Motivation Is Moving Medical Sublease Space

It is no secret, physicians are looking for ways to reduce expenses. Fueled by declining revenues, insurance reimbursement issues and a multitude of uncertainty, most are either downsizing their practice space or joining larger groups or systems in order to reduce the effects of less revenue and greater liabilities. If you are in a long term lease for more space than you currently require and would like to reduce your liability, then subleasing space may be the right option.

Subleasing by physicians to physicians where referral is obtained is common. In most cases, medical providers may decide to lease more space than what is needed to sublease additional space to medical providers.

It is important to note though, all subleases must independently qualify for an exception or safe harbor to Healthcare Referral Laws. The Office of Inspector General (OIG), which identifies and eliminates fraud, abuse and waste in programs administered by the Department of Health and Human Services, has issued a fraud alert which pertains to subleasing arrangements between medical providers where referral is made. Thus, it is imperative that the parties to a sublease carefully analyze and document the process by which they negotiated the rent and obtain outside support, such as rent comparables for general and sublease space in the immediate area that support the rent being charged to the sublessee.
Subleasing can be a challenging process if motivation is not present. Thus, it is important to stay focused on the objective and be competitive to achieve that objective.
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In general terms, a sublease will be considered competitive if:
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  • Two years or more remain on the lease (the shorter the term, the harder it will be to sublease without a large discount to the rent);
  • Space offered on a shared basis includes prime space (windows) in conjunction with less desirable space (interior);
  • Tenant is willing to be flexible with concessions (i.e., free rent, improvements to the space, rental abatement, furniture, equipment or shared resources in the event of shared sublease);
  • The space is presentable. If not, improvement allowances or, if shell, the ability to ‘turnkey’ a space should be ample and performed quickly.

Once you have determined that a medical space can be competitive, a proper determination of pricing should be undertaken. The pricing structure for subleasing the entire space will be different from the structure for subleasing a few offices within your space.

To price a space typically these general factors are considered:

  • The condition of the overall medical and office market;
  • Length of the remaining lease term;
  • The condition of the space (need for improvements);
  • The current lease rent and how it compares with the market;
  • Understand what the direct rents are in the building and what other sublease rents are for comparable sublease space;
  • Understand who will be in your pool of potential subtenants.
  • And, most importantly, have a qualified representative review the lease for language that may be conducive or restrictive to subleasing.

In almost all cases in today’s market, medical sublease rental rates are discounted from that of the current lease rate. Subleasing space is also a time sensitive. As time passes, the space may become less desirable and the lost income

Therefore, consider being aggressive and flexible from the outset. Be sure to havea representative price and record activity on the sublease (i.e., number of tours, number of proposals, etc.) every quarter and adjust as needed. Do not let any sublease become stagnant. Whether you are looking to sublease through shared space to vacant space, remember that the goal is to reduce the lease liability, not eliminate it.

We have included an opportunity that is for sublease in Humble, Texas. Humble Medical Office Building (Abbreviated Sublease Package – Contact MREA for Complete Offering Memorandum)

Please let MREA know how we can provide assistance for this or other healthcare real estate opportunities.

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10 Reasons To Utilize a Healthcare Real Estate Provider

Call MREA to promote your property offering directly to active medical professionals and qualified healthcare real estate investors!

Top Ten Reasons Our Clients Like Our Platform (as surveyed by MREA):

  1. Reduce Closing Costs
  2. Slash Days on Market (DOM)
  3. Receive Qualified Tenants or Buyers
  4. Increase Showings
  5. Eliminate Unsophisticated Brokers and Offers
  6. Improve Confidentiality
  7. Access Capital for Projects
  8. Joint Venture with ‘Like’ Interests
  9. Initiate Strategy for Reform
  10. Access Knowledgeable Vendors

The most comprehensive healthcare database of real estate solutions belongs to MREA and our talented medical real estate advisory. Call us at 713-701-7900!

ADA: What Does It Represent? Requirements?

First, what does the ADA stand for and what does it represent?

The Americans with Disabilities Act (ADA) provides that all public services and facilities grant full access to individuals with disabilities so that they can lead full and productive lives. In order to accomplish this goal, the ADA contains requirements and responsibilities for medical practices in the areas of employment, physical access to facilities, and modification of policies and practices to eliminate barriers to effective health care.

The ADA provides rights and protections to individuals who have physical or mental impairments that “substantially limit major life activities.” Recent amendments to the statute require that the definition of who is disabled and therefore eligible to receive the ADA’s protections must be construed broadly. Although the statute and proposed revisions to its regulations list some impairments as examples of covered conditions, including those substantially limiting mobility, vision, hearing, speech and thinking.  Also physiological diseases and other non-minor ailments with lasting impact, other conditions may also be covered.

Title I of the ADA prohibits medical practices with 15 or more employees from discriminating against individuals with disabilities in employment matters. In other words, if job applicants or employees are otherwise qualified for a job, their disability may not be used as a basis for adverse action in hiring, promotions, working conditions, compensation, or other aspects of their employment.

Moreover, ADA Title I requires medical practices to reasonably accommodate disabilities, by adjusting policies, providing assistive devices, removing barriers, and otherwise assisting the employee to perform the job. However, the medical practice is not required to make accommodations that would place an undue burden on the business and its staff.

Title III of the ADA places responsibility on places of public accommodation, including medical practices to ensure that patients, clients or visitors with disabilities have full access to their facilities and services. Medical practices should ensure their policies and procedures provide unfettered access to their services and take into account the needs of people with disabilities.

For instance, individuals whose disabilities require them to use assistance animals, such as guide or warning dogs, should be allowed to take their assistance animals with them to medical appointments, to the full extent that it is safe and practicable. Animal allergies of other patients are often not accepted as a valid reason for denying use of an assistance animal when there is any way to keep the animal away from the allergy sufferer.

Additionally, medical practices should develop policies that ensure that individuals with mental health conditions are excluded from service because of their disability-related behavior, when reasonable accommodations can be made. Staff should receive training on accommodation policies and practices.

Buildings that house medical practices and the offices of the practices must comply with the ADA and its accessibility requirements to ensure that individuals with mobility and vision impairments can get around safely. Newly constructed buildings and offices, as well as those that have undergone renovations or major modifications, should be built in compliance with the ADA Accessibility Guidelines, which provide detailed specifications on parking, ramps, door widths, restroom facilities and other features that affect accessibility.

Equipment and furniture should also be selected with the needs of individuals who use wheelchairs and scooters or who have difficulty moving around.

Because clear communication and understanding are essential to effective provision of health care, medical practices must be prepared to provide assistance to individuals who have difficulty with hearing or speaking. The ADA imposes requirements for the provision of assistive communication devices and translation services for patients who need them. Cost and inconvenience to the medical practice are not accepted as excuses for failure to provide these services when requested. Similarly, medical practice staff must provide oral explanation of written materials or forms, large print materials or other methods for ensuring that patients with visual impairments have full access to written information.

Several unique, property-specific ADA requirements are necessary for all commercial and medical real estate practitioners to become aware.  If you or an acquaintance require more information to move forward on a real estate decision, please contact us and we will recommend the proper resource.

Houston Commercial Construction Costs

How much does it cost to build a commercial building? Believe it or not, we are asked this question more these days than during the boom times.

The following information is provided by Reed Construction Data and updated software is available for a couple Ben Franklin’s via their website, RSMeans.  While we are meeting our obligation not to advertise current pricing (2010), unless you are a client, we have prepared the following data as of last year.  Given that the costs of most building materials are currently not declining, rather the opposite, not much has changed from the data below to present.

2-4 Story Office Building

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Face Brick with Concrete Block Back-up / Wood Joists
Average Price Per Square Foot (PSF) – $113.78
Add 25% for Contractor Fees (GC, Overhead, Profit)
Add 6% for Architectural Fees

The Total Building Cost is $149.05 PSF

*This figure does not include tenant improvements

Averaging $121 PSF with wood frame – wood siding (includes fees)

Averaging $167 PSF with steel frame – glass and metal curtain wall (includes fees)

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Here are some others:

Spec Builders and Land Investors:  We feel your pain.