Medical Real Estate

By Steve Barrett
Tuesday, November 12, 2019

Small Practices Battling High Building Costs, Experts Say

Healthcare providers are facing markedly increased construction costs — a reality that may be especially tough on smaller medical practices, says Kris Miller, President of Atlanta-based commercial real estate firm Ackerman & Co., in a recent Bisnow article.

Medical office build-outs that once averaged $60 per square foot have risen to $80–$90 per square foot, according to the article. To address the resulting sticker shock, practices increasingly accept extended lease terms in exchange for businesses such as Ackerman & Co. subsidizing the capital costs of build-outs.

Other strategies becoming more common among small practices include simply remaining where they are rather than moving, or taking a light touch in renovations, according to Christine Gorham, Director of Dallas-based Caddis Healthcare Real Estate.

“Most folks we are seeing are not doing complete re-dos,” Gorham told Bisnow. “They’re doing more of a refresh.”

Construction Projects: A Time to Choose

If every aspect of your medical office building project is the most important one, you’re inviting trouble through indecision.

Sure, factors such as how quickly you can get it built, how much it will cost and whether it meets your specifications all matter, notes Helena Jenkins, Senior Vice President at Xite Healthcare Real Estate, based in Richardson, Texas. But failing to prioritize one of those considerations — time, budget or details — can lead to “analysis paralysis,” according to Jenkins.

What to prioritize will vary from project to project, of course. Some practices need the facility to be operational as soon as possible. Others have inflexible budgets. Still others have no wiggle room on specifications. But keeping the main thing the main thing is crucial, Jenkins adds.

“Typically, one [factor] should take the lead and drive your decisions,” she writes on the company’s website. “Choosing one will help you focus on what you originally wanted when you’re in the thick of the project and ultimately help you reach your goal.”

Negotiate Your Way to Reduced Overhead

A medical practice’s lease may be at least as negotiable as any of its other expenses, making leases comparatively easy pickings in terms of cost savings, according to Andrew Riepe, President and Owner of Roswell, Georgia-based healthcare real estate firm Crown Tenant Advisors.

In a blog post on the company’s website, Riepe recommends practices take full advantage of concessions landlords are more willing to offer in today’s market. These may include tenant improvement allowances and reduced rents. Furthermore, tenants often can lock in good rental rates prior to continued market increases.

Tenants also should scour their leases for any language about subletting that they may be able to leverage to their advantage.

“By effectively restructuring your lease, you could drastically improve your bottom line without working more hours, seeing more patients, buying more equipment or cutting more expenses,” Riepe writes.