ENCORE - Revenue Radio: Healthcare Real Estate Part 2

Episode 16 December 07, 2023 00:33:43
ENCORE - Revenue Radio: Healthcare Real Estate Part 2
Kassouf Podcast Network
ENCORE - Revenue Radio: Healthcare Real Estate Part 2

Dec 07 2023 | 00:33:43

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Hosted By

Tara Arrington

Show Notes

Kassouf Healthcare Solutions's Revenue Radio gives practice managers the tools you need to run a successful and profitable medical practice. Your host, Kassouf Healthcare Solutions Executive Director Jeff Dance, discusses the opportunities and challenges related to the business side of medicine. 

Today's episode features Commercial Real Estate Agent Richard Tidwell who specializes in healthcare real estate. Whether it's a start-up, relocation, or lease negotiation, Tidwell offers providers and practice managers with niche expertise to make the best decision. This is part two of the coversation, building off this episode

Founded in 1981, Kassouf Healthcare Solutions was created to handle the business side of medicine, allowing doctors to focus on their patients. The Kassouf Healthcare Solutions team is comprised of operations management and revenue cycle specialists. We enhance the business of medicine by providing value to our clients with an action-oriented and caring customer-centered focus. Learn more here. 

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Episode Transcript

[00:00:04] Speaker A: Hello and welcome to the Kasoof Revenue Radio podcast, where we bring information to you, the healthcare practice manager, the physician, the business owner to enhance your business of medicine. We're powered by Kasuf and Kasoof Healthcare solutions. We're glad you're with us today. I'm Jeff Dance, your host. I'm also the executive director of Kasuf Healthcare Solutions, and we appreciate your time and the chance to be with you today as we again bring information to the table that will help you in your practice today. We have back with us Richard Tidwell. Richard is a commercial real estate agent specializing in healthcare. If you were with us in our previous podcast, we learned some of the basics as it relates to leases, some of the things to be thinking about as you use or a practice would use a commercial real estate agent. Now, we want to kind of bring all of that together, kind of talk about some of the things that you're seeing, trends, some stories maybe, of what worked right, what didn't work right. We really focused last time on the time value of money to use an expert such as yourself. And we want to kind of follow that up today with just some, again, strategic thought and direction and such as we go forward. So, Richard, welcome again back with us and Russ Dorsey again on the board, helping us out, making sure all the technical pieces work together. And we're ready for another great podcast session on Revenue Radio. [00:01:46] Speaker B: Thank you, Jeff. [00:01:47] Speaker A: All right. So, Richard, as you start getting into the wants and the needs on what you need as a space, what are some automatics that you just kind of know that the landlord is probably going to push back on? As you bring a term sheet or a lease as we're thinking about a lease space to a landlord that maybe you've seen some stories or some situations that it just was not going to happen. [00:02:21] Speaker B: Right. So the first distinguishing factor would be whether it's going to be a lease or a lease renewal. So very two different approaches to landlords and usually very different response from landlords. So when you think lease renewal, you have to kind of put yourself into the perspective of the landlord, which is what I always try to do in a negotiation, in a transaction, is to go on both sides to understand where is the landlord coming from, right? So if they've got a tenant that's been in their space for ten or 15 years right, and they feel like they have a good relationship, and that client, through you guys, has hired me to help them renegotiate their lease. It's something that most commercial real estate agents don't want to touch, right. Because it's very tricky in the way that it has to be approached. So if I'm approaching a landlord, the most important thing that I do for clients is make sure that they have options, right? If there's not options, then all we're doing is bluffing and most of the time we're going to be found out, right? So having options on the table for clients when it comes to leasing a space, even if they're one that they've been in for 10, 15, 20 years, as long as they have the mindset that there's a remote possibility that we could go somewhere else, that's what matters, right? Because the market is the market and we know what the market is and we want to make sure that there's always options on the table for the market. So the landlord's immediate response to a lease renewal is, why in the world would I pay you? And why in the world would I negotiate? Why in the world would I meet your demands on a tenant who's been in my building for whatever that term is, 510, 15 years? Well, the truth of the matter is they're probably over market at this point, right? They've probably not had someone negotiating for them in the past. And so the market allows them, if we're looking at the options, to explore going somewhere else. So we want to make sure that they do that because most of the time they find that there's great options out there that they never knew existed. And so that landlord immediately is going to respond negatively. But we know how to overcome that. Making sure that, again, my job is not to make sure that the landlord goes out of business, right? My job is to make sure that our clients are getting the best terms and being valued for a medical practice, right? So that's what we want to make sure that we're communicating with the landlord. And if it's a new lease, it's a different conversation and normally a little bit more receptive, but there's still going to be immediate things that the landlord, a savvy landlord or a savvy agent for a landlord, most of the time is going to want to fill out who they're dealing with, right? They're going to know, does this person know what they're talking about? Well, if they're not talking with an experienced commercial real estate agent like myself who deals in the healthcare world, they know how to do the right things, to make the right statements, to ask the right questions in order to get the best deal for their client, who is the landlord, right? So we want to make sure that we come in and them understanding that we're here, that everyone can benefit from this. The landlord can benefit, my client can benefit, and everyone together gets something positive out of this. [00:05:32] Speaker A: I think something also to remember in all of this is if this deal goes through, I'm in that space, I'm going to have to be dealing with the landlord and they with me. And if it's five year, ten year, whatever it is, there's time together that we're having to work with each other and such. And you don't want to go into it adversarial, but you don't want to give away the store either, right. So with that, what are some of the trends you're seeing in we'll just start with lease space and then maybe some purchase build by type of scenarios, right? [00:06:18] Speaker B: So what we're seeing right now trending with leases is obviously it's not a shock. That what's happening in our economic status right now in the country and interest rates are going up and things are getting more expensive. And so with that, there's still a lot of opportunity. So we understand that when landlords need to lease out their spaces, right. So again, it comes back to knowing how to posture within that space. We see a lot of practices right now that are wanting to go out away from hospital systems. And it's very cyclical within the healthcare world. We see it in and out every five to ten years. You see wanting to go back into the hospital systems on campus, wanting to be out in private practice, then back, then back and forth. And so right now, I see a lot of practices that are kind of moving away from having to be on campus. That doesn't mean all practices are doing that, but we seeing a lot of practices moving off of campus in leasing spaces and medical offices or even just traditional office spaces and retail spaces. What has been great for our clients is that a lot of the factors or things that were a result of COVID and a lot of the shutdowns when a lot of retail spaces closed and a lot of people changed the way they did business is it opened up a lot of space that traditionally some medical practices wouldn't go into. As a matter of fact, making the landlords needing those spaces to be filled. So we're able to really capitalize on a lot of nontraditional spaces that medical practices are not always necessarily in. [00:08:02] Speaker A: I've heard you say before that landlords like physicians. They like that physician client because it can be a long term relationship. Physician doesn't want to be just moving the practice around. Speak to that a little bit about that beginning of that relationship and how that could be a sales item on your part to the landlord on behalf of the client. [00:08:32] Speaker B: Yeah, absolutely. Understanding how important a medical tenant is to a landlord is key. And communicating that to a landlord because most of them would have kind of changed their thought process because it was always not sure that we want medical because of the cost of build out or because of whatever that we want retail coming in. Well, a lot of landlords have understood over time that medical tenants stay longer and pay on time. Right. They have a lower default rate, right, much lower default rate. And so communicating that to a landlord when they would typically say, well, the build out is going to be this, well, you're also going to get a long term tenant who's not going to most likely default on this lease. They're going to pay their lease payments. [00:09:14] Speaker A: Right? [00:09:14] Speaker B: Right. And so communication of that is very key to upfront getting the best terms, the most build out, the length, the correct length of term from that landlord and understanding how important that tenant is to them. [00:09:27] Speaker A: So, again, thinking outside the box and looking for alternative type space, you've got the whole Amazon factor now where retail is suffering because of the deliveries and such man medical to a landlord who's got inventory is a huge selling point. And those longer term leases, you get better tenant improvement rates and such, that seems to be a big win for the practice if they can think through it enough and again, use someone that can advocate on their behalf. So the tenant improvement piece, what are you typically seeing there? Maybe the startup side as well as going into the renewal piece and what improvements might need to be made? [00:10:34] Speaker B: Sure. And a lot of it obviously depends on the particular space, if it's a first gen space, if it's a class A office or just a traditional retail space. There's so many factors. Which is, again, why hiring someone who knows what they're doing? Not to be redundant, because I'm going to ask the right questions, someone who does what I do for a living daily, is going to understand that it's not always about rent rate and it's not always about this particular number. It's what is the landlord's plans too. I want to understand the landlord. Is this a long term hold for a landlord? Right? Are they planning on selling this building? Right. So a lot of those things factor into what we can ask for. Are they cash rich? Do they have a lot of cash on hand to do these type of projects? Or does free rent make more sense to them? Does the rent rate need a little bit higher, a little bit higher from a resale standpoint? And we get more free rent or more tenant improvement because the number affects their resale of the building. So these are all factors that go into how I'm able to negotiate a particular deal. Is understanding what the landlord you mean. [00:11:41] Speaker A: I can get free rent? [00:11:42] Speaker B: Absolutely, you can get free rent. In fact, I always negotiate free rent and a lot of times landlords are more willing to do free rent that actually outpaces what they would get in tenant improvement or rent reduction because that number affects their bottom line and what their plans are for that particular space. [00:12:01] Speaker A: Right, yeah. Again, asking, presenting the information, the wants or the needs. [00:12:10] Speaker B: Right. [00:12:10] Speaker A: A lot of times the landlord doesn't know what you need in your practice and it's a legitimate ask and some of that can work into the entire equation, if you will. [00:12:23] Speaker B: Absolutely. [00:12:24] Speaker A: I don't want to get too much into interest rates right now because, again, they could change. And I don't want to necessarily date the podcast, but we do know, as you mentioned, that it's a tough economic time and carrying cost and finding money, borrowing money, and such financing is a factor right now. How is that affecting some of the overall trends that you're seeing? And maybe going with the lease versus I was going to go out and buy, set up my LLC and lease the space back to myself. [00:13:03] Speaker B: Right. So what I'm seeing a lot right now in the market is actually probably contrary to what some people would think, I actually see the interest rates affecting a lot of the REITs more than anyone. And for those who don't know what a REIT is, a real estate investment trust who owns typically they'll own different medical office buildings, physicians plazas, and then even sometimes the hospital themselves. But what I've seen more of the effect from the interest rate. Are the REITs tightening up on rent rate reduction? Right. So one would think that most people are stalling their projects. Well, I think there's kind of been an adverse effect from all of the COVID shutdown in 2020, 2021, and even spilling over a little bit early into 2022 where people were already stalling projects right. Because they weren't uncertain in the healthcare world of what was going to happen. Specifically, what I've kind of seen from a trend and I've talked with a lot of my colleagues, is that people are moving forward on projects even with the interest rates going up. Right. Because there's not necessarily a plan or what we see for interest rates to go down. So if they continue to go up, you got to take advantage of those rates right now. Correct. And they've stalled these projects for the last two years, two and a half years with the other things that were happening in our economy. And so I still see a lot of people moving forward. In fact, I probably am working on more purchases right now than anything. But on the adverse side from an interest rate, I see REITs in some of the landlords, but more particularly big corporate REITs tightening up on what they're willing to do in a reduction of rent because of the escalating cost. Right. So that's to me, what I've seen and asked around I've seen that be more of the adverse effect of the interest rate is on what we're seeing from if I'm asking for a pretty aggressive reduction of a rent rate for a client. Well, instead of doing A, B, and C, they're not reducing rent rates because of interest rate, but maybe they do this concession instead. So that's where I've seen more of the effect of rates, is more on that side of it as opposed to the purchasing side. [00:15:03] Speaker A: Good, all right. I know, again, you've mentioned before, and we see that kind of ebb and flow of physicians going out on their own, then they're back into either private equity or the hospital owned situation. You're kind of in those spaces that are dictated to you, but then some of that risk is off and all of that. And I know you're working both sides of the situation as it comes along, whether they're coming out or going in and you're trying to help maybe in those situations. I guess the point of that is if you're going into a space, it's got to make sense for the term of the lease, right, as well as the traffic. And a lot of folks, or I say folks, a lot of what I typically hear about and see is, oh, well, there's empty space over there. And sometimes I say to myself and to my client, is there's probably a reason for that. There's a reason why it's so cheap, there's a reason why it's empty. How do you coach a client to not get too emotional about it, hey, there's really hot space, or what might be perceived as hot, but really is going down. [00:16:39] Speaker B: Right? Yeah, that's a tough one when you're coaching a client. Again, what I relate back to, and I said this in our earlier podcast, is how I ask them questions when we're kind of dreaming and looking through the vision of their practice. And a lot of times I'll use those questions and their answers to go back and say, well, you want to do this? Right? So if our plan is, our vision is to do this, this may be a little bit contradictory to what we're doing, right? But at the same time, we're going to look through that market and we're going to put four, five, six different options on the table and from maybe a wide spectrum of what they're looking at. So we don't ever want to focus on what I tell clients, is I don't ever focus on just the numbers and I don't want to ever focus on just the dream. Right. So you want a combination of numbers and dream and come to the middle, to where this makes the most sense for your practice. So if the rent rate being cheap in an area where your particular practice may only need this to happen, right, then maybe we look at that area that maybe not everyone else is maybe they're overlooking. Right. But if your practice is full, what you're wanting to accomplish actually is over here, then we need to pull away from that. Right. Because it's not always about the bottom line, rent rate, number. It's about what puts your practice in the best scenario to achieve what you're trying to do and be successful. Right. So a combination of dream and number and pulling that to the middle, but, hey, let's look at it because it never hurts to look, right. But then let's figure out what works best for your practice. [00:18:18] Speaker A: Yeah, right. Excellent. Good points. All right, well, we're kind of to the point in our time together where I want to kind of hear the good, the bad and the ugly. Now's the chance sort of to brag on yourself a little bit on some of those wins that you got that just seemed out of just there's no way that could happen. [00:18:42] Speaker B: Right. [00:18:43] Speaker A: What are some really neat wins you got for the client as it relates to maybe tenant improvement or some of that free rent or extended periods and such, maybe even on the renewals. Kind of give us some of those thoughts so we can kind of think real world situations. [00:19:04] Speaker B: Sure. So a couple of scenarios come to mind early on where I had a practice who again, they found me through some conferences and decided they needed some help. Pretty large practice who was looking to just renew their lease. Like most doctors, the majority of the time what we see is a lease gets slid across the table a few months before and they resign a lease for however long that is 510, 15 years, and give up a lot of money that they didn't negotiate. Right. So this practice had the fortitude to bring me in and have me negotiate their lease renewal in a place that they had been for 15 years. Right. And so posturing and putting options on the table and leveraging those options for a practice, it was 1112 doc practice, which is a large practice. But at the end of the day, I was able to renegotiate a space that they had been in for 15 years by having options for them to move to or build a new location and save them around $2.3 million on their ten year lease renewal. Right. And some of that included $600,000 or so in tenant improvement, build out free rent, rent rate reduction, resetting their base share on their expenses, and a lot of things that normally wouldn't be negotiated but for that practice. Over $2.3 million for ten years, which is 200 plus thousand dollars a year as a savings to their practice. On the other end of that, a practice who I also was introduced to that had too much space in their building that they were leasing, they had lost some physicians over time, didn't need that space, didn't know what their options were, what they were going to do. This was just prior to COVID, this was literally about six months prior to when everything shut down. I was able to find them a new space in a different location for the exact amount. I think we cut off 3000 off of their practice and saved them, basically cut their rent in half. Their rent went literally in half. And I received a letter from the practice administrator kind of in the heat of COVID and he said it literally kept our practice in business. We didn't have to shut the doors, we didn't have to lay off a single employee. And we were able to continue going through all of this because we had put the right person in place and we had negotiated this down to where we were paying half the rent that we were paying before. So those are the ones that really stick out to you because when they write you a letter and say, we really feel like this could have saved our practice and obviously saved employees from getting laid off in the middle of something as traumatic as what was happening in 2020 and 21. Those are the ones that you like to carry with you? For sure. [00:21:54] Speaker A: Good job. Have you seen the situation where if they only listened to you, you brought a great idea and it just pushed off to the side? [00:22:12] Speaker B: Yeah, absolutely. [00:22:13] Speaker A: The regrets that went along with it. [00:22:14] Speaker B: Yeah, absolutely. And those are the ones you kind of want to forget about because if they had just listened but yeah, there are those scenarios that have happened to where a group should have made a decision, but for one reason or another, especially when you deal with large medical practices, having everyone agree is a tough thing to do. And then sometimes just letting go of this is what we've always done. Right. This is the way of my practice has always been. Especially when you have practice managers that I deal with that try to be forward thinking and they're trying to improve the practice. When you have one that just because of old school thinking changes bad. But when the numbers are there and everything lines up and they still make a decision to stay with the old school thought, those are the ones that you just kind of have to walk away and say, you know what, I've done everything that I can do. We've presented everything that we can. This is the best thing. And at the end of the day, the practice has to make the decision and all I can do is help point them in the right direction. So sure, there are some of those. [00:23:18] Speaker A: Yeah, you kind of regret that. Tell us, do you get involved with expansions in an existing space where the practice is growing or absolutely. They want to add a new service line and there is some extra space or capacity there in the maybe it's a medical office building, a multitenant type of situation. Do you get involved with that? And if you do, how does that typically work? [00:23:48] Speaker B: Absolutely. Yeah. Landlords love that. They love when you call and say, hey, listen, practice needs more space. We're looking at options to go other places. If you have contiguous space or a space nearby, we would be open to that option. Again, everything I do is posturing. Right? And it's legitimate, it's not a bluff, but it's posturing to do the best for my clients. So I absolutely get involved with those done many to where they're expanding into an existing space. Typically what I would do is if there's lease term remaining, I'm going to negotiate for that lease to start over from the end of that construction period and when they're opening up. So we're restructuring a completely new lease, which a lot of times is a great negotiation with the landlord because not only are we not going to move, we're going to give you more space that's not being leased, but we want the lease to start over and here's the terms for this new lease. So those are things that work out for everybody, honestly, because it's an easier transition, especially if it's a contiguous space that the landlord hasn't been able to rent. And a lot of times we're able to really negotiate some pretty strong terms and the build out in order to keep that tenant there when there's the space available. So love doing those projects. [00:25:04] Speaker A: I like the position that a practice manager is in, in those types of situations. For the most part, really, all day in our jobs. We have to really separate ourselves from the emotional side and all of the glitz and the glamour and really look at it objectively and be the calming factor and having again a resource that can think that way and not go, oh yeah, that's the greatest idea in the world. And it really isn't, but it seems like it might be on a whim. And I like having that extra thought, there somebody that I can bounce those ideas off of. Again in an objective, calm, almost separated way. I want to be engaged and I want everything to work, but man, sometimes it looks better than it really is and you just need to step back a minute and think through it. And we don't need all of that extra space. Even though the landlord comes back and says, yeah, we got it, what do you need? [00:26:20] Speaker B: Right? Yeah. When your scope is here, it's hard to see the big picture sometimes on what's around you. So obviously having people like you that work on behalf of their clients and then myself on the commercial side of it, opening that scope to say, sounds great, but here's the reality of the picture, right. And I think the biggest thing what you said, that's something that I try to bring to the clients is so many times, especially if a client's been in a space for a long time and they've dealt with the landlord, or they've dealt with the agent, or they periodically see them or have gotten into an argument with them in the past, or there's been some drama. What I do is come in and say, listen, I'm removing the drama from this, right? This is a business transaction, we're going to look at all the options and then I'm going to remove that conversation or that history from this transaction, right. And I'm going to be your advocate. They're going to communicate directly with me and then I'm going to communicate directly with you and we remove any tension or history or emotion from that and create it purely off of our discussions and what happens between the landlord and the landlord agent and myself. And so it really removes that tension that could potentially have been there or may come from the transaction or the negotiation. [00:27:35] Speaker A: Well, I had a situation where we were trying to put a client into an area where there was an anchor store in a big shopping area and the anchor was really using the incoming practice to gain some leverage with the landlord, the property owner and such. And the physicians couldn't understand what was going on and they were taking it personally and getting all the emotion. I just had to keep saying it's not about you, they're using you, but it's not about you. [00:28:13] Speaker B: Right. [00:28:13] Speaker A: And of course, the agent that I was using, I needed that person to be a little more emotional. But it was an interesting dynamic. We finally got through with it and I think the anchor store got what it wanted. We were able to see patients, but it took a while. But having somebody that is on your side, but not so just drinking the Koolaid kind of situation, to use that old term, is always helpful. What else? I don't want to end on a low note, but what are some things that if you could have done better, could have made the deal better? Any of those kind of helpful thoughts because we can always look backwards and kind of learn from some mistakes. What are some other things you've seen that might help in this discussion to not go down that same route? [00:29:17] Speaker B: Right. So I try to find opportunity everywhere. I like to say there's posture everywhere and there's opportunity everywhere. So again, not ending on a bad note. With the things that are happening in the economy and interest rates rising and things getting more expensive, a lot of books that one can read and people who have gained wealth in bad economic times are that right now, even though things are getting more expensive and rates are going up, there's a lot of opportunity to seize. Right. For practices who are willing to think outside the box a little bit, they're willing to take a little bit of risk, have a little bit of risk adverse to know that those things can pay off for them in the long run. Because where people who are very lending heavy, they have to borrow in order to do anything. If there's some cash or there's some way that those practices can leverage in this economy, they'll find themselves getting into a building or into a space for a lot cheaper than they ever could. And in the long run, when things recover, when things come back around, they're going to put themselves in a good position. So I like to just say I see a lot of physicians right now trying to do. That. And I'm impressed that they're taking some of that risk because they understand the long term gain to this. Right. They understand the long term who makes some money in times like this. So I think Dan, on a positive note is that there's a lot of opportunity out right now for medical practices that are willing and wanting to do something and to expand or to add locations or to own their own location right now. So I would encourage those out there that are thinking about it have put it off or they're just not sure to really consult someone like the Kasuf team that's going to be able to pull those numbers together and say, listen, you're in a good position. Why don't you think of this? And then of course, you can bring me on if you want to or someone like me to really be able to help you to take advantage of the market right now that we're seeing long term. [00:31:17] Speaker A: Yeah. Good. Russell know we're coming to the end here, checking our his. In his mind, he's thinking as long as there's fiber into the does that's one of those questions I ask, what's our it? That's right capabilities. And again, from a healthcare perspective, you get one of these common closets on the floor, the third floor of a five story building. And yeah, this one services everybody on the third floor. And there's no cage, there's no security. And those are always things to, again, have your quality It folks involved in your security and compliance people. [00:32:00] Speaker B: Absolutely. [00:32:02] Speaker A: There are a lot of things to think about. [00:32:04] Speaker B: Absolutely. [00:32:05] Speaker A: And if you go to try to do it all on your own, you're not using your resources properly, you can think, you're not missing it, but it can happen. [00:32:14] Speaker B: Absolutely. [00:32:16] Speaker A: I appreciate your time, Richard. Thank you for being here today. This is always helpful reinforcement and new information that you've brought to us. [00:32:29] Speaker B: Anything else, just a pleasure being here getting to talk with you about this. So I think the more information that's out there and people realize that this is available to them and that they need help and there's nothing wrong with asking for help when you got a practice to manage and patients to see. You don't need to try to be involved in everything all the time and use the right tools in place. So I appreciate you allowing me to be here and to talk about it. Great. [00:32:55] Speaker A: And I think that's a great closing message. And again I'm jeff dance. I'm your host today with our Kasuf Revenue Radio podcast. We appreciate your time and being with us today as we bring you information that helps you maximize and enhance the business of your practice. Whether you're a practice manager, a physician, a physician owner, a practice owner, we want this to be a resource for you. And again, we appreciate your time as you are with us on the Kasuf Revenue Radio. Podcast. We're powered by Kasuf and Kasuf Healthcare solutions. Thank you and have a great day.

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