The real estate office marketplace has been hit hard by COVID-19. There are a lot of vacancies in all classes of buildings. Some landlords have decided to take their vacancies and spec build them out, increase rent, and wait out the COVID-19 storm. Other landlords have reduced their asking rents (through negotiations) while not giving much else by way of concessions and by favoring a two- to three-year lease. These landlords plan to increase, possibly double, the rents after the two-to-three-year leases expire. Tenant improvements are expensive, so landlords are not offering them in shorter term leases.
Because of the current lower rates, CAP members who have a lease expiring within the next 18 months should consider renegotiating their existing lease to obtain a better rate, more concessions, and a longer term. This also applies to physicians who want to expand or decrease their existing space, relocate to a new location, open a second location, or purchase a building.
CAP has had a long-standing relationship with Bailes and Associates, a commercial real estate services and advisory firm specializing in tenant representation offering members no-cost commercial real estate support when securing new or additional office space or effectively negotiating lease renewals.
Here are two recent case studies of physicians who were able to lower their rent as they considered the future of their practices.
Wallace Medical Group, Inc.
A 25-year-old Beverly Hills practice that had no possibility of expansion and hardly any parking and was paying approximately $5.25 sf plus common area maintenance (CAMS) on a 2,600 sf space. They had approximately 13 months remaining on the lease when Bailes found them a ground floor space that had been vacated by a nationally known medical group and which consisted of 5,440 sf. Dr. Wallace had plans to expand his medical group but was concerned with the pandemic and the political climate. Bailes worked with the landlord and presented the Wallace Medical Group, Inc. in September 2020 with a proposal of accepting the new medical space as-is if the landlord painted the entire suite and replaced the flooring. The negotiated terms included a rental rate of $3.25 sf with a 2021 base year for expenses, an 11-year lease with the first 12 months of lease’s rent being abated (a savings of $212,160), an option to expand his practice, and other tenant concessions.
Dr. Leilani Sharpe, Psychiatrist
Dr. Sharpe asked Bailes to find her a space she could timeshare to allow her to comfortably see both pediatric and adult outpatients. She also wanted to be within walking distance to other practice locations in the Santa Monica area. The standard rents range in this area are between $4.25 and $5.25 sf. In August 2021, Dr. Sharpe accepted a five-year lease on the prestigious Ocean Park Blvd in Santa Monica with her rent staring at $3 mg (in this arrangement, she pays her own electrical and janitorial, estimated at $0.30 sf). The landlord agreed to pay for the tenant improvements and agreed to terms that included an early termination option that either party could initiate in year four or five with one year of prior written notification. Dr. Sharpe also received the right to “timeshare” her space with her peers without landlord approval, plus she received one month of rent abatement with an option for an early termination due to death
or disability.
Now may be a good time to consider your own lease or medical space arrangement. Here are some top reasons to choose Bailes & Associates, Inc.
1. You’ll work closely with a dedicated broker who specializes in medical office real estate and
understands its nuances and complexities.
2. Bailes & Associates represents tenants only so there is no conflict of interest with landlords.
3. Bailes & Associates is adept at scrutinizing the fine print to negotiate the optimal deal.
4. You will be paid 10 percent of Bailes’ commission from the landlord at close of contract.
As a participant in the CAPAdvantage program, Bailes & Associates looks forward to representing CAP physician members throughout California. CAPAdvantage is CAP’s suite of no-cost or competitively priced practice management benefits to help save members time and money.
Again, if you have a lease that is up for renewal within the next 18 months, you want to take advantage of today’s marketplace. To get started and for more information, contact Gary Pepp at 562-743-1695 or gpepp@bailesre.com. Southern California members may call 310-445-4317, and Northern California members may call 530-419-9446.
Bailes & Associates, Inc. License No. 00831364
Gary Pepp License No. 00925108