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Real Estate: Your Second Highest Expense

By: Colin Carr

There are dozens of categories to evaluate when managing expenses in your practice: equipment, technology, interest rates, supplies, marketing and the list goes on.

Many practice owners are quick to shop-out what they believe are the most obvious expenses, but few understand the impact of real estate and how it can be leveraged to increase profitability. The highest expense for most practices is payroll, typically followed by real estate. Real estate encompasses your monthly rent or mortgage payments, along with the property's operating expenses, maintenance fees, utilities and janitorial costs.

If you consider these top two expenses of payroll and real estate, only one of them is truly negotiable. With payroll, you can either pay people fairly, or they typically find another job that will. You may decide to reduce staff, but to retain quality people you need to pay them what they deserve, or they will eventually leave.

Real estate however, is 100% negotiable. You have the choice of leasing or owning, as well as locating in an office building, retail center, stand-alone building or large medical complex with other providers. You can choose the size of your space, design and the landlord you want to work with-or to purchase your space and be your own landlord. And if you do purchase, you get to decide whether to buy an existing building, an office condo or develop a building from the ground-up.

When negotiating the economic terms of a lease, you choose the length of lease, the desired concessions including build out period, tenant improvement allowance, free rent, lease rates, annual increases and other provisions.

Many practices fail to capitalize on their real estate opportunity because they do not properly evaluate all their choices and understand how each one affects their economic outcome. Why is it this so? The short answer is most practice owners and administrators simply don't have the time, knowledge or expertise in commercial real estate to understand how to make the most of these opportunities. They view real estate as a necessary evil instead of an incredible opportunity to improve profitability, reduce expenses and improve the quality of their patients experience. When the correct approach is taken, real estate negotiations can be an exciting and rewarding opportunity versus one you dread.

A key aspect of taking the correct approach is obtaining proper representation. Landlords and sellers prey on unrepresented tenants who do not know the market or their options. If the tenant was a Fortune 500 company, the landlord would expect to work with an opposing real estate broker or an internal team of professionals well equipped to handle the transaction.

Without representation, most landlords sense an opportunity to take advantage of a tenant, simply because the tenant is not a market expert and does not possess the skills to negotiate. Further, commissions are paid in commercial real estate just like they are in residential real estate by the owner who sets aside fees for two parties, not just one. This means your representation will not cost you any money. Showing up without representation detracts from your credibility, costs you a substantial amount of your valuable time, and typically results in leaving a considerable amount of money on the table.

Lastly, proper representation will create two important things for you: leverage and posture. It is nearly impossible to emerge victorious from a negotiation without leverage and posture which are created by having multiple options. If you limit yourself to one property or are uneducated about the market, you are at the mercy of that owner. Since most landlords and sellers negotiate professionally, it is easy for them to know when you don't have other viable options or understand the process. Simply telling a landlord you have a proposal from another landlord won't give you a strong enough posture.

Leverage and posture are two of the strongest ways to reduce your second highest expense of real estate. They operate best when you have professional representation who understands your top options and can execute a detailed game plan of what you want to accomplish in order to capitalize on the market.

About the Author

Carr Healthcare Realty is 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 carrhr.com to learn more and find an expert agent representing healthcare practices in your area.

View all articles by Colin Carr


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All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.