Rental brokers one option for help finding office space

A column about keeping your practice in good health

By — Posted June 28, 2010.

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Physicians increasingly are using rental brokers to find space and negotiate leases for their medical practices, primarily because the recent crash in commercial real estate means that brokers are willing to take on smaller clients, experts say.

"Those working in the general office market are getting more involved in medical office, since medical office is doing better than regular office around the country," said Walter Neilsen, a partner with the health care law firm Waller Lansden Dortch & Davis in Nashville, Tenn.

"The owners of health care real estate would rather not have a broker involved, but they can educate the tenant and help the tenant understand what are the market rates, and what are reasonable expectations for tenant improvement allowances," he said.

Cynthia Andrews, MD, a family physician in Phoenix, enlisted a rental broker when she was thinking about renting new space for her two-doctor practice. The broker, also sometimes known as a tenant representative, helped her winnow down the list of possibilities and also ensured there was a death and disability clause in the contract that would allow her to get out of the lease if a health issue made that necessary.

"I cannot imagine doing it any other way," said Dr. Andrews, who is a partner in Caring for Families, which rents a 4,000-square-foot space. "Having someone go through the process with you is beneficial."

Experts say, however, that the influx of brokers interested in arranging medical office leases also means that physicians need to be cautious about selecting one. Finding a good one, they say, is much like finding the right broker to help you look for a house.

Some brokers have little experience with physician offices, and health care in general. They can trap doctors in spaces that don't serve their needs with contracts that run afoul of various anti-kickback regulations. Medical offices also frequently need more parking and may need differently designed facilities for specialized equipment.

"Medical real estate usually needs more complex or specialized tenant improvements," Neilsen said.

Physicians who have used rental brokers say good ones can save time and money without costing the practice a thing. There is usually no charge to the physician leasing the space. Rather, like with a buyers' agent for a house, the landlord pays the commission to his or her representative, which splits the fee with the physician's broker.

"There is a misperception that a [physician] has to pay for the services," said Shannon Herring, an office broker with Citispace Orlando in Florida.

Consultants suggest finding a good rental broker through word of mouth or local and state medical societies.

"The best way is to talk to people in your area who have used [rental brokers] in the past," said Kayla Berry, operations manager with Galen Advisors in Atlanta, which consults medical practices on this issue.

Questions to ask include those about past deals and what amount of experience the broker has working with physicians. Potential brokers should have references available upon request. Those who represent only tenants versus those who also represent landlords may be preferable, although these types of brokers are not available in all areas.

Once a broker is enlisted, he or she should be able to present several properties that closely match your requirements. Brokers also should make all appointments and have a good handle on local market conditions, experts say.

When a space is chosen, good brokers will be able to negotiate a better per-square- foot price than physicians would be able to do on their own. They also should be able to get higher allowances to build out the space, and lease clauses that are favorable to the doctor tenants.

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