Leasing medical office space requires an expert in the field of health care real estate, declared Kenneth Weston, whose company, Kenneth Weston & Associates, Inc., has specialized in medical office space for more than 25 years. Fortunately, physicians and health care professionals can find that expertise in South Florida. Three real estate professionals were recently willing to discuss with South Florida Hospital News their experience in this area.
Along with Weston, Jeremy Larkin, President of NAI Miami, a global network of independent commercial real estate firms; and Todd Varney, Executive Vice President of Leasing and New Business Development for Rendina Companies, one of the nation’s leading “full-service” medical real estate development firms, have decades of experience in assisting medical professionals with their leasing needs.
But why should there be such a need? If a physician or a medical group wants to find office space, what’s so difficult about going out and getting it? You might be surprised. And that’s why consulting an expert can be imperative.
Weston made just a few points about how he and his firm can assist physicians with their needs: “There are special things involved when you’re dealing with medical real estate leases that are not the same as commercial leases with other types of professionals.”
Weston did a year’s internship at a hospital when he first became involved in leasing. He said, “I wanted to be familiar with physicians and their requirements, and I learned that each specialty has different needs. For example, pediatricians need much smaller exam rooms than an orthopedic surgeon. Plus, all physicians need an exit and an entryway because the doctor doesn’t want to enter the office through the reception room. We see all the time buildings that aren’t designed properly. So in leasing space, one’s background is very important. Knowledge is the most important thing.”
He also mentioned a new trend on the scene, which is the mixed-use project. “We’re doing several projects now in shopping centers,” he said. “While people are having a procedure done that takes a couple of hours, the family members can have lunch or go shopping. Location is key, especially in the South Florida area. It’s almost turning into a retail-type situation.”
Even points like elevators that can accommodate stretchers, and something as seemingly simple as parking, must be taken into consideration. As Larkin explained, “Most (medical) buildings were built 10 or 15 years ago and were designed with parking standards that met typical office requirements, i.e., anywhere from three to four spaces per thousand (square feet). But that creates problems today. Say a doctor needs 4,000 feet of space. He comes to a building at 5 p.m. and sees a wide-open parking lot and thinks it looks fine for him.”
However, Larkin went on to say that with the increase in costs and the reduction in fees as a result of the changes in insurance and Medicare, doctors must now find ways to streamline their practice. They do this by having assistants and staff handle more things that the doctors used to do, such as taking temperature or blood pressure readings. This enables a physician to schedule more patients. “If he would normally have seen four patients per hour, he might now see six or eight,” Larkin said. “So now he’s got more people working for him, more patients, and more people waiting. All that has transpired in an environment where the physical structure of the parking lots hasn’t changed. Typically a physician’s office could require as many as 20 spaces per thousand to actually support the office.
“That’s why a doctor needs a real estate professional to assist him.”
Varney explained how a program Rendina Companies started about 20 years ago offers a unique option to clients. “Our specialty is that we typically partner with physicians when we lease them space,” he said. “For example, when we have a hospital client who wants us to develop a new office building, we go out and serve as ambassadors for the hospitals to recruit physicians to their campuses. In order to be competitive in today’s market, we have to have an ‘incentive’ in order to bring the physicians in and entice them to come to the campuses. We share the ownership in medical office buildings so physicians can take part in the cash flow and equity benefits.
“The No. 1 thought on a physician’s mind is does this location make sense for me, and second is, how much of the deal am I going to own. We offer the physician the ability to have at least 50 percent of the ownership of the building with no cash investments, in return for signing a long-term lease, typically 10 years. A lot of the developers used to ask us, why are you giving it away? Are you guys crazy? We learned that physicians are in a very competitive environment and are working harder than ever, making less money from the insurance companies and the Medicare plans, and they’re looking for alternative ways to generate income. So we found it’s reasonable to partner with the physician and reward them for creating value in the building. By offering them the ownership benefit, it’s a win/win situation. We still make a fair profit and the physician-tenants get to own a substantial portion of the deal. And the hospital is happy because it has a loyal physician who is signed up for the long term.”
Whether out of necessity or out of desire, physicians today are more knowledgeable about the business side of health care. “Twenty years ago, not many physicians had a good understanding of real estate,” Varney said. “But as they received the opportunity to become partners in buildings, they’ve come to know a lot about joint venture partnerships, what it means to be an equity partner, the tax advantages, etc. We’re finding that physicians are a lot more savvy than they used to be, which is very positive for us. We have a very substantial program to share with them. The more a physician understands about medical real estate, the easier it is for them to realize the benefits of ownership and accept our offer. It’s the physician who comes in who doesn’t know anything about real estate who is the skeptic, and is a lot tougher to sell, because they don’t understand.”
Weston agrees that “Physicians typically need support through experts. They are geared to treat patients. Some physicians have some business background, but they spend years in medical school, so typically they are not the best businessmen.”
So health care professionals who are weighing the options of leasing vs. buying can take comfort in knowing they don’t have to make such a decision on their own. As Larkin concluded, “Buying is not for everyone. If you have an established practice in a very specific market and you know you want to be there for a long time, that’s when you really need to look toward buying. All the rest should be tenants.”
