. The landlord quickly presents you with a lease which looks to be a  well-prepared document in which he/she requests that you sign it quickly to obtain the keys to the building / space. Should you sign the lease and expedite the process or should you consult with a leasing specialist to analyze?

This article is intended to provide an overview of some of the issues that MREA encounters when negotiating leases on behalf of physician practice clients. It is not intended to be comprehensive in nature, nor is it intended to replace the advice an attorney may provide.

Commencement of Lease

Once the lease is signed, your practice group and the landlord often have objectives that differ from one another. The landlord wants the lease commenced as quickly as possible so that lease payments begin, while your office seeks the completion of the build out to the agreed specifications with everything operational.

If your landlord is building out the office space, it is of vital importance to provide the landlord with the most detailed plans relative to your space and other details in an effort to guarantee that the office will meet the groups needs and expectations. However, it is important to ensure that the lease will not commence until the built out space has passed inspection by the local building authority. Most standard form leases provide that the build out will be deemed complete when the landlord or its contractor/architect certify that it is “substantially complete”. Usually this means that “punch list” items will be completed by the contractor after you have opened for business, and this isn’t the image you want to present to your patients.

Price Increases

Nearly all leases have rent escalation clauses that are either contractual in nature or are tied to an index, usually the Consumer Price Index (CPI) published by the U.S. Department of Labor. Contractual increases are what your practice and the landlord will negotiate regarding the life of the lease term. More common is a cost of living adjustment tied to the CPI. In recent years, CPI increases have averaged approximately 2% per year. However, historically the CPI has had periods of tremendous volatility. For instance, during the four year period between 1978 and 1982, CPI increases averaged over 10% a year.

We always recommend that they have a “ceiling” on CPI increases is necessary to protect them from unusual inflation occurrences. However, this is a highly negotiable item that will not gain consideration without compromise.

Rental Rate During Option Periods

When initially negotiating the lease, your group wants the option to renew the lease, which is very specific as to rent price. If you are using the typical standard forms as provided by the landlord, you will usually find one of two standards; either an increase tied to the CPI increase over the last adjustment date or an adjustment to prevailing market rent in the area. Many business people opt for CPI increases. However, there is a hidden trap here for physicians in that they typically spend a considerable sum on tenant improvements, and the landlord knows it is simply not economical to move an office if the CPI adjustment for the option period far exceeds the prevailing market rent.

Therefore, it is important to consider an adjustment to market rent, provided that it does not restrict the rent from being reduced in a soft rental market. Also, in order to ensure that a real market rate adjustment will occur, we recommend an arbitration procedure whereby the parties each choose one appraiser, and together the two appraisers choose a third appraiser, with the two closest appraisals being averaged to determine the fair market rent. Although this procedure is rarely used, it offers protection to a physician who has an arbitrary landlord unwilling to negotiate fairly.

Office Damage

A few years ago, we received a call from a client that they had moved from an office that had been destroyed in Hurricane Ike. Although the Hurricane had occurred a year and one-half prior, the physician had received a call from the landlord telling him that the building was being renovated and the lease term was still in effect. Since the client had already built a new office in a separate location, the group found himself in a sticky situation where there was the possibility of paying on two leases.

Most of the standard physician office leases impose no real obligation for the landlord to rebuild, and provide the landlord the greatest flexibility in determining when or if to rebuild. By contrast, the tenant is typically obligated to move back into the space within a short period of time after the building is repaired. But, imagine the difficulty in retaining patients when the move into interim or new medical space is necessary, especially when unexpected. Therefore, it is becoming a common request for the right to terminate the lease if the landlord has not commenced restoration or has not completed the work within a reasonable period.

Assigning or Sublease a Space When Selling a Practice

Suppose a lease was negotiated several years prior and the lease rate is substantially below market and the current tenant remains responsible for the entire lease term plus any options. The lease also provides that the landlord can deny the assignment if it would upset the tenant mix in the building.

The landlord disapproves the assignment even though the buyer of a practice has the similar financial net worth as the seller when they signed the lease. The landlord also claims physician group’s operation would upset the tenant mix in the building, even though there were no other like physicians in the building and attempts to negotiate.

How Can You Avoid Situations Like These And Other…?

  • Eminent Domain?
  • Road Construction?
  • Tenant Becomes Disabled or Dies?
  • Foreclosure Sale?
  • Relocation Rights?
  • Water Damage?

Summary

A prospective tenant should always remember that the lease the landlord presents is subject to negotiation. The tenant should use a qualified real estate counsel to review the lease. Entering into a landlord/tenant relationship is similar to getting married, and the relationship is likely to last a long time, for better or worse. A careful review of your lease documents before signing will ensure a better relationship between your group and the landlord should issues arise.