Lease Medical Office Space

If you’re a healthcare services provider facing a need for medical office space, there are multiple moving parts of a lease to consider. (The project is akin to a patient researching / preparing to experience a lengthy procedure with a short recovery time.) The Landlord’s review of your space use, needs of buildout and financial stability of the practice will be evaluated, as a loan officer of a bank would review your loan application; its a large financial investment to make relative to the income expected. Knowing a) your needs, b) how to mitigate the risk, and c) guarantee rent payments, will sell the landlord to accept a lease with your practice. For example, specialty medical chains or hospitals offer the guarantee of a large, financially strong corporation, that rent will always be paid for the duration of the lease; such guarantee is attractive to the landlord (their investors and/or lenders). BREG has leased office space multiple times for established practices and specialty chains that required new building installations; select Case Studies at this link show examples. The outline below offers takeaways to apply to your next office lease deal.

Establish a Committee. Establish a committee to assemble needs, goals and objectives three (3) years before the go-live date for the new space; the time passes fast factoring patient visits, personal lives and project planning. This committee will create the criteria for the space search, office operations equipment, space aesthetics, parking needs, move-in and go-live dates. Members will include a decision maker(s), a project manager versed with construction of medical space, a proofreader of content, a face of the committee (as Single Point of Contact) to the project’s players. Decision members sign off internally or publicly on key aspects of the project; avoiding misunderstood assumptions. This committee keeps the search and secure process moving forward until complete; doctors add input/make decisions when not involved with patients. All committee members (doctors included) must communicate calmly / thoughtfully through the move in date despite unforeseen dramas from the project. (Planning and lead time dilute the impact of these dramas.) When the space is fully prepped for use, add time for all staff to prepare their respective space for use plus a full test drill to ensure everything works as expected for opening day. There should be nominal downtime from opening day of the newly built space.

Identify your needs, goals and objectives of the project. Pre-planning puts time on your side to identify the right location and space, at financial and legal terms favorable to the practice. This is a sizable investment to the landlord; your interests must meet theirs to shake on a deal you’ll mutually accept. Physical attributes are space layout, waiting room size,clerical space, exam rooms, lab rooms, procedure rooms, management offices, community space, locations and sizes of entry/exit doors, proximity of space to building parking, HVAC, lighting. Aesthetic needs are cosmetic ambiance of space (wood, carpet, paint, furniture, display monitors, clerical counter to patients, musaq); the mood of the entire space contributes to the experience you want your patients to have from each visit. Technical needs include computers, phones/fax, medical equipment, plumbing, electricity, medical gas for equipment and for patients, HVAC. The project manager of the committee ought to be from an architectural firm with niche serving healthcare providers. It would be cost-effective to hire an architect to create a rough drawing of the space to your specifications and collect a rough estimate to build the space. The result is discussed with the practice’s accountant to identify a budget to lease the space; that investment contributes to project planning. A Tenant Rep realtor with niche in serving healthcare providers, works with your accountant to factor the construction estimate into a financial projection of leasing costs (both initially and over the term of the lease). The Tenant Rep should advise the committee on the lead time needed to source a space, build and equip it and begin operating from the space.

Lease Term. Conventional office space rents at a discount to medical office space, typically for a five (5) year term. Medical office space typically rents at a $7-$10psf premium to office space to factor in higher traffic use to the building and space and construction costs; an average ten (10) year lease amortizes the up-front investment to build the space. These aspects should be discussed in committee to budget the rent costs and project practice operations ten years forward. (Note: this approach is indifferent to the space size you secure.)

Tenant Rep = Advocacy. The nature of the search criteria and details of project execution necessitate hiring a Tenant Rep realtor. They advocate for the search/secure needs of the practice and the business terms of the lease until 45 days after the move-in date. This approach produces a best outcome of the project, enabling doctors and support staff to remain focused on patient care. The Tenant Rep will prepare a simple representation agreement to review for signature. Ask your practice attorney to review it to advise the committee of its implications and your rights.

Construction Management. The project manager within your committee is responsible to oversee “all” construction efforts to ensure the space is built to your specifications, on-time, at or below budget. Advocacy of construction for your practice is essential to project outcome; do not skimp on advocacy nor expect the landlord to complete “as discussed”.

Real Estate Attorney. Your Tenant Rep ought to recommend or refer a Tenant Rep attorney with niche serving healthcare providers. Such specialty will protect your rights in the lease; avoid a business attorney lacking years of experience negotiating office leases for doctors. The attorney’s job is to work with your Tenant Rep and the Landlord’s attorney to ensure your legal rights in the lease are protected. (Note: a lease gives you strong rights of possession and use during its term.)

Moving trades, equipment providers, Information Technology and phone/fax. The construction project manager oversees liaising with the commercial mover, medical and office equipment providers, cabling installers, and IT installers. Ask your IT provider to oversee the installation of your phone circuit and phone/fax equipment.

Construction Punch List. When your space is about 95% ready for occupancy, (about 4 weeks from the move-in date), the committee, Tenant Rep, General Contractor and Landlord should meet to tour the space to identify open items to close within the budget of the buildout. These items makeup a written “punchlist” for the general contractor to complete. After the tour, have your project manager meet with all moving trades to carefully label the space where items will be placed; agree on a delivery/install date and time to complete. Another tour should be made by the same entourage to view completion of the punch list; arrange a formal meeting to accept in writing that the space is ready for move-in. Your project manager should notify the moving trades to confirm the space is ready to accept their work. This careful tedious approach ensures a smooth outcome, on-time.

Your project manager should be on-site during the move-in process, overseeing the effort agreed to. Once complete, the entourage should visit the space a last time to accept (in writing) that the space is ready to use. Implement a day(s) for the staff to prepare their respective spaces for use (as outlined in the paragraph above about establishing the search committee). Your Tenant Rep and project manager should work collaboratively, over the next 45 days, talking every few days to ensure the space is operating as expected. Let them talk with any trades to close holes in space operations during that time, enabling doctors and support staff to focus on patient care.

I trust this post has been helpful to you and offered takeways to implement in your healthcare practice. If you’d like to discuss BREG’s Tenant Rep services for healthcare providers, please click “Request A Consultation” link in the upper right of the screen. Enter “BREG Medical” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening. ###

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