The Dental Lease Playbook: TI Allowances, Abatement & Avoiding Rookie Mistakes

Before you build ops or pick paint, you need to nail your lease. In this episode of From Dentist to De Novo, host Jonathan Miller sits down with David Groce of CARR to demystify the first—and most expensive—step of practice ownership. We break down usable vs. rentable SF, the difference between build-out period (rent commencement) and rent abatement (free rent after opening), and why a true tenant-only rep changes your leverage. David explains NNN vs. CAM vs. full-service, how TI allowances really get approved (hello, lenders), and why “my friend got $80/sf on Facebook” is not a strategy. We cover multi-LOI courtship, zoning checks, when to talk to the bank vs. broker, and how to stretch your runway so your marketing can catch up before rent hits. If you’re starting up or relocating, this is your crash course in negotiating like an owner.

Transcript

SPEAKER_01 0:00

Well, welcome back to the podcast from Dentist to DeNovo. I'm your host, Jonathan Miller, and I've got somebody really special with me today, somebody that focuses on, in my opinion, the very first step that every single practice owner should take, whether you're starting a practice or buying, but you need to understand your lease. So I've got David with me. I'll let him explain where he's from and what he's about. David Gross, take it away,

SPEAKER_00 0:23

man. Hi, I'm David Gross with Carr Healthcare Realty. We're a nationwide healthcare-specific commercial real estate company and we focus on helping doctors with their practice needs on the tenant and buying side. So what that means is you'll never see a sign driving down the street. You'll always see us representing doctors. We feel like that the fiduciary interest or your best interest is by having a representation that's solely involved with, you know, with 100% non-tainted or unbiased representation.

SPEAKER_01 1:04

Right. You're helping the tenant or the buyer. Correct. Not the landlord.

SPEAKER_00 1:09

That's absolutely

SPEAKER_01 1:09

right. Not ever. Correct. Big difference, though, compared to the big guys out there, right? Absolutely. I mean, the CBREs and the Jones Lang LaSalle's and the Newmark's and I don't even know who the biggest

SPEAKER_00 1:20

of the big are anymore. 90% of the world of commercial real estate is in the tenant buyer world. And of that 90%, the industry is built on landlord or seller representation because if you think about it, that's an annuity for those brokers. Thus, if you had to pick who am I going to work with or if I want to have this guy represent both of us, you can't really have fair or independent representation because they're always going to, human nature, lean towards the guy with the more properties and annuities to come. It's just human nature. So

SPEAKER_01 1:55

you're saying, hey, if I'm a traditional broker, let's say, or agent, I might be influenced by the guy saying, hey, Jonathan, look, cut me a break on this lease you're trying to negotiate for old doctor so-and-so because I'll let you sell this$5 million building down the street that I also own and that's a heck of a lot better payday. Absolutely. And if I'm a listing agent and a tenant leasing agent, if you will, if I can do both sides, I'm probably going to be influenced by that$5 million payday. That's right. You guys can't get influenced like that. 100%.

SPEAKER_00 2:24

Because our business is driven just like doctors are and that's the referral business. Got it. So, our skin in the game is to hit it out of the park for the doctors in order to earn the referral, just like they do with their patients to keep the business growing. And so I've been a car almost nine years now. And how do you say that half of my business is, is, uh, I find through past clients. Right. And just like with our doctors, you know, their, their patient bases grow with their patients, referring them to other, other patients.

SPEAKER_01 2:55

So out of the veterinarians that you work with, the dentist that you work with, and then you, when you You say doctors, MDs of the world, more dermatologists. Plastic surgeons. Plastic surgeons, okay. Pediatricians. So out of those three groups, which one's the biggest pain in your... No, I'm teasing. I'm not giving you that. No. So what about, though, in terms of pain in your butt, on the, I don't want to say broker side, but on the listing agent side. Sure. Right? We're dealing with a group of people that obviously is heavily incentivized to essentially either sell the building or get you to lease it and kind of what I would say, yes, man it. Lock you up, too. Lock you up. Lock you up. And so on that side of the house, I never really thought about this, but is it better to have an agent to work with or would you rather deal directly with the owner of said space?

SPEAKER_00 3:41

I would rather. Well, that's a great question. And that's a question that's case based. Uh, that's building and situational dependent.

SPEAKER_01 3:50

Fair.

SPEAKER_00 3:51

Um, if I'm working in a big office building in Los Angeles or a medical building, I want to deal with the brokers directly. Okay. Um, if I'm working, uh, with a building that's, uh, maybe got a dentist and a nail salon in it, you know, maybe on that instance, I want to deal with the landlord directly because I can move to the fastest point, um, or move the deal along faster for the doctor. Um, so I've I find that the best, these larger buildings with larger representations, I like to call that spreadsheet negotiation. The bigger the entities or the bigger the companies we work with, you're never dealing with the people that own it. And typically those are companies that own it. You're dealing with employees that work for a corporation. There's no emotion to that. You've got to be more sophisticated. You have to be able to run through projections and analysis. you also have to be on your toes and know the ins and the outs. You know, differences between usable square feet, rentable square feet, little tricks of the trade people can get taken advantage of or tripped up on really easily. And I think the landlords also in those situations prefer having someone that knows how to communicate just like a dentist speaks to maybe their ceramic, ceramist. You know, the wording, the what do I need? I need this here and there, right? I need a little porcelain here. It's the same kind of lingo and things move in a manner because of the professionalism. When you're dealing with a landlord that's the owner of a small building, it's their baby. It's like their house. It's just like dealing with Dr. Schelling. Correct. It's emotional. And in that situation, you want someone that knows what they're doing, but as well knows how to finesse that landlord because that is their their personal asset or their baby. And then I think at the end of the day, doctors need representation from someone that knows dentistry, right? That knows why they need, why do I need this amount of power? Why do I need this amount of air conditioning? When are the busy times? When are the not so busy times in a dental office? Where most people, the layman's in the dental world don't know that stuff

SPEAKER_01 6:18

very true very true now you had said something in there um about understanding dentistry and you've been a car nine years but you're kind of a double threat because you had a career before car yeah that was in the dental equipment

SPEAKER_00 6:28

game that's correct how many years you're in that i've uh so i was at patterson dental as an equipment specialist for almost nine years as well there so so the game now almost 18 that's correct it's not age ourselves but

SPEAKER_01 6:41

that's right we remember 90s cartoons

SPEAKER_00 6:43

that's correct yeah yeah so i started when i was 25 and i'm in my mid 40s yeah so you know I've been through recessions I've been through the great recession I've been through ups and downs with the market I've been through new technologies developed I've seen it and we'll have more to come and you know more things happen in life but what we do know is dentistry is pretty resilient and and the business keeps rocking on and moving on and yeah rewards those that invest in their in their practice Fair

SPEAKER_01 7:17

enough. When you had said there's something to know about rentable versus usable, that's key. I'm going to ask you two other ones to kind of just really dumb down for me and really the listener here. When I'm talking about, you know, a lot of folks don't understand this from the dental standpoint. Hey, I know I need free rent, but I don't know how much time I need. And then there's this, well, there's rent abatement or there's free rent or there's construction period time, or there's effective dates versus commencement dates. So the question then is, hey, standard dental office, what's the we'll call it, I don't know, 2,000 square foot build out, blah, blah, blah, tenant lease space scenario. You're going to negotiate construction time and free rent, and they're not necessarily the same. Is that right? That's 100% correct. Okay, so is it rent abatement that I need to focus on? Is it the language that I need to make sure that said agent says, hey, I need construction period time as well? Or how does that work? 100%. So let's break it down,

SPEAKER_00 8:08

right? And I always talk to doctors, let's treatment plan it. Just like, let's think about it how we would with a patient. When we have a project construction project, it takes time. It takes planning. It takes design. It takes architectural, meaning you've got to get that design ready to go to the city. You have city permitting, whether if you're in California, it could be five months. Or if you're in Texas, it could be a month. It depends on where you're at in the United States. So you have to look at the total project and then how much construction time do I need? Is it 90 days? Is it 120? Et cetera. What's the scope of that? So what we do is we look at that with our clients and we say, okay, it's going to take you five months for build out and two to three months in the city. So that's eight months. So now we've got to figure out, hey, I've got to solve for eight months before the doctor can even spend their first hand piece and see their first patient. So what we do is we, what I call is a build out period or in a legal terminology, rent commencement. There's a period of time before your actual lease will start or the rent will commence that I would call a build out period with a doctor. And we try to stretch that as long as possible, but within market reasoning or being reasonable and fair because that's how you get a deal. And so if it's, let's say we're in Southern California and it's going to take us 10 months from the day we have a designer drop the first plan until the day I start seeing my first patient, we're going to build that into what's called a rent commencement period or build out period. So we're going to try to negotiate 10 months free for build out

SPEAKER_01 9:46

Build-out period, okay.

SPEAKER_00 9:47

And correct. And we like to negotiate from the power of truth. So we say, because of volume experience, we say, hey, we're in Pasadena. We see it taking this amount of time based upon these last projects in the last 24 months. Therefore, Mr. Landlord, we're not trying to push you around. It's just this is reality. So we negotiate on reality and truth. We get 10 months free for build-out or 11 months, whatever it is, whatever city we're in. Okay. Then on top of that, we know that our most successful practices usually have three to five months or more of free rent after they open. So we're trying to negotiate for our startup or our newer doctors moving that free rent. So we had 10 months free for build out. Then the office opens. Then we want five months free after that or three months or whatever we can negotiate for our doctors to get their feet underneath them, to get their marketing going, get social media going.

UNKNOWN 10:46

Okay.

SPEAKER_00 10:47

And patients in the door. Because we know that there's ups and downs on building that patient base. And

SPEAKER_01 10:51

that rent after the construction period, is that the rent abatement period? That is the rent abatement period. Because I know sometimes I see term sheets or deal sheets or LOIs or whatever. And I don't necessarily know if, you know, similar to treatment plans. Yeah. It's funny because I know I would love for some universal language or some uniformity to things. But just like a dentist, I can go get two different treatment plans right now. They both are for a crown. But one office has$2740 in price. and one says five other procedure codes in price. And I'm going, how do I compare? So when I look at different ones, I'm focused on a lot of times people call out renovatement period, might say three months or five months. And I'm going, well, where's the part where we're building this thing? We're just going to call that. I just need to ask construction period. Those listening say, hey, where's my construction period time? Because you can't just have a three to five month renovatement and think

SPEAKER_00 11:38

goody. Right.

SPEAKER_01 11:39

Okay.

SPEAKER_00 11:40

So I like to talk to our clients. It's a runway. We're going to build a runway and your practice is the plane going to take off. We need the longest runway as possible. So we want to stretch the free rent for construction or the abatement, I'm sorry, the commencement period, build out period, if you want to think of it like that. Stretch that out, 10 months. Then, technically, if we get into really down in the weeds, you have your first month on any lease, you prepay, no matter where you go in the United States. So you prepay your first month, and then your rent commences, and we're trying to negotiate those months after that as free period so that you can get your feet underneath you. And that's what we'd call the renovate. Got it. Got it. And, uh, things are slowly building and moving and off you go. I

SPEAKER_01 12:27

know some landlords like to give you like, look, I'll give you two months free right at the beginning after, you know, after commencement date. And then I'll give you another two months free, maybe 12 months in. Correct. And then I'll give you, is it kind of potato potato or are you really trying to get all that front loaded as best you can? So it depends on who you are. Okay.

SPEAKER_00 12:43

And there's a reason behind it. If you're been in practice for 20 years and you're you're financially secure and you're building your dream office, you're moving, expanding, et cetera, maybe not having that free rent or rent abatement up front

SPEAKER_01 12:55

matters.

SPEAKER_00 12:56

If you think about it in a math equation, your rent goes up two to 3% annually, maybe 4%, depending where you're at in the country. If your free rent is pushed farther back into the lease term, it's actually worth more money than taking it all on the front side. However, our startups need as much help as they can as fast as they can. we try to pull as much as that forward as possible.

SPEAKER_03 13:21

Yeah.

SPEAKER_00 13:21

The flip side too for landlords is we just negotiated all this free rent, 10 months for build out. Of course. Three to five months free for after they move. Now they are 12, 13 months in with no money. They want money coming back on their investment. So that's why they'll negotiate and push it farther out.

SPEAKER_01 13:39

We forgot to mention the TI allowance that you wanted as well. So at some point the landlord's going, geez, Louise, dude, cut me some slack here. Absolutely. And so Let's play devil's advocate for one second. Yeah. Because I find that there's, I see, I hear, and I'm around conversations between doctor and someone like yourself. Yeah. Terms have come back. We submitted LOI. By the way, I'm a big fan of submitting a handful of LOIs. Absolutely. Is that a fair strategy? A hundred percent. Because I kind of look at it like, hey, there's a courtship period. Yes. I'm going to, for better or worse, I'm going to have to ask a few people to go to the dance and see which one kind of gives me the best offer. Correct. Because I do make an analogy a lot as a startup doctor. Hey, you're kind of the bell of the ball. You've got a little bit of leverage right now. Absolutely. Kind of maybe a golden ticket, so to speak. So landlords want to talk to you. Banks would love to talk to you. There's a lot of folks that-

SPEAKER_00 14:21

They always get better deals than the guys have been in the building for 20 years.

SPEAKER_01 14:25

Perfect. Great. So straight from the expert's mouth. 100% they do. So now on the flip side, though, when I'm in those conversations, you know, doctor would be like, well, why don't we get 50 bucks in TI or 60 bucks in TI or 70 bucks in TI? And you're thinking, well, I'd love to give it to you. However, we just went to the landlord with, let's just call it six months of free rent plus another three months of rent abatement. So nine months total. Correct. They made nothing but- So let's call that, I don't know, 10,000 bucks. And we also ask them for 50 bucks in TI. Let's just round some numbers here and say that's another 100 grand that we want from them. And so between those two things, we might be going to them with a$250,000 financial request. That's easily. Yeah, easily. And so no wonder the landlord's going, look, I'm not going past 50 bucks in TI. I don't care if your buddy got 70 a square foot right down the street. That's a$250,000 request already. Am I thinking about that right?

SPEAKER_00 15:13

You're absolutely thinking about it. And just like with a patient, There's no anatomy that's the same in these deals, right? Every deal, these are not cookie cutter. So you can get on social media, on a Facebook group and go, oh, my friend in Texas got$80 a foot, but I'm in Los Angeles and I'm only getting$60 a foot. That's not right. What you have to understand is every deal is either financed or budgeted. These are all one big math equations. A lot of these buildings are financed commercially with lenders. A lot of doctors don't understand is that the banks on some of these larger projects have to approve the offer going out the door to the

SPEAKER_01 15:54

tenant. I've seen somebody recently say, hey, the bank just asked us on your TI allowance payment, they needed another document from the contractor. And I was like, oh, they said the bank needs another document, not the landlord. So I found that interesting.

SPEAKER_00 16:07

Especially in the post-COVID world, you've had landlords that, especially in some general office buildings, which can sometimes be great opportunities for people now that you've got banks paying attention more because there's some vacancy perhaps. And they're going to monitor what is possible, right? So sometimes doctors say, well, I see a lot of vacancies out there because people work from home or they're hybrid. Well, yes and no. Maybe the bank's now overseeing that. Maybe it's not a foreclosure, but the bank is monitoring what's going on. Maybe you can't get$100 a foot. Maybe they've only got$60 a foot financed or they've got a line of credit. So a lot of landlords are drawing on lines of credits. I always say the richest are rich, always use other people's money. Very true. So in the same scenario for landlords, they're usually all borrowing money or having lines of credit on these buildings. Also, you have to understand, going back to big landlords versus small landlords, mom and pops don't always have the money. It could be a family that owns it, the parents are older, and they're having to take a HELOC or a line of credit out on their house just to get a tenant. So at that, at that stance, you may have to say, I'm only going to get free rent for two years versus, you know, a hundred thousand dollars. Yeah. So every situation's different. You just have to know.

SPEAKER_01 17:29

You made me think of something there about landlords versus developers. So like in pockets, Texas, let's say, I see a lot of projects that are coming up and there are certain situations where I think we're, you know, the doctor's really negotiating with the developer on the deal. Is that better or worse? Just depends.

SPEAKER_00 17:46

It It all depends. They could be like going, what were you saying? They could be negotiating with the developer and the bank.

SPEAKER_01 17:51

Right. Um, maybe the developer doesn't want to give you a 50, 60 bucks.

SPEAKER_00 17:54

Yeah. And we work, you know, my part, business partner and I, we work in multiple States. Um, in Texas, you may get a, a shopping center space delivered to you with no concrete slab.

SPEAKER_01 18:07

Yeah.

SPEAKER_00 18:07

Right. And you have to be aware of going, okay, concrete slabs going to cause me an additional makeup, not five, 10 bucks a foot. Yep. Yep. Um, Versus in Southern California, every new space may have a slab delivered. In Southern California, the AC may go on the roof. Where in Texas, it may go behind the building. So you just have to know the markets and the situations. Yeah, fair. You really need to make sure a lot of doctors will, especially young doctors, will do this on the weekends. They'll go around and drive around. They'll see a bunch of spaces they like.

SPEAKER_01 18:43

Yeah, what the hell? I

SPEAKER_00 18:43

saw a bunch of spaces. You're telling me there's nothing on the market. That's right. But they'll also start calling the brokers. So what happens? Yeah. Yeah. They call the brokers. Um, do you generally in the weekends, most brokers won't return their phone calls. Yeah. They call them back on Monday and the doctors, uh, falling kind of, uh, Charlotte's web of sales tactics where it's like, Oh yeah, we got a space. So I've got another dentist looking at that. And the doctor's like, Oh no, I like that space. Right. And it's the hurry up. They get in a hurry. They have the broker, the landlord submit an LOI to them, not knowing what's going on. And The next thing they know they're two or three rounds deep and they're asking for help. And a lot of times it's too late. The landlords won't let them have help at that point.

SPEAKER_01 19:24

Yeah. I've seen that. I've seen it. Just you're too far gone. Like you kind of already made your bed here. We got to sleep in it or we can walk away always, but not a whole lot left. That's right. Someone like you can do

SPEAKER_00 19:33

besides. We're your attorney, right? Right.

SPEAKER_01 19:37

No, wait, before you go into that, let me ask you this. I know you have young children. How old's your youngest?

SPEAKER_00 19:43

She is

SPEAKER_01 19:44

six. Okay. So six. So, My oldest is seven. My youngest is five. So right in that sweet spot, let's think about, I'm thinking about my five-year-old right now. We'll think about your six-year-old. Maybe your six-year-old's very, very well adapted. You said she, so those girls do, they grow faster. That's right. They're better than us guys, I'll tell you that. So explain to me this thing around triple net versus cam versus full service. So I don't want to lose this train of thought. I want to know, you know, if we're talking about rentable versus usable, we're talking about TI allowances going into the deal and those things. For the listeners, They've heard some of these terms before, so let's help them understand if you had to explain it to a six-year-old or a five-year-old, triple net versus CAM versus full service.

SPEAKER_00 20:25

Absolutely. So we'll start with the most popular, I think, in the United States. Our listeners may be everywhere. A triple net lease is an NNN if you see it on LoopNet or various other places online. And usually the three components of the triple nets are taxes, insurance, and common area expenses or operating expenses.

SPEAKER_01 20:48

How the hell did they come up with triple net as a name?

SPEAKER_00 20:49

I don't know.

SPEAKER_01 20:51

Taxes, insurances, and the

SPEAKER_00 20:52

third one was? That's how I think about the three basic fundamentals of a triple net. Okay. So you're going to have property taxes for the building or the shopping center, property insurance for the center, and then what we call common area or operating expenses. That's going to be security, property management. Snow removal in certain parts of the world. Landscaping. Landscaping, watering, security if you're in an urban area. Yeah, what's

SPEAKER_01 21:24

that? They call that something interesting in a lease. They don't call it security. They call it like not a patrolman. I saw this recently on a lease. It was almost like an English term for Bobby or something like that. They called it something, and it took me a second. And the doctor was like, what's that? I'm like, I'm not sure what that is. Security. It was basically just a guy to patrol, walk the parking lot, whatever. Yeah, okay. Security, yeah. That all goes into that

SPEAKER_00 21:45

last. Correct. Property management. So management is a big component of that. And that's, that's landlords pay to have someone obviously, uh, operating or managing the shopping center and kind of managing all the tenants and their needs. Yeah. Um, that is the most common, I believe lease structure in the United States. Okay. Um, you know, we're in California. We see that more in shopping centers and retail developments. If you go to other parts of the country, it could be on every type of building. Okay. Um, It's just the structure, the way that everything passes through and then to the tenants. And then typically each month, the tenant will receive their triple net expense.

SPEAKER_01 22:29

Kind of like an invoice. Correct.

SPEAKER_00 22:30

I guess this is what it was. Their share for their square footage of this.

SPEAKER_01 22:34

Pro-rated based on their square footage. 100%. And most people think of leases in terms of base rent. And a lot of folks get caught up and go, well, what's this extra five or seven or 10 bucks a square foot? Correct. That's your triple net. And it also could be your cam.

SPEAKER_00 22:48

So what doctors will do when they call around or they'll get on LoopNet and they'll say, and if people don't know what LoopNet is, that is the- Don't tell them. It's a dangerous place. You can Google it. Yeah, exactly. But brokers will quote you and they'll say, so if you're in California, they'll give you a number of like$3 per square foot. If you're in Texas, that's going to be on a yearly number.

SPEAKER_02 23:12

Yes. So

SPEAKER_00 23:13

that's a whole nother thing. And everywhere but California to my knowledge, everything is quoted on yearly numbers. So in Texas, it could be$36 per square foot. That's right. In California, it's$3. Yes. It's all the same divided by

SPEAKER_01 23:25

12. Yep. Yeah, yeah, yeah. Exactly.

SPEAKER_00 23:27

So it's just something unique that we do in California that they don't do in the rest of the country. Yeah. But with that being said, they'll quote you, hey, your rent is$3 per square foot, triple net. And the doctor's like, cool. And they hang up, right? I'm

SPEAKER_01 23:45

doing the math to 2,000 square feet, 3 bucks per square foot. 6,000 bucks. That's easy. I can afford that, yeah.

SPEAKER_00 23:49

But what the broker didn't tell you or what he failed to leave out was there's still another$1 in triple nets. So now that$3 became$4 per square foot or 8,000. So it went up$2,000 without asking that question.

SPEAKER_03 24:03

Yeah.

SPEAKER_00 24:04

Even as a broker, been doing it forever, they will just say, yep,$3 nets. What does that mean? So you've got to really deep and pry into it. If you're working with people... know the tricks, not the tricks, but just having to do it every day, they'll say, okay, well, what are the nets?

SPEAKER_01 24:21

Yeah.

SPEAKER_00 24:22

Oh, the nets are a dollar. Okay.

SPEAKER_01 24:24

See, they know those things. Correct. But they're trying to just,

SPEAKER_00 24:26

yeah. They're trying to market their space to being more affordable. They want you to come in, fall in love with the center or the building, and where you want will go look at anything else. Yeah. A lot of times we've seen doctors go in and get a space plan from a designer, burn three or four months only to find out, oh, there's a triple net involved.

SPEAKER_01 24:46

Burn three or four months plus burn, I mean, I don't want to speak for all designers, but 10 grand minimum to have a designer look at something and lay it out for you. And it's usually more like 15 or 20. Correct. So in that regard, do you think, and I think this is true for both Triple Nets and Kansas, you can tell me if I'm wrong, your residential person, your residential agent, do they have to worry about that or they would never even think to talk about

SPEAKER_00 25:06

that? They would never even know to ask that. Big problem. You know what I mean? It's just not something that, you know, I would look at residential commercials two different worlds. Fair enough. Most commercial brokers don't work in the residential world and vice versa. So I couldn't tell you that I'm the expert by any means on selling or buying a house. I would personally, I still to this day, having done over 300 commercial transactions, I still use a residential agent. I don't want to mess something up. I want to make sure I do this correctly. It's a lot of money. So with that being said, yes, residential agents, there's a High likelihood they'll miss that. I think you'd even miss

SPEAKER_01 25:48

it if you've done a couple commercial deals as a residential agent. Because I find the folks that are like, hey, well, my cousin, my uncle, my brother, whatever, they've done this and they've done a few commercial deals. So it's okay, great. Maybe all the commercial deals were full service leases. Or with a mom and pop landlord. Or with a mom and pop, right? And so walk me then through CAM. Yeah,

SPEAKER_00 26:06

yeah. So we have triple nets and then we have full service gross is what FSG stands for. That's probably the easiest one, right? And

SPEAKER_01 26:12

that's because it's everything included in that.

SPEAKER_00 26:14

Correct. That's the way I look at it is When I'm looking and I see the doctor's water, trash, note that's not medical trash or sharps, that sort of thing. Cleaning, if it says any sort of janitorial, like, hey, this is definitely, especially my water and electricity are included, could be a full service. And then air conditioning. That's all included, right? So if they

SPEAKER_01 26:45

said... Five bucks a square foot, full service gross, then that's everything.

SPEAKER_00 26:48

That's soup to nuts, right? What that may not include is parking, internet, internet, oh, your insurance. You got to have insurance, right? Yeah, that's fair, yeah. Cable, whatever. You know what I mean? Fair enough. But that to me is what you, full service gross is what you see in medical buildings or office buildings. To see that in a shopping center, highly unlikely in my experience. So feather in the cap, though. nod towards the medical

SPEAKER_01 27:17

building. Correct. For that particular reason. Or an office building. Or an office building. Okay. Correct. So how about CAMs? Because CAM is like this, it's the triple net, but it's called CAM.

SPEAKER_00 27:25

Yeah. And depending on where you're at and the age of the person you're dealing with, CAMs and triple nets can be sometimes used as the same, could be a different acronym. Could be just a daggone lease template they have. Correct. Could be parts of the country you're working in. You could be working with a residential agent who's leasing their friend's building, it gets kind of intermingled. But when we see the word CAM in a professional commercial real estate world, generally we associate that with a full service gross or a modified gross. And I'm going to get really deep in the weeds, but then you have a base year. So you have a base year attached to gross leases. Okay. And what comes out of the base year as time goes on is CAM charges. Okay. CAM stands for? Common, I may have this wrong, common area maintenance. That's what I've always heard. Yeah. Okay.

SPEAKER_01 28:15

Right. So common area maintenance. Yeah. And then you're telling me that I have a base year, meaning that my rent is

SPEAKER_00 28:21

five bucks a square foot. Yeah. So you'd have a baseline. So let's say we're in 2025. I sign my lease and I have a 2000. You wouldn't want to do this, but let's for easy purposes say I have a 2025 base year. My next year in the lease is 2026. At the end of 2026, they'll reconcile. The landlord will go back and look at their books, look at all the expenses for the center, and they'll say, okay, tenant David was on a 2025 base year. In 2026, our expenses went up two cents per square foot. And so they'll reconcile, and the doctor pays the difference.

SPEAKER_01 29:04

Now, you can always ask for a copy of this stuff. 100%.

SPEAKER_00 29:06

It's in your legal right to do it. Sometimes you have to push landlords, property managers. I always think about, I always tell our clients, to you have to a lot of times doctors first initial impression is just a pound property managers property managers have tough jobs they're they're trying to keep the landlords happy they're trying to keep their tenants happy they don't want people to leave because the landlord's going to get mad at them but they also the landlords don't want to let the tenants run wild so right they're the i would say they're the wardens of the prison yeah and their job is to keep the prisoners all in check yeah yeah um but they also have a pretty tough job they all they make a lot of mistakes. They can easily make mathematical mistakes. So yes, it's in your legal right to be able to audit those. I would advise bringing in an accountant or an attorney, someone that knows what they're doing to help you look at those because they can easily be messed up from the landlord's side and it can also be easily misunderstood from the tenant's side.

SPEAKER_01 30:05

Which takes me to something that you... I'll give you something that I see in the industry that is a common misconception or a mistake or something that I see doctors make all the time. It and maybe I'm hearing it and they don't actually do it, but I get a lot of like, well, my attorney's just gonna do this stuff. So like, David seems like a nice guy. Don't need him though, because my attorney's got my back and they're gonna do it. And they're gonna, I know I have to have them because they're gonna negotiate the lease for me. So Jonathan, why would I need a David? I don't think I need a David. That's right. That's

SPEAKER_00 30:35

right. Great question. Something that we see, we saw more so 10, 15 years ago, I think as... the world of having buyer and tenant representation from the healthcare side, whether it's Carr or various other people across the country that do a good job. We've kind of trained the market in general that you do need commercial brokers and you do need an attorney. We 100% advocate working in conjunction. I want every one of my clients to have an attorney and they should have an attorney. Review the legality of the lease and to tell them and look for pitfalls in that lease. Attorneys work in the legal space all day. They don't work in the trenches is what I'd say. They're not out showing spaces. They're not conversating with brokers. They don't know market trends. For instance, let's use Texas or Los Angeles or wherever you're at. You can have micro climates or micro markets where in Beverly Hills, it's$7 per square foot. And you could be in Torrance and it could be$3 per square foot or Plano and Dallas, et cetera, right? So you just have to know the markets that you're in and you have various, it's just like a neighborhood. You can have expensive homes and not so expensive homes. I love, so let's put the caveat here. I love attorneys. I want our attorneys evolved. If you're paying your attorney three to$500 an hour to go on LoopNet and to look up rates, that is not the right use. of their time. And I know probably there'll be some attorneys out there that would be glad, happy to do that.

SPEAKER_01 32:21

Yeah, of

SPEAKER_00 32:22

course. I will for 500 bucks an hour. Yeah, for 500 bucks an hour, why not, right? I think the 100% best way to represent and to take care of people is to have two teams of people. Commercial brokers, generally in the United States, don't charge for representation. They're going after the landlord or the seller for a commission. So why not have someone that knows what they're doing represent you and then bring in your trusted, hopefully dental specific attorney to represent you on the, the, either the lease or the transactional side of that equation. Right. I

SPEAKER_01 32:58

kind of explain it in simplest terms. Your attorney is going to focus on the legal aspects and your broker is going to focus on the economic ones, the financial ones, right? You go to the bank and you have a bank account and you bank with such and such bank USA, but they're also not your stock trader. They're not in the weeds. They're not following that stuff. They're not looking at wealth management. Let's say, and you might even have a personal banker and this and that, but they don't really know the market that well. Correct. Okay.

SPEAKER_00 33:21

Okay. You know, you could say it's kind of like having, um, someone set up your corporation, your CPA could do it. Your attorney could do it. Who, who's really the best person, you know? Yeah. Yeah. I gotcha. So you got to know people's strengths and weaknesses, but you know, if you're going, you know, um, if you're asking someone to do something for an hourly fee and they can use technology to do it, it doesn't mean it's necessarily, they're the best at doing that. Um, But they'll gladly help you with it. We've seen a general change in that, especially from the really good folks out there in the legal world. But, you know, it still happens every now and then. Yeah, yeah. You know, a lot of times those better attorneys know that it's not the right thing for their clients either to do that. I need somebody looking at the financial side. Correct. I don't want to be held up because we didn't look at the finance. You don't want to pay your attorney to play CPA. Yes, yes, yes. They might look at some spreadsheets and P&Ls. Yeah. oh this doesn't add

SPEAKER_01 34:16

up yeah yeah fair enough you know so as we wrap it up here I want to talk a bit about like really two avenues big mistakes or biggest mistakes you see doctors making in the industry today maybe there's some sort of maybe not even a big mistake but just some sort of belief that I have to do it this way or I can't do it that way and then also something that maybe doctors should do more often and they're not doing it right now okay you know not necessarily a mistake but like hey you could do this you could do that I mean I will tell you one that I see often is i kind of cringe when um let's say hey doctor calls me up hey i've got david on the team i'm gonna need your help and i told david find me the best place in orange county and i'm like that's that's that's a needle in a haystack man i need to either i'm either a big believer in process of elimination 100 relying on you to just tell me hey here's the best spot you're a p dentist and you need this square footage and you want to stay within these ranges uh go over here correct orange county or wherever um and or you know let's start narrowing it down and then that process of elimination conversation a guy like David is going to be able to come out and say yeah there's nothing there you know you picked La Habra there ain't nothing there man there's nothing that's vacant there's nothing that's coming on the market so pick somewhere else and that's I would rather know than have some agent say yeah I'll go look and I'll go turn over all the stones and you're like look I've been looking all over and there's nothing there that's a mistake that I see doctors making find me the best thing in Orange County or in Dallas right what do you got

SPEAKER_00 35:44

and there's a lot to unpack impact there there's so many there's so many so many mistakes um i mean in reality we see that too a lot of times from doctors you know maybe they go to dental school they're from other parts of the country and they meet a significant other and move to southern california and they don't really know the market

SPEAKER_01 36:02

yeah

SPEAKER_00 36:02

and it's hard because the reality is a couple things right like if you're in other parts of the country you probably need to look at your your um you know your stature saturation rates, your competition ratios. If you're in Southern California, it's pretty saturated. So my diagnosis there would be, hey, where do you want to live? How far do you want to drive? Do you have children now? I know we're getting deep into thought. I ask those same questions. Someday you may not want to drive an hour and a half. It may be cool to drive an hour now, but someday you're going to have a significant other and maybe children, maybe not children. Or maybe you just want to spend more time at home, right? And it's like, can you sustain an hour drive for the next 30 years? A lot of people can't.

SPEAKER_01 36:52

Probably

SPEAKER_00 36:53

not, probably not. So just trying to help people unpack a lot of that. I would say not having folks like yourself, trusted advisors, trust. So many people come into the equation early on with this huge guard up. Yeah, fair point. And I'm going to get taken advantage of. I would say interview your team, right? Interview multiple people. find the people that you gel with, and then you have to give them the trust. Because if you go out through the process questioning everybody and not trusting, and I know in the dental world, that's just kind of, it's hard because

SPEAKER_03 37:27

we're

SPEAKER_00 37:29

running our, we're solo business operators and everything falls on our shoulders and everyone's coming at us to sell us something. But especially with projects or buying practices, there's so much trust you have to put in others. So letting people do their jobs is huge. And I think interviewing and hiring the right people is key to that, right?

SPEAKER_01 37:49

So now you guys, though, you have 120 agents around the country? Correct. Yeah. So to me, can I just get my buddy to do it? Can they just go on and look? I'm in Texas and my buddy is an agent in California. Can't they just go in and look around in Texas for me? No,

SPEAKER_00 38:06

because you have state licensing. Just like with dentists, they have to go get dental licenses when they move around. Same thing with With real estate, you have to pass real estate exams in each state. Some states are a little bit more friendly and generous to others. For instance, I mean, California, we use California and Texas a lot in this conversation. Those are two restrictive states where you've got to be licensed and have a broker in those states. There's states in the Midwest and Florida and different places where they're more friendly and maybe you can work remotely. You're trusted by can help you remotely or maybe they can't set foot or maybe they can fly in there and help you. Every

SPEAKER_01 38:50

state's different. I think something doctors should do more of is rely on... Now, it's interesting because in this conversation for commercial real estate and tenant rep and all that stuff, if we were talking marketing, you can be wherever you want. I don't really care if you know the local market. I think that even if you are from the area and know the area, have you ever looked for commercial space before? Probably not. No different than you had said, hey, I still get a residential realtor to help me with houses, I might know where the houses are or the neighborhood that I want to be in, but I want them to go, hey, here's my criteria, number of bedrooms, number of bathrooms, whatever, help me go find it.

SPEAKER_00 39:23

Trusted advisors, right? That's the key. I work with a residential person and I actually, my wife and I flipped houses and different things. I use the people that know those specific areas and they know the ins and outs. And the key thing is they have relationships, right? They're the local relationship expert in those markets. And yeah, could I could I do it myself? Probably. Would I make mistakes or could I get cut out of a deal maybe where I could make significant money on a property? That's what I'm willing to pay for. And I think that's what giving the trust to someone that I've gotten to know matters the most. Any criteria they should look for

SPEAKER_01 40:00

when they're looking for an agent?

SPEAKER_00 40:03

Great question. I would say look for someone that's got experience and everyone's got to start somewhere, but you definitely in this world want someone with experience. You know, definitely someone someone that's got a proven track record, meaning people in the market, other trusted advisors may refer them to. Usually people work well when they're working well on teams. I think if you're getting strong recommendations from other members of a team, I think that's a good idea that someone may be a solid player. This is something I have no problem doing. I've started doing it more and more lately. I give out, you know, ask your, if you're interviewing someone, ask them for some referrals. Right. So I'll give them names. And call them, please. Call the referrals. Or if you're bashful, text them. Right? I'll give them name and number of a few clients that I've worked with in the last 12 months or six months that are open, right, that aren't associates hiding out or anything. Yeah, of course. And say, hey, reach out, get the true perspective on me And then, or whoever, right? If you're in Nacogdoches, Texas, right? Let's call down there and figure out who are the trusted advisors for maybe that region. Or if you're in a part of the country that's rural, you may have to have someone drive in, right? But try to find people that have the resources that can help

SPEAKER_01 41:32

you. And I really got to harp on that local experience part. I think that's part of the secret sauce that you guys have is having all those agents. Correct. Because then you guys, you also get to collaborate as a team. What do you see going on in the market? Is something moving from one coast to the other? Absolutely. Are we seeing, you know, it helps when you have somebody, let's use Metro New York, let's use like Manhattan, right? Yeah. I don't see too many landlords offering any TI allowance in Metro New York at all or in North New Jersey, and that's just how it is. Right. And so if you're working with an agent either remote or otherwise or your buddy in Texas or in who knows where, Ville, USA, did get TI allowance, you're going to go, I'm getting ripped off. And they go, well, however. Wait a second. Nobody's getting it. Right. And it goes back to your point on trust. The agent might say, well, look, nobody's getting it. And you're going to go, well, that's not true, man. Because my guy in Texas.

SPEAKER_00 42:19

They told me on Facebook that they're getting it, right? Yeah, I find that's hard. My friend in Wisconsin got$80 a foot in a new air conditioner. With

SPEAKER_01 42:26

referrals, Mr. or Mrs. Agent, send me some other doctors that you worked with in the market. But I can say, hey, did you get TI allowance? The answer was no. Did you get one? No, no. Oh, yeah. Heck, I guess it checks out. Correct. Nobody else got one either. And now I know the rules are, ain't nobody getting TI allowances in Manhattan. That's right. So if I want to do a deal in Manhattan, I guess I'm going to have to chalk up. Absolutely. You don't get to go on Facebook and say, I got 120 bucks a square foot.

SPEAKER_00 42:47

That's right. What'd you get? That's right. Okay. And then I think too, going back to Manhattan, Jersey, California, Virginia, DC.

SPEAKER_01 42:58

Good

SPEAKER_00 42:58

point. There's zoning. Yeah. There's government issues. There's things, you, things, nuances. You have to know, okay, I can't go put a dental office here, but in Oklahoma, I can basically lay out a dental office anywhere I want to go. Right. And so there's, there's, Knowing the lay of the land, I think that, I mean, we've all kind of heard the horror stories where doctor signs a lease and no one's called the city to even check if a dental office is allowed.

SPEAKER_01 43:25

Well, wait, the broker on the landlord's side said it's good to go. Right. It's good to go. Right. Do you have a checks and balances then that you do on that?

SPEAKER_00 43:32

I personally, and I think everyone should do this, we call and check on behalf of our clients. And then I personally coach my clients to Double checkers. And it's not because I'm being lazy. And it's coming from experience where we've been told, hey, we call in, hey, we can't open this office here in Whittier because the zoning here is no good. It doesn't allow for a dental office. And the doctor goes, oh, that doesn't sound right. I really want that space. These brokers don't know what they're doing. And they go to City Hall and the guy goes, you know what? We're going to change our zoning code in two months. We'll work with you. Or, you know what? They were right. You can't go here. Your broker was not lying to you because X, Y, Z.

SPEAKER_01 44:22

So, because I could think. David said that because

SPEAKER_00 44:26

it's only 1,800 square feet. He wants me to go to the 2,200 square foot. That's right. I got you now. It goes back to the trust issue, right? I got you. Makes sense. So, knowing the ins and outs of every market, knowing that, hey, I probably should, in certain areas of the country, check with the government every time on planning and Does this work? Do I have enough if I'm in California parking? Right, right, right, right. Are there new laws that may or may not affect? You know, to expect that your broker should know that is impossible, right? Right. And chat GBT and everything else, it gets false data on that too. Of course, of course. So what I always say is broker checks, doctor checks. You don't make million-dollar decisions without double checking, right? Trust your people, but check it. Yeah. Especially on Citi. And also a lot of people are like, well, my contractor will deal with that. Well, if you're bidding out contractors and trying to get the best possible deal, sometimes people don't always look at things under a microscope that they should be. Very true. So you really should try to invest as you can. Be a part of the team. Double check this stuff. Such a big financial decision. And like I said, if we get two green lights or three green lights, it's all systems go. If we've got a green and a red, something's up. Maybe we need to hire an architect.

SPEAKER_01 45:48

All right. So last one here, and feel free to disagree with this as much as you want. I get oftentimes, you know, should I go to the bank first or should I talk to a commercial real estate guy first? And some people say do both. And you can do both at the same time. You've been around long enough to know that part of it. But I like to give a little bit more black and white, less gray. There are certain areas where, hey, we're dealing in the gray all day. But other pockets, hey, I would like to give you clear-cut advice. My advice is go to David first, commercial real estate person first. And that's because I get more clarity, at least in the beginning. You know I'm a fan of offering a couple LOIs. And I can then go to the bank and go, I know, based on square footage, I got a rough estimate of construction, pricing, what it's gonna run me. I know TI allowance roughly. And I've got a rental rate roughly, hopefully at that point, at least something that's being negotiated on. So now I think I've got a better shot at getting approved by the bank. If you wanna disagree with that, you can, because I also appreciate the, I don't really know if they can even get approved, and so I'm gonna go to do this work, what they can't get approved in the first place.

SPEAKER_00 46:46

I think it's based upon the experience of the person you work with. Yes, we help a lot of clients before they ever go to the banks. And sometimes that's preferred. I think a lot of it's driven over what you want, your vision for the practice. If you're coming to us with kind of the normal, hey, I've got$250,000 to$400,000 in student loan debt. I have some money saved up. I have a good credit score. I have a good associateship job. You're going to get finance, right? For the most part. I hate to make that a, you know, but you should be able to get finance. I agree with that. On that instance, I'm going to say, yeah, let's go. Let's go look. If you come to us and you have 800,000 or 600,000 student loan debt, your credit score is a little weak. And that's, again, trusting who you're working with. You need to be honest with people.

SPEAKER_01 47:41

Very true.

SPEAKER_00 47:42

And because they're not asking you to be nosy. they're asking so they can help you. Right. Um, if you're an iffy financial situation, it may be best. So let's go to the bank first. Good point. Um, I always like to say you don't want to be the little boy that cries wolf. Um, so, but if, if you've got kind of that stereotypical or normal dental, you know, uh, financial background, the answer is yes.

SPEAKER_01 48:09

Okay. Yeah. I mean, I appreciate, like I said, there are sometimes I don't want any Dr. Arbor with to be on their heels either. Because you go to the landlord, offer an LOI, and they kind of go, yes, let's go. We're ready. Lease draft's coming in a couple days. And listen, to your point, let's rock and roll. Very rare, but they might. And I don't want you to be scrambling on, I don't have bank approval. And they just ask me for proof of funds or proof of financial viability, feasibility, et cetera. Uh-oh, what do I do? I don't want anybody to be on their heels. So I think, yeah, that's a fair point you make. It just depends specifically what

SPEAKER_00 48:41

they look like. And bank rates and dynamics can change. too right we all know that so you could lock in with the bank first and six seven months go down the road and bank c or d now has a better option than bank a yeah yeah and it's like well i'm already locked in i paid this uh rate lock etc and now i gotta make this tough call i'm in a weird spot i don't i don't feel comfortable with all this right i gotta hurt someone's feelings so yeah it's it's kind of a perfect dance i think it's again working with advisors like yourself knowing, okay, maybe I'm over my skis here. I need to reach out for some help on this. It's situational, right? But yeah, if you kind of fall in that box where you're kind of a normal that we know that the three or four biggest banks in the country will give you a loan, yeah, let's go out and look at spaces. Not a problem. Easy enough.

SPEAKER_01 49:35

All right, so we haven't talked about where you're from necessarily. Yeah. And so you're with CAR. That's right. Healthcare Realty. Is it Healthcare Realty or Healthcare

SPEAKER_00 49:43

Realty? It's changed. It's CAR. It's CAR. It's CAR. C-A-R-R, by the way. Yeah. Where can people find it? Seven, eight years ago, it was CAR Healthcare Realty, and now we worked a little bit into some general commercial, and it just became CAR. Okay. 95% of the business we still do to this day is healthcare realty. Yeah. Okay.

SPEAKER_01 50:01

Fair

SPEAKER_00 50:02

enough. They can find me. Our website's www.car.us.com. Okay. My email is david.gross at car.us. Yeah,

SPEAKER_01 50:14

we'll put this in the

SPEAKER_00 50:14

notes and the comments, folks. And then I should know this. I have an Instagram handle. You have an Instagram? Okay, great.

SPEAKER_01 50:21

Okay, and you have Facebook? I do. Okay, great. Probably got a LinkedIn.

SPEAKER_00 50:25

I do, 100%. Okay, great. Absolutely. Fair enough. Because everybody in the world is connected on social media nowadays, right? Yes,

SPEAKER_01 50:31

yes, yes. Thank you, man. I appreciate being here. Yeah, for sure. Thanks for having me. This is fun. It's been absolutely fun. Yeah, insightful. Definitely. And I really appreciate you breaking down some of those concepts just so that anybody listening can understand. Because even I'm like, wait, am I having it right? Do I say it right? it right. So,

SPEAKER_00 50:44

and I've been doing it, um, nine years and almost 300 transactions. And sometimes I go, okay, there's something new that you learn every day. And, you know, people have been doing it 20 years. We'll see something new every day. It's a commercial real estate is a land of sharks and they're all trying to get one up on each other. So you really have to stop, think, okay, do I need help? Do I need to reach out to another advisor? Um, and again, that's the whole point I think is finding your team of people that you trust and, and, and, and Lean on them. We will end on that, man. Thanks again. Appreciate it. Thanks, Jonathan.