Article By: CARR
Healthcare Real Estate by CARR
Are you one of the rare healthcare providers or administrators who understands how much is at stake in commercial real estate negotiations? If so, then you probably know that commercial real estate is the highest negotiable expense for your healthcare practice. Consequently, most healthcare providers fall into the statistic that tells us that 80% of healthcare practices still take a ‘do-it-yourself’ approach to these crucial negotiations and site selection process.
In this article, we will break down several reasons why doing commercial real estate without representation will likely cost you a significant amount of time and money.
The average commercial real estate transaction takes dozens of hours to complete. When you calculate the hours of research, driving the market, communicating with listing agents, touring properties, negotiating letters of intent (LOI’s), negotiating lease contract terms, printing / signing / mailing documents, and the dozens of other miscellaneous tasks you encounter in almost every commercial real estate deal, you can easily spend 30-40 hours or more on a single transaction. That equates to an entire week of work!
Given the fact you have a full-time job already, you have two options as to where you will find those hours:
1) During normal business hours (when you could otherwise be generating revenue) or
2) During your valuable time off that would normally be spent with your family, relaxing, taking care of personal errands or making memories with those you love.
Neither option is a good one, especially when you consider how much money you could be making per hour if you invested that time into your practice. Since time is a commodity you cannot get back, it’s important it be invested where it can yield you the highest return.
The average healthcare practice loses tens of thousands of dollars in this ‘do-it-yourself’ approach.
In the vast majority of commercial real estate transactions, you will also be working with a listing agent. That agent has a fiduciary responsibility (legal obligation) to the landlord to ensure they get the best possible deal and that their interests are protected and paramount over any other party in the transaction.
This is also the person who actually collects a commission on the transaction. The commission amount is set aside before the property is even listed, and it will either be paid to the listing agent only or it will be split between the listing agent and the agent you hire to represent your needs. Often times if there is no buyer / tenant agent, the listing agent gets paid an amount that equals a ‘double commission’.
If you take the ‘do-it-yourself’ approach, someone else is making the money for doing the job you did yourself. The craziest part is, the person making money is opposing you in the transaction! And, you just helped that person collect twice as much as they would have if you would have hired an expert agent to represent your needs and protect your interests!
This could be because you don’t actually understand everyone’s role within a deal. After all, when you called the name on the sign, they told you they wanted to help you get into the space!
The problem is that to them, you are just a customer. The landlord is their only client in the deal. That might not sound like a big difference, but it has a HUGE impact on the outcome of the terms that each party receives. They have a legal obligation (called a fiduciary) to ensure the landlord gets the best possible deal within your transaction. They have no such obligation to you, since you are not their client.
Without representation that looks out for your best interests, you are almost guaranteed to leave a significant amount of money on the table during negotiations.
Some tenants and buyers balk at the idea of hiring an agent to represent them in a commercial real estate transaction through an agency agreement. Those people typically don’t understand that agency is a term created by governmental bodies to protect the consumer (you). If you don’t have an agent involved to exclusively represent you in your transaction, then there is no real estate expert who has a fiduciary responsibility to protect your interests.
The vast majority of landlords have an agent and other experts they regularly consult with that work diligently to ensure the landlord receives the best deal possible.
Think about that for a moment… The landlord, who has done hundreds of real estate transactions and whose entire livelihood is based on real estate, hires an agent so they can leverage that agent’s experience. Why would a healthcare buyer or tenant who will only transact a few times over the course of their career try to do it alone?
This is the most important part of representation. We live in a world where “knowledge” is at our fingertips. The problem is, the knowledge that is available is often a cheap knockoff of the real thing.
Have you ever had a patient confidently give you their diagnosis of what is happening to them because they looked it up on WebMD? When you explain to them their actual diagnosis, they say, “Are you sure?”
They are trying to compare your thousands of hours of experience with their 15 minutes of Googling symptoms. There is a monumental differ
ence in your experience versus theirs. Be careful getting too frustrated, though, because many doctors and practice administrators do the same thing when it comes to commercial real estate.
Those doctors and administrators will hop on a commercial real estate website for 15 minutes, and now they are suddenly a commercial real estate expert. What they fail to acknowledge is that anyone can find properties or call or email a listing agent to get a property brochure. The part where expert guidance is needed is found during the negotiations (and there is definitely more to a negotiation than simply the lease rate or purchase price).
This concept is also important in deciding how you select your agent. Many doctors fail to realize the complexities of commercial real estate and imprudently hire a residential real estate friend or patient. That is similar to having a tooth ache and going to the veterinarian for help. Sure, they may have some dental experience (on felines), but it’s hardly the same thing.
Ok, I need an agent. How do I go about picking the right one?
Here is a quick guide to ensure you are covered.
GOOD: Having a commercial real estate agent represent you in your real estate transaction.
BETTER: Having a commercial real estate agent who only represents buyers and tenants represent you in your real estate transaction. (This prevents any potential conflict of interest and also ensures you will see every potential property available to you.)
BEST: Having a commercial real estate agent who only represents healthcare buyers and tenants represent you in your real estate transaction. (This not only ensures you of their unwavering loyalty to you against any possible landlord, but it also ensures you have someone who understands your real estate needs and how to structure a deal that best suits your unique situation as a healthcare provider.)
When it comes to ‘do-it-yourself’ real estate negotiations, you don’t save any money. Instead, you stand to lose a fortune. Hiring an agent will at a minimum save you a substantial amount of time. Hiring the right agent can ensure you get into the best possible situation and has the potential to save you tens to hundreds of thousands of dollars in your next transaction.