[00:00:02] Speaker A: Hello and welcome to the Kasuf Revenue Radio Podcast, where we bring information to you, the healthcare practice manager, the physician, and business owner to enhance your business of medicine. We're powered by Kasoof and Kasuf Healthcare solutions. Hi, I'm Jeff Dance. I'm the executive director of Kasuf Healthcare Solutions. I'm also your host today for our Revenue Radio podcast. I have the unique opportunity at times in our business to build strong networks of resources and subject matter experts that assist our clients in our managed services organization with various operational matters. All of these are designed to bring value and again, enhance your business in your healthcare practice. Today, we are diving into the world of healthcare real estate and how that impacts your practice, your business, some of the choices that you will need to consider for your strategic planning now and going forward.
We also got Russ Dorsey with me today, who's manning the booth and the board. And Russ, thanks as always for making it a smooth podcast for us. Glad to be here on such a beautiful day, too. Yeah, it's raining outside and we're warm inside. Hey, we've got today Richard Tidwell with us today. Richard and I have a long standing relationship. Richard is a commercial real estate agent here in Alabama based in Birmingham, and Richard specializes in healthcare. That's all you do, if I know that correctly. That's correct. So I want to bring Richard in for a couple segments as we talk about this whole real estate idea as it relates to healthcare practices.
Some of the things that business owners, business managers in a physician's practice need to think about as they go through their whether they own the building, where they rent it, where they're thinking about moving, relocating, what's the renewal process. We're going to get into all of those little finer points as it relates to these real estate questions. So tell us a little bit about your background, Richard. What you do, what's kind of a core competency that you bring to the table, especially in this idea of healthcare, commercial real estate?
[00:02:40] Speaker B: Sure. Thanks, Jeff. I appreciate you having me here and really love working with Kasuf and your.
So the commercial real estate world is very vast, and I specifically have found that if you can really get a niche in a particular market and what I've chosen to do is to work in the healthcare side of that niche when it comes to commercial real estate. So doing that allows you to be pretty much the professional in working with these types of practices, which is why we work so much together.
So one of the core competencies of what we do or what I do is that I work specifically with healthcare practices. Whether it's a startup, whether it's a relocation, if I'm negotiating a lease that's current or a new lease, a ground up, construction build, if somebody wants to add locations, if you've got a practice that you want to sell, and there's a real estate component. I'm dealing with the acquisition of the real estate. But more specifically, I do that on a buyer tenant side. So that allows me to really focus in on one side of the transaction and ultimately gives me a complete fiduciary with my client, your client, my client, the healthcare practice or the healthcare professional to represent their best interest. So I found that that's really not the only way to do it and not necessarily better than any other, but it's the way that we've really discovered works best for the healthcare industry when it comes to negotiating commercial real estate.
[00:04:20] Speaker A: Why do you think a lot of practices or practice managers, even the physicians themselves, tend to maybe shy away or don't know about using or think about using a real estate agent? I don't want to kind of just use a generic term, but someone like yourself that might know the market but isn't leveraged and activated in the decision making process. Right.
[00:04:50] Speaker B: I think a lot of it comes down to just what you said, not understanding. Right. So a lot of times a practice manager has so much going on and they're trying to literally manage the entire practice. And so when you get to the real estate component, which is typically either their first or second largest expense, they just don't understand what's available to them and they don't understand how important it is to have someone like myself that does nothing but negotiate for healthcare practices and knows the market completely. So I think a lot of it is just simply not knowing, not being top of mind, them thinking that there's a fee that's going to be charged, which again, because I represent buyers and tenants, we can talk about that more, but there's not a fee that I charge. And then I think sometimes it also comes down to a practice manager feels that there's a value add that they have maybe to their practice, maybe they're getting paid and they think this is a way that I show my value to the practice, which there's a way that I address that as well. So I think a lot of it just comes to not knowing what's available and thinking that they have to do it on their own because that's how it's been done by so many practices.
[00:05:59] Speaker A: Right? So we all know healthcare is a very tight margin business.
We're all aware of the contractual arrangement. You don't necessarily get what you charge. And so we're all watching those margins and those numbers and a fee conscious practice or physician or business owner manager, we're all watching those that fear is, oh my gosh, here comes someone else with their hand out.
[00:06:31] Speaker B: Right.
[00:06:32] Speaker A: And that's not typical with you. That's not how you operate. So kind of tell us a little bit about that fiduciary that you mentioned and the value that you do bring, especially from a time value of money perspective and how my best and highest use of my time as the practice manager. And I've got a Richard out there who's helping me kind of go through some of those anecdotes, if you don't mind.
[00:07:00] Speaker B: Right. So, again, because I represent buyers and tenants in the healthcare practices when it comes to their leases or their purchases, traditionally, just like if you thought about it from a residential perspective, you go and buy a house and you bring your agent with you to help you look at houses. There's an agent on the other side of the table. Typically when someone's selling a house, not always someone for sale by owners, but most of the time there's an agent on the other side of the table. So same way in my world, when I'm representing the buyers and the tenants, there's an agent on the other side of the table. Most landlords, most sellers have someone working on their behalf, an agent that has a fiduciary completely and solely to the seller or the landlord, which means that and there's usually a misconception from people who don't do this from a living is that, well, there's an agent involved, so we're being taken care of. Well, you're not, because that agent has a fiduciary to the landlord to make the most money for them to the seller to make the most money for them, not to the buyer, right? So as the representation, I go to the table and represent my clients to make sure that they're getting a fair market or better than fair market deal negotiating terms that most people would never know they can even negotiate. And I'm doing that with no fee to my clients. Now, I've had to rebrand the way I say that because a lot of times if I say my services are free, it cheapens what I'm actually doing. So there is a fee because what I do is not free. But the great thing is for our clients that they don't pay it. Right. It comes from the landlord who already has a pre negotiated commission, typically with their agent. And all I'm doing is coming in representing my client with that fiduciary completely to my client, not to the landlord or the seller. And I'm splitting the fee. It's already going to be paid to the other agent whether there's someone that comes to the table or not. So a lot of times the ploy by a savvy landlord or agent would be, well, hey, if you don't bring anybody to the table, we'll save you 3% by not having to pay an agent. Well, that's a complete lie because they're still going to pay their agent the same commission. And they're understanding that most, if not all people who come to the table who don't do this for a living are going to give up a lot of concessions and a lot of negotiating points because they don't know what to negotiate. So that's why even if I charged a jeff, you can attest to this to the savings that a lot of the clients that we work with, if not most that I work with, what they end up saving, it would still be worth it to them right. About the money that they save off the practice. But even better, I don't charge a fee to right.
[00:09:35] Speaker A: That the fees are going to be there regardless.
[00:09:38] Speaker B: Absolutely.
[00:09:38] Speaker A: And it's a matter of and you're not, again, working with a time clock type of thing that the client would see that's a bill each month never sent one. Yeah, exactly.
Boy, all kinds of questions come to mind. And as we're thinking through this and the practice manager, all the pressures on the time and just pulling at you constantly. You're out there working for the client. Right. You're working for that tenant, that one that is trying to get the lease going and such, or renegotiated find this place, all of those the time that that takes.
Talk to us a little bit about some of just the research that you do for a client to find that right spot.
[00:10:33] Speaker B: Right? Yeah. Probably the easiest thing that I do is finding the space.
Does it take time? Sure. But over years in the market. Years and years in the market.
I'm very familiar with that market, as with in other markets. So that eliminates a lot of the time from all the backwork that's been done over the years of negotiating multiple spaces for tenants. And they only, of course, take one space. So I have all these other spaces or buildings or leases that have been negotiated, but they didn't take that particular one. So I have all of those in my resources and in my files so that I can say, hey, based off of these needs, this would be a great fit. I know kind of what we can get from a negotiating standpoint on this. So a lot of it is backwork. But if a practice manager tried to take this home, you would basically be starting from scratch every time. Right. So you could spend 5100 hours minimum doing the right things, finding the right space, negotiating, and then paying a lot of different parties to do some of the things that I would do, again, for no fee. So that's a big, basically piece of the puzzle that I can take off of a practice manager or a doctor who's trying to do it on their own and just take that off their plate. Because, again, I've done so much back research in the market.
[00:11:50] Speaker A: Yeah. And if I were sitting with my practice management colleagues, I'd say, don't try to be so ego driven that you want to come off looking like you're the one who saved the day. Use your resources. Use someone who knows the market. Sure, man.
We've worked on situations where it's one of those I need such and such. And this is what I'm thinking. Oh, well, I've already started talking to that landlord type of situation again. I think from my perspective, it is refreshing to have someone on your side that can go and find these things and help. It doesn't always work out sometimes. I'm sure you've probably said, there's nothing more I can do. We can only get to this point.
[00:12:46] Speaker B: That's right.
[00:12:46] Speaker A: You've got a really good rate.
We're not forcing things so good. So really just helping out with the time, being a resource.
One of the things that I always say is I don't want a salesperson, I want a resource. I want somebody that can provide me information, help me and get through an advocate facilitator and such like that.
There's some paperwork that's involved in a process to get someone like you started in representing a relationship like that. That's kind of the legal side of things. What are some other things that you like to do with your clients to just get the process started?
[00:13:31] Speaker B: Right? Great question. So what I like to do with every client is I like to sit down with them and just talk to them about their vision for the practice.
In my opinion, to really understand some of these transactions and what needs to happen with the practice, especially if they're wanting a new location or to grow, or even if they're in a place they've been for ten or 15 years, it's good. Well, what is your vision for the practice? Like, what is your 510 15 year vision for your practice? And so those types of questions, when they're answering them, which most people don't ask them, other than folks like you who are really invested in their practice, outside of that, most people don't ask them those questions. And that really gets them to kind of open up and really dream a little bit. I want them to dream. It sounds cheesy, but I mean, this is their livelihood, this is their practice. It's what they've gone to school for so long to do. And so there needs to be some vision for that practice. And so I want them to answer those questions, which then helps me to go, to be able to assess where they need to go, what area that would be a great place for them to go, the terms, just in general, what they want to do with their practice. So that's one of the most important things to me, to really start the process. And I do that before there's any paperwork signed, right. Because I wanted them to know this is not about just finding a space, this is about what is best for their practice, what's going to put them in a position where they want to be 510, 15 years from now.
And there's a lot of different factors that go into that.
[00:15:07] Speaker A: So when you think about that and you have the client really start putting down on paper a wish list what do you want? Right, well, I want flat parking. I want free parking. I want this type of entrance, all those little things.
I want to be in a retail space.
Where do you want to be as it relates to the market side of the business?
Again, a lot of what I see you helping with is really understanding the difference between what somebody could do on their own and what you can do for them and with them.
[00:15:57] Speaker B: Right.
[00:15:59] Speaker A: Again, is there market research that you can bring and say you might want to pay attention to this side of town versus this? Sure. How does that conversation typically work?
[00:16:11] Speaker B: Right. So depending on the client, if they want a real in depth market search from a demographic and a printout of where they should put their practice, absolutely have access to those types of things. And I think those are valuable. I think the most valuable thing is obviously having someone who knows the market very well.
Because deeper than some of the demographics, I think when you get in very specific, especially, like if you get into the dental practice, and some that there's a ratio per number of the population per what a dentist should go in. Because if you notice, dentists will go in five and six square blocks based off of the population. So I think those are very important things, and heat mapping and traffic and all those sort of things that I will look into personally. And if a client wants a print out of that, I can absolutely do it. But I think more invaluable is just the years of understanding what is moving, what is flowing in and out, what is the projection, what are we hearing behind the scenes about a development coming in this area and how this is going to transition here. And those are the things I think that they're not necessarily things you can track on a heat map or a demographic printout. But again, those things are very valuable and I can provide those for a client as well. But just understanding the market is the most important thing. And again, if you don't do it for a living, as practice managers and doctors don't do, they may catch a word or whisper here and there, but not really know the full scope of what's happening in a market.
[00:17:49] Speaker A: So that segues into kind of the basics of what has to happen. Right.
And we've got our list. We kind of know where we want to be. We understand what the per square footage lease rate is going to be, and all of those kind of, again, just the things that we know well, then we run into these terms such as triple net, full service NetNet, net, whatever. Can you give us a little bit of a quick and easy way to remember those things as we're dealing with leases?
[00:18:28] Speaker B: Sure.
The fun stuff, the interesting stuff that everybody really wants to know. Right.
[00:18:33] Speaker A: I just like the full service because it's right.
[00:18:36] Speaker B: Everything it sounds great, too, right? Full service. I mean, who doesn't want full service, right? If I go to a resort, I want full service. Right? Yeah. So some of the basics triple nets versus full service leases, you see modified gross leases. You see all these different terminologies that are used within a lease.
And if it's important to understand for the client as we explain it, that's great. And so the basics between a triple net and a full service lease, and we don't have to go into all the modified and everything else, really. It typically comes down to the landlord or REIT and what they've historically done. Right. So if you've got an old school landlord who loves a particular type of lease, most of the time we see them kind of leaning towards full service. Right. Because they know it's an easy number for them to put out. There an easy number to market because typically it includes everything. Right? Well, it doesn't include everything, which is why someone like me knows the right questions to ask. So if they say a full service lease, let's just throw a number out there, and they're advertising a lease space at $20 a square foot FSG, right. Full service gross, that would typically incorporate what we would see on the triple net side, which are the taxes, insurance, maintenance cost. Right. So they're factored into that number. We don't know what their base operating number is. It could be $5 a foot that they own, the building that they're operating at, or it could be $15. Right. So we don't know that number per se, but we know that the full service includes the taxes, insurance, and typically maintenance costs. But there's usually a Cam on top of that. Not always. And then a lot of times, you said cam.
[00:20:12] Speaker A: We got to make sure everybody knows.
[00:20:15] Speaker B: Common area maintenance costs so that's if you're in an office building, there's the shared space, there's the bathrooms, there's the parking lot, there's the landscaping, the electricity. Those costs are passed on to the tenants. And it's based your amount that you pay is based off of how much square footage you lease. Right. And it's broken down on a percentage. So with a full service gross lease, those numbers are typically included. The only things that they will typically not include that we would ask those questions are, again, what does it not include? So janitorial is usually not included. Sometimes it is your electricity, your gas, your water. Those are things that are not always included in that particular space in a full service lease. And we would ask those questions because sometimes they'll tell you how it includes everything but Internet, because you just don't know. Every landlord and agent does something different. Okay, now, on the other side of that, we have triple net leases, so typically, let's use the same number they say it's a triple net lease at $20 a square foot. Well, I then ask the question, what are your triple nets, which are your taxes, insurance and maintenance cost, right? And so they could be anywhere from $2 a square foot. And I've seen them as high in Birmingham sometimes at $13 a square foot, right. Based off of the type of building, the amount of vacancy that's in the building and the cost and how they've been negotiated. Because those costs are a landlord or the management company's obligation to negotiate, how much their landscaping is going to cost, how much repaving this or fixing that's going to cost. And that's a pass through expense to the tenant.
It's not a profit for the landlord, it's a pass through expense.
So the next question would be right, Jeff, which one's better?
Well, there's not really a better.
There are pros and cons to each. So with a triple net lease, if you've got a landlord who's negotiating the cost, right, you will see sometimes that if they're overestimating the cost at the end of the year or the end of the quarter, however they bill, you could potentially see a reimbursement, right, an overage that you paid that you would get back. Whereas with a full service lease, you don't always see that because we don't know what the operating number is. And they sometimes overestimate or underestimate and they eat the cost. The landlord does if they don't estimate enough. Right? If it's a full service lease. And then what they do is the next year they re amortize or restructure those services or those costs for the next lease year, which is something we negotiate as well, which is the correct base rent year for a full service lease.
[00:23:00] Speaker A: And that's where you typically see that invoice that comes in after the fact, right?
One of my clients, we've got that operation expense situation and kind of near the end of that quarter, I'm constantly checking in, how are we doing? Do I need to start watching the air and the lights, HVAC, all of that a little bit closer? Fortunately, we've got some good folks in that practice that are frugal and pay attention to those things and not just crank the air up all the way over the weekend and the middle of summer where it's freezing when you walk in on Monday morning. But that's just a partnership with everybody understanding that we just got to pay attention to all those expenses and to ask you which one you favor over the other.
[00:24:05] Speaker B: I favor full service lease. Always.
There's pros and cons, right.
[00:24:12] Speaker A: But even in the other, where you're sort of paying the yard person or landscaping and such, you don't necessarily have a say so because you're not going to have four or five landscapers out there. So it's staying in good communication with the property manager and the landlord. Right.
[00:24:37] Speaker B: One's a little bit more open ended, maybe a little bit more transparent from a triple net, whereas a full service, you just know it's taken care of and it's a little bit less obvious of where the expenses are for sure.
[00:24:54] Speaker A: Just real quick, how much involvement do you have with the property management group or the landlord if he or she or that entity is doing all that and the tenant kind of even after the transaction takes place and the lease is in place and such? Sure.
[00:25:21] Speaker B: Not a lot. We hope that those things are negotiated correctly up front. So if there's a question that a client has that says, hey, listen, this was said or negotiated, but this is what's happening, then I'm going to delve into, all right, well, what did the lease say? What did we negotiate? And then I can follow up at that point and say, look, Mr. Landlord, this is negotiating the lease. You've got to hold by the terms of the lease. And these things are not lining up with what was negotiated for sure. So that's really the extent of it. And then just making sure that everything's negotiated up front is the most important part of before signing that contract. It's got to be right. You've got to consult your team at Kasuf. We need to make sure an attorney's reviewed the lease, that everything looks right and is what we negotiated in the terms of the letter of intent?
[00:26:08] Speaker A: Yes. Good. Well, we've got a few more minutes on this session and our second time around, I want to kind of get into some of those war stories and some other strategic kind of things that one might consider. But as we wrap up today, a few more just basics, if you will. What are some of the real landmines you look for? Would caution someone that's looking at a lease, not that we need to just get the lease and hey, I listen to this podcast. So I'm now an expert because you've spent a lot of time at this, but we all work together. You see things that I didn't see, vice versa.
What are some of those landmines that you really try to pick up first and foremost when you get a term sheet or the actual lease?
[00:27:06] Speaker B: Right. So going back to having an experienced real estate attorney is a big deal, right.
Consulting your team that you're working with and then making sure that you have a real estate attorney. That actually a lot of times what we'll hear is clients say, well, I have an attorney. Well, they're a divorce attorney, right. Or they've done a real estate deal before. Right. So the first thing we want to do is make sure that they understand real estate, they understand their practice, and that they understand really what their place is. And that is to make sure that the legal parts of the contract are no more advantageous than the landlord, than they should be, because every contract, every lease is written in favor of the landlord, it's not written in favor of the tenant. Right, right. So we want to make sure that there's nothing out of the ordinary first, and that the terms of the letter of intent that we've negotiated line up with the contract. And some of those things within the contract that we're going to make sure that could be landmines are. First of all, I want to make sure that if there's a build out included, in other words, if they're going into a new space or their space needs to be rehabbed, that there's enough time within that lease that gives them build out time so that, in other words, they're not going in. If they need four months of build out, they're not in the space. And paying rent the first month. Right. They need to be at least four months out, if not longer. So that that way they're not paying when they're not making revenue, when there's no revenue coming in. So we want to make sure that's negotiated. We want to make sure that there's free rent even over and above the build out time to give them some cushion. Especially if it's a new practice starting a new practice that they have some time to settle in. And start seeing patients and the time it takes to move into a space or rehab the space and then going back to the cam stop, making sure that there's what we would say was a cam expense stop. Or in other words, the landlord can't have an unlimited ability to continue to raise what their expenses are. And so there's an expense stop basically that's negotiated in the lease. Outside of that, there's a lot of variables that we negotiate, but from a landmine that usually gets overlooked and then a base year, if it's a full service gross that we're making sure that the base year is based off of the year they're either moving in or the following year. So that way that there's a good average that they're seeing when they're coming into paying their lease. Those are some of the landmines that are kind of outside the box that we see that would want to be paid attention to and they're almost always overlooked.
[00:29:32] Speaker A: And getting those building policies and procedures, knowing what you're getting into, where what.
[00:29:38] Speaker B: You can and can't do exclusivity in the property is a lot of times it's overlooked. And we make sure that that's always in the initial negotiation, that they can have an exclusivity. And if they can't have a 100% exclusivity, as we know that it can be defined enough that it makes sense for the practice, that they don't have a competing practice coming in next to them and their practice is set up for success. Right.
[00:30:01] Speaker A: And I'll tell you, as we wrap that's kind of just that little point of wow, I never thought about that. Well, that's why you have experts and advisors. To help with those things.
[00:30:16] Speaker B: Right.
[00:30:17] Speaker A: Well, Richard, thank you for being with us in this segment. We're going to bring you back for another segment where we talk a little bit more about those anecdotes, a little more conversational, and appreciate all of the basics and just the things that we need to be thinking about from a technical standpoint as it relates to our real estate in the healthcare space.
It's an ever moving target, and that's why we appreciate experts like yourself being a part of this.
[00:30:51] Speaker B: Thank you, Jeff. I'm glad I could be here.
[00:30:53] Speaker A: Yeah. Russ, thanks again for man the board. My name is Jeff Dance. I'm the host of your Kasuf Revenue Radio, where we bring you ideas and information on how you can enhance the practice of medicine and always maximizing your revenue within your practice. Thank you and we'll see you again soon. Bye.