Commercial real estate has been around for hundreds of years. Over that time, lots of myths about the field have taken root in the popular imagination. Without a tenant rep to help you weed out the truths from the falsehoods, you might find yourself buying into some of these half-truths.
Over time, this could cost you tens of thousands of dollars!
To make sure that doesn't happen, you'll have to dislodge them from your cranium with a little mental housecleaning. Here are just a couple of the more pervasive half-truths:
1. Brokers are expensive.
So many dental professionals buy into the nonsense that hiring a commercial real estate agent is prohibitively expensive.
This isn't even remotely true because the money for a broker's services comes out of the landlord's pocket and not your own. So, for at absolutely no cost, you can hire a tireless advocate who will get you the best possible deal as you make your way through the complicated negotiating process.
However, if you don't hire your own broker and leave it up to the listing agent, you're taking a considerable risk. That's because the listing agent has a fiduciary obligation to the owner.
Not to you.
2. A full-service lease is better than a triple net lease because it's cheaper.
If you don't have much experience in commercial real estate, a full-service lease might seem like a MUCH better deal than a triple net contract.
That's because with a full-service lease, what you pay for rent includes all operating expenses.
But with a triple net lease, you pay all these expenses.
You might be asking yourself, "Why on earth would I want to pay for these expenses when I could get my landlord to pay for them?"
However, before plunking your hard-earned money for the full-service lease, there's something you must consider.
And that is, if you go with a triple net lease, your base rent will be considerably lower.
Plus, you'll have much more control over what you pay for operating expenses.
For example, you could rebid service contracts or control costs in other ways.
You're paying for operating expenses anyway in your full-service lease because it's part of your overall rate.
It's just a less transparent way to charge you for space than the triple net option is.
Also, many full-service leases have a base year expense stop built in.
This means that your landlord can charge you more rent if your building operating expenses exceed the level set in the base year.
Just make sure that if you decide to go with the triple net option that you know what your CAM fees are going to be.
This is what your landlord will be charging you for the use of the common areas of the building.
Some landlords like to conveniently forget to tell you what this cost is.
This makes the triple net deal sound better than it is.
Landlords are TRICKY this way.
For example, a $23 per square foot triple net rate might look like a better choice than a $30 full-service lease.
But if the $23 rate also includes a $10 per square foot CAM fee, the full-service option is the cheaper option.
3. Leasing costs less than owning.
The upfront costs of leasing can be less than buying a building.
However, that doesn't mean that it's cheaper than owning because leasing can carry higher month-to-month costs.
If you plan to stay in a location for seven years, then buying might be better than leasing.
That's because, over a 15-year occupancy period, leasing commercial real estate costs 86.6% more than buying a property.
However, when the occupancy period drops from 15 to 7 years, the cost of leasing is less than the cost of buying.
This makes seven years the "breakeven" point for buying vs. leasing.
4. You'll have to pay for tenant improvements.
One of the most damaging myths that dental practitioners buy into is that they must pay all the tenant improvement costs.
What many of them don't realize is that if you negotiate effectively, you can get your landlord to pay for most or all these expenses.
That's why it pays to hire an experienced tenant rep who will be your strenuous advocate come negotiating time.
That's because when push comes to shove, landlords often will offer a discount on rent so that you can make necessary leasehold improvements.
If negotiations are successful, the landlord will agree to give you a certain amount of money known as the "tenant improvement allowance."
This is money you can use to get your space just the way you want it.
5. I have to always make sure I'm paying the lowest rent.
It's not only about getting the lowest rental rate because you also need to look at the overall costs.
You might give yourself a hearty pat on the back just because you got yourself a lower base rent than a colleague.
However, that person might have a lower total expense because they have a triple net lease and has more control over what is spent on operating expenses.
That's why you need to look at the whole enchilada.
Not just the base rental amount.
6. I can look for space on the Internet myself without a broker.
Lots of dental professionals think they can look for commercial properties on the Internet all by themselves.
There is some truth to this because there are over 10 websites in existence where you can look at possibilities for dental office space.
However, much of the information on these websites is inaccurate or out-of-date.
And most of the prime space gets snatched up before it can make its way to these sites.
A broker exclusively specializing in healthcare real estate can be a better resource for up-to-date information.
Besides, leasing office space is a complex process that requires professional expertise.
You're making a substantial financial decision, so hire a pro to help to minimize the risk instead of looking on your own.
7. I'll get a lower rate without an agent.
Some dental professionals think that by forgoing an agent, they'll save money on leasing office space.
But this isn't true, because how much you save depends on how effectively you negotiate your lease.
And for that, you'll need an experienced tenant rep who's honed his negotiating skills to a razor-sharp point.
An experienced tenant rep knows the market, and this can save you both money and time.
8. There's no way I can afford shell space.
Shell space refers to a part of a building that has an exterior, but no interior refinements.
This is brand new space that's never been used before.
If you're lucky enough to acquire shell space, you'll have a blank canvas—tabula rasa for all your practice dreams.
This is an incredible opportunity!
Don't think for even a moment you can't afford shell space.
With an expert negotiator by your side, there's a strong possibility that you'll get a generous tenant improvement allowance—giving you all the money you'll need to transform your blank canvas into the office of your dream
9. I'm an excellent tenant who always pays my rent on time, so my landlord will treat me right.
One myth is expecting the landlord to treat you right because you're a good tenant and always pay your rent on time.
However, it's not true that the landlord will automatically give you the best deal.
Many of these guys are ruthless, with few (if any) moral compunctions.
This is yet another reason why it makes sense to hire an experienced tenant advocate.
10. I must take the renewal option I already negotiated.
What if you signed your contract in a sizzling hot market and negotiated $40 a square foot rent, and now, rents have dropped to $30 a square foot?
Do you have to accept the option and renew it at the rate you previously agreed to?
Good thing too, because if you acquiesced to the above deal, that means you're going to paying $40 when rates are $30.
To protect yourself, start your lease renewal negotiations way before the expiration of your option.
This will give you time to try to secure a better deal for yourself.
If you can't, this gives you time to take the pre-negotiated option or find alternative space.
11. Moving is expensive, so I must exercise my renewal option.
Another myth is moving is expensive, so I must take my renewal option.
Relocating your practice is expensive and can be disruptive.
However, paying too much for your renewal isn't exactly great for your bottom line, either.
A brand-new landlord might give you a lower lease rate and a generous tenant improvement allowance.
The only way to find out is to take some time to research the market.
And then, compare your options.
Know what the myths are so you don't succumb to them because this could end up costing you so much money.
The best way not to get suckered into these pernicious myths is by hiring an experienced tenant rep.
He'll guide you away from all the misinformation into the office space of your dreams.
Call HPRG today, and we'd be more than happy to help you out.