Medical Lease Negotiations in a Down Market!
By Gregory P Schenk SIOR CNE 2011 NAR RCA Signature Series Speaker www.irepthetenant.com and www.schenkseminars.com

In many areas around the country the medical office market is at its highest vacancies in years.* What does this mean to medical tenants trying to cut costs, improve their bottom line and decide whether to renew, relocate or open a new location in the coming year?

For medical tenants this means it’s a great time to put together a strategic plan and brush up on your understanding of your current lease and how it stacks up with others in your submarket.

Items like your base rent and how it compares to other leases. You’re operating expenses not only what they are now but where are they going in the years to come! The amount of tenant improvements you may need in the upcoming years and if your landlord has the funds or line of credit to provide any of that to you. Will your landlord even be around in the coming years or are they at risk of losing the property back to the bank? Are you a candidate to purchase the property if you so desired either alone, in a partnership or joint venture? How much free rent should you be receiving in your next renewal period? You are getting free rent aren’t you?

A good tenant representative broker can ensure you know this and more. They will ensure you’re educated in the opportunities available to you to improve your bottom line for years to come!
Restructuring your current lease when vacancies are high like they are now means greater savings to tenants in many areas from taking advantage of early lease renewals as well as relocations to lease space at well below market rates.

Many medical tenants who for years just represented themselves on lease renewals directly with their landlords (or having there attorneys do it) are now seeing a trend that tenant representatives can help them set themselves up for years with a good strategic plan and tenant representative broker showing them the way to increased savings. Savings in areas like discounted base rent, capping controllable operating expenses, increased build out allowances, free rent, tax incentives for their facilities, furniture depreciation, and other areas.

Knowing the medical office market is imperative here to which landlords can offer some or all of these incentives. The tenant representative broker can really add value here as build-out cost have increased dramatically with steel, cement, copper, water tap fees and other building material cost soaring. Knowing which buildings are ready to move into immediately and ones that need minor build out vs. major renovation will save medical tenants even further as build out from shell cost have risen substantially the last few years. So tenants with their agents need to study each building in their market area and see which buildings can handle tenants with little improvements and those with landlords/owners with deep enough pockets to handle high cost renovations.

Some landlords can handle these costs while others can provide lower rent or free rent to lure tenants to their properties.


The bottom line is the tenant has never had it so good!
We have seen savings from 10% to over 20% in client savings over this past year with no end in sight in many markets around the country!

Every landlord analyzes each potential lease on the following items: credit, amount of space wanting to lease, lease term and cost to build out that space.

When we are working with a tenant we listen to the client’s needs and goals to see what type of property will best suit them. Owners with easy to read floor plans and brochures make this easier for everyone. Have a great space planner to see what the tenant really needs in terms of size of space, image, etc. also helps a great deal.

Getting a floor plan priced out correctly and in a timely manner is also important to analyzing overall cost. Finally, knowing the permit process and timing will help or hinder many selections as many tenants procrastinate and don’t plan far enough ahead to have the time needed to do a search and negotiations correctly.

Lease negotiations in a down market are all about the credit of the medical tenant, learning about what the tenant’s short and long-term goals are and educating them about the ability to renew or restructure a lease early or relocate early to the many incentives landlords are offering in attempt to fill high vacancies.

The tenants who are good at putting together a strategic plan and listening to and working with their trusted advisors will find great success for 2011 and beyond even in this down market!


For more information see the Top 10 Mistakes tenants make list at irepthetenant.com under Top 10 Mistakes!

Footnote The Urban Land Institute has stated that 2009 will be the worst year for real estate since the 1991-92 industry depression Jan 5th NY Times