Thursday, February 19, 2015

The Long Range Plan in Medical Real Estate

By Richard A. Campbell III, CCIM with Veritas Medical Real Estate Advisors

When was the last time you assessed the long range plan for your clinic space? Do you have enough space? Do you have too much space? Are you looking to hire another MD, PA or NP in the next 5-10 years? Where do you want to be in the next 10-15 years? Are you a small practice, large practice or solo practice? Do you need to be near a hospital campus? Are you located conveniently to your patients? Is your clinic easily accessible? Do you have growth options? All of these questions affect your occupancy costs, and ultimately your bottom line. Therefore, they should be evaluated on a regular basis.

While pondering your office/clinic space, you should start with this……where are you in the life cycle of your practice? Are you in the early years with decades ahead of you? Or perhaps you are the veteran who wants to retire in 5-10 years. Most likely, however, you are somewhere in between. As a result, you will need a regular assessment of your space needs.

Controlling fixed costs has never been more important than now as we face a new healthcare environment driven by recent Federal changes. Whether you are a dermatologist with a three doctor practice, or a solo family practice doctor, you are likely concerned about the bottom line. After the cost of your employees (including health insurance), real estate is likely your next largest expense. Controlling that expense should be near the top of your list to keep a healthy bottom line. So… you see major changes in partnerships or practice employment? Are you a solo doctor who plans to remain that way throughout your career or are you on a path to build a multi doctor practice with potential for new satellite locations? Either way, you should regularly go through a comprehensive space planning and forecasting process.

The key to effective planning and decision-making today involves thinking about where you want to be in 15 years. Medical real estate decisions are almost certainly tied to longer commitments, oftentimes 10-year terms. Building owners will dangle enticing “carrots" in front of you in return for a long-term deal, but it may not always be in your best interest. In particular, that commitment could be problematic if it confines you to a direction that is not part of your long-range plan. You must know and understand ALL of your options. If your decision is based on a well thought out, long-range plan, it will work out even if you have to make some shorter-term sacrifices.

Here are some key points to help you assess your current practice state:

1) Do not get caught up in the false belief that owning your own building is always the best thing. Sometimes it may be a reasonable option but often times it is not financially feasible.

2) Think in terms of total occupancy costs as opposed to per square foot rates. For example, it’s possible to negotiate an excellent rental rate but lease 2,000 sf of space that you don’t need and your resulting total occupancy costs ends up too high.

3) Term is gold to property owners. Make sure you get the weight worth the gold you pay for longer term commitments.

 4) Always be familiar with your next best alternative. Whether you are leasing or buying, knowing your options is fundamental.

5) Seek the advice of a specialists in medical real estate.

Richard A. Campbell III

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