August 11, 2022
Don’t Select the Location of Your New Practice With the Deck Stacked Against You—
4 Tips to Put the Odds for Long-Term Practice Success in Your Favor
Whether or not you have ever played poker, you’ve likely heard the term “having the deck stacked against you”. This phrase is used for explaining how an inexperienced or unsuspecting player gets taken advantage of by a more experienced player. When someone knows more than you do, and when they hold the cards to the game, it becomes challenging (or even nearly impossible) to get a fair shake. And while one bad hand of cards might not impact your livelihood, a bad site selection or a poor healthcare real estate negotiation certainly could.
1. Do Your Homework Before Selecting the Community In Which to Locate Your New Practice
Your dental or medical practice’s real estate expense is typically the second-highest fixed expense (second only to labor costs) on your income statement. If a provider enters negotiations without having done his/her homework or without proper representation, then the deck is already stacked against you. We recommend researching the demographics of the community in which the practice seeks to locate. If you are leaving employment or group practice, first confirm that the area to which you would like to relocate is outside of your restrictive covenant (the geographic area specified in your contract in which you cannot compete directly with your previous employer). Evaluate the gender, age, and insurance payor mix of the residents in your new potential draw area, and most importantly, assess the competitive environment for other local providers in your specialty. This information will help you evaluate the short and long-term prospects for the success of your new medical practice, and to evaluate whether the community is either under-served or already saturated with providers that offer similar services to your own. The level of local competition may mean the difference between a quick ramp-up for your new practice, or never achieving sufficient market share to become profitable in that community.
By partnering with an experienced healthcare consultant and healthcare real estate professional, you can gather demographic and competitive data on your community to better assess the growth prospects for your new practice. This is particularly important if you intend to relocate to an area outside of your previous service area, where you may lack established patient or referral relationships. With experienced advocates by your side, you significantly improve the probability that you will select the right location and pay no more than the fair value for your new space. A misstep in your site selection could cost you tens to hundreds of thousands of dollars. With that large of a line item a stake, it’s important to approach office space negotiation with market intel, a proven strategy, and experienced representation in your corner.
Let’s look at how you can turn the table back in your favor when it comes to real estate negotiations.
2. Use The Power of Market Intel
To effectively win at poker or any card game, you first need to have access to the right information. You need to know the rules of the game, you ideally want to know who you are playing against, and you certainly need to watch the other players, so that you know what moves make the most sense. In the same way, the right intel and information can mean the difference of tens of thousands of dollars through lowered lease rates and increased concessions for your practice real estate.
Gaining access to market lease and purchase comps, along with intel on concessions like free rent, build-out time, tenant improvement allowances, etc., gives you the power position in the negotiation. Your advocate will know where to start the discussion and what you can expect throughout. Without this information, you’re taking an unnecessary and potentially expensive gamble for the dental or medical practice.
3. Win with a Proven Strategy
Understanding how the game is played is equally vital to a successful negotiation. In the same way, you can’t win a poker hand if you don’t understand the rules and procedures of the game, you can’t win in commercial real estate. You must be aware of how landlords process information, how they think, what makes them concede for some tenants but not for others, etc. It all starts with developing a strategy that is built upon a foundation of you, the practice business downer, considering multiple options. In the game of commercial real estate, whoever has the most viable options, wins. If the landlord doesn’t think you can (or will) pursue an alternative location, they win. But if they believe you are fielding other, potentially more appealing offers from other landlords or sellers, you win!
How you build that strategy is unique to each practice’s situation. Are you considering leasing, but wonder if purchasing is a better option? Work with a seasoned healthcare real estate professional to crunch the numbers for the ‘lease versus buy’ decision in your market. Each one of these scenarios requires a customized strategy to help you gain the upper hand. Don’t go into your practice office space negotiation without a strategy. That’d be like playing a high-stakes poker game without a plan to win—just betting on chance, which is a losing game plan.
4. Assemble the Right Team
The favorite “hand” of a landlord is when they start negotiating directly with an unrepresented tenant. This is their royal flush, as they know an unrepresented tenant means they don’t have access to the same market insight and intel, they likely don’t have a strategy, and the landlord can bluff and play with no pushback. The landlord knows they win nearly every hand played directly against a tenant.
On the other hand, when a tenant comes armed with information, a proven game plan, and a team of expert advisors, the odds become much more balanced. A healthcare business consultant, real estate attorney, a CPA, and a commercial real estate agent focused exclusively on representing healthcare tenants and buyers will ensure they have the right team advising them through the transaction. Landlords are in the real estate business, transacting dozens to even hundreds of times per year, and yet that is exactly what their team looks like. They understand that winning in commercial real estate has everything to do with surrounding yourself with the right representation. You should never be unrepresented.
While poker is ultimately a game of luck and chance, there are techniques your client can employ to increase their odds of walking away from the victor. The same is most certainly true in healthcare real estate. Looking at market intel, developing a proven strategy, and assembling your team of advisors will help you confidently go “All-In” on maximizing d practice profitability through real estate.
By Valora Gurganious, DoctorsManagement, LLC & Natalie Trusty, CARR Healthcare Real Estate
DoctorsManagement, LLC is a national healthcare business consulting firm that advises private practices, multi-specialty groups and health systems on the “business of medicine”. DoctorsManagement is your expert in dental and medical practice startup, practice management, compliance, practice expansion, healthcare compliance, credentialing, and transition of ownership. DM was established in 1956 and now serves more than 400 medical specialty and dental practices in all 50 states. Visit Doctors-Management.com for more information on DM’s extensive services and resources for healthcare practices.
For the benefit of its clients, DM partners with CARR Healthcare Realty, the nation’s leading provider of commercial real estate services for healthcare tenants and buyers. Every year, thousands of healthcare practices trust CARR to achieve the most favorable terms on their lease and purchase negotiations. CARR’s team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, and practice transitions. Healthcare practices choose CARR to save them a substantial amount of time and money; while ensuring their interests are always first. Visit CARR.US to find an expert agent representing healthcare practices in your area.