The Transition Advisor's Corner - Random Musings from the Front
The Transition Advisor's Corner - Random Musings from the Front
The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.
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seanepp
seanepp

Sophie's Choice - Owned Real Estate

Sophie's Choice - Owned Real Estate

8/3/2026 2:11:00 PM   |   Comments: 0   |   Views: 37
Most of us are likely familiar with the term “Sophie’s Choice” - the proverbial lose-lose situation - asking someone to deliberately choose their least worst option.  

In dental transitions, we are frequently challenged with a similar conundrum when there is owner-occupied real estate in the mix.  While not a life or death situation, it can introduce unique pressure to the sale of the dental practice - the tenant.

Many dentists arrive at their transition planning with a goal of maximizing both the practice’s value and that of the real estate.  While that might sound straightforward or innocuous, it belies the fundamental conflict of maximizing the value of both components.  

The value of the practice and the real estate are typically inversely correlated.  All else being equal, as occupancy costs decline the practice value increases, and vice versa.

While rare, deal killers do exist in this category.  These usually take the form of the real estate value increasing dramatically relative to the value of the tenant’s business.  This results in there being a substantial embedded gain in the real estate relative to the dental practice.

What can you do?

If you find yourself in a situation where your property has appreciated meaningfully relative to the practice, it may behoove you to relocate the practice into a setting that best matches the needs and budget of that business for the long-term.  

This would allow the owner to best harvest their real estate and maximize the outcome.  Freeing the real estate up to be repurposed for its highest and best use.

This scenario can evolve in long-standing practices in high-growth areas where real estate values have appreciated faster than their tenants’ businesses.  Said differently, the real estate simply outgrew its tenants.  If that happens, it could make sense to relocate the practice into a location that “fits” it better cost-wise.  That next use is likely to be high-end retail or mixed use retail/residential, which is so prevalent.

Given the lead times for construction these days, this is likely a multi-year planning discussion, not something to embark on concurrently with the sale of the practice.

Good luck, have fun, don’t die!

Stay frosty.

Sean
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