Ep. 111: Negotiating Commercial Real Estate in Dentistry with Colin Carr

Most dentists don’t have extensive experience in property negotiations and this puts them at a significant disadvantage when purchasing or leasing property for their dental office.

Today, Colin Carr is joining Dr. John Meis to talk about how to level the playing field in these negotiations and allow dentists to expand and grow more seamlessly.

Colin’s company offers commercial real estate services for healthcare providers. They represent dentists and other healthcare providers in commercial real estate purchase and lease transactions to make sure they get the very best deal possible.

In this episode, you’ll learn:

  • Common mistakes dentists make when renewing a commercial lease or purchasing property
  • Why real estate experts can save you hundreds of thousands of dollars in lease rates
  • Why it’s important to approach any negotiation with a strategic position
  • Why it’s crucial to determine the total cost of a deal (rather than just looking at the lease rate)
  • How to avoid the trap of negotiating on just one property at a time

Listen now:


Or, watch the video episode:

To learn more about Colin’s company and how they help dentists, go to www.carr.us 

Welcome to the Double Your Production Podcast with the Team Training Institute, the one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it, who are in the trenches, who know exactly what you are going through. And now your leaders, the stars of the podcast, Dr. John Meis and Wendy Briggs.

Dr. John Meis:
Hey, everybody. Welcome to this episode of the Double Your Production Podcast. I'm Dr. John Meis and I'm here with Colin Carr. How you doing, Colin?

Colin Carr:
I'm doing great. Thanks for having me, John.

Dr. John Meis:
So Colin has a company that aids renters and buyers in real estate, and it's an absolutely fascinating company. I personally use them. They helped us acquire some real estate in Tulsa, Oklahoma that we needed for our practice, and they did an absolute fantastic job.
I'm so excited to have Colin get on and share with you really what his company does and why it's important to have a specialist when you're in the healthcare side and why generalists really don't work that well.
So Colin, tell us a little bit about you and tell us a little bit about your company.

Colin Carr:
Yeah. Thanks, John. I've been involved in commercial real estate personally for over 20 years. I got into real estate when I was 19. I took a little bit different route and passed on college and just got after it right away and was fascinated by real estate. And that's what I've done my entire professional career.
I started this company, originally it was Carr Healthcare Realty, now it's just Carr. But I started this company in 2009 and with the focus of how can we help healthcare providers protect one of their largest assets, their practice, in the real estate transaction, how can we help them maximize their profitability, reduce their overhead and really just how can we help them level the playing field when they're going up against landlords that negotiate professionally for a living.
I came to this conclusion by being mostly a landlord, repped for large medical landlords, and I watched, over and over again, these healthcare providers get completely just crushed in these transactions with these large, sophisticated REITs and landlords that knew exactly what they were hoping to accomplish. And the doctors were great people. They were very intelligent clinically, they loved their patients, their staff, they wanted to do a good job for the community, but they were entering into these negotiations with landlords and they had no idea what was really on the line or how much money they were losing.
So I started the company in 2009 and we are today in about 42 or 43 states, and we have the privilege of representing a couple thousand healthcare providers per year with their real estate.

Dr. John Meis:
Yeah, that's fantastic.
I first became aware of how difficult a problem this can be in a situation where one of our clients said, "Oh, we just acquired this piece of property. It's the perfect place. It's on a corner. It was really cheap, too. It was really cheap in a fast-growing market." And I said, "Did you have anybody look at it?" Said, "No. No, we didn't."
And as it's turned out, the setbacks and the easements created a space where they had no space to build a dental practice, which was their intention and they just didn't know. And they just used a regular agent and the agent didn't look into it carefully enough. So they had a piece of property that they were never going to be able to sell and they were never going to be able to build on. So that kind of stuff happens.
And that's just one example, but there's all different ways that we, as healthcare professionals, can make mistakes when we're dealing with something that we don't know much about, like you said, often negotiating with people that that's what they do, that is their role, that is their job and so it's really easy for us to get caught up in something that we're not really prepared to deal with.
So what are some of the pitfalls that you've seen healthcare professionals run into when they're trying to do real estate negotiation on their own?

Colin Carr:
Yeah. Well, I have a long list of them. I'll keep it short with maybe two or three.
But one of the first mistakes that healthcare providers make when they're in a commercial real estate discussion and negotiation is they don't realize that you cannot tell the other party what your top property is or what your full motivation is. So a lot of healthcare provider will take the approach, "Well, I'm just going to shoot straight with the landlord, tell them this is my favorite property. Or in a lease renewal, tell them that we don't want to move." Or they'll ask questions like "What's the best you can do for me?" All of those statements communicate that you do not have a professional posture or a professional strategy approach to the transaction.
Communicating openly and honestly, we always want to be honest, there's no question about that, but you have to create a posture, you have to have a strategy when you're in a high-dollar negotiation because here's the reality. There's a couple hundred thousand dollars on the line between a good deal or a bad deal in every transaction. And doesn't mean the landlord is going to be taken advantage of or you're going to hurt the landlord, but the area or the space between the best deal they want to do and the worst deal that they'll still do is a couple hundred thousand dollars. So you have to decide how much of that money do you want to capture in the negotiation or how much of that money do you want to capture in the transaction.
In order to capture the most savings or pay the most competitive lease rate or achieve the highest amount of free rent allowance or build-out period or tenant improvement allowance, you have to have a strategy. Most healthcare providers don't have a strategy. They don't have professional representation. They don't have multiple properties they're negotiating with simultaneously. They put all their eggs into one basket or one property. They don't have the ability to pivot to a different property or a different landlord if one lender is not being competitive enough.
I guess I kind of listed a few things there, but I'd say number one-

Dr. John Meis:
Yeah. No-

Colin Carr:

Dr. John Meis:
We start talking and then, all of a sudden, we ruin whatever negotiating position that we had because we don't understand what the elements of the negotiation are, really, and so-

Colin Carr:
Yeah, and that happens the most frequently in a lease renewal. The number one transaction in all of commercial real estate are lease renewals. For every time a doctor or a healthcare provider goes and builds a new practice, startup, additional location, for every one time that happens, there's 10 to 15 lease renewals happening.
What happens in a lease renewal is they'll tell the landlord clearly, "Hey, I don't really want to move," or "It's inconvenient," or "I don't have the time to deal with this." All of those statements communicate, "Please charge me the highest lease rate possible and give me the least amount of concessions possible because I don't really have any other options, I don't have time. And you can probably take me to the cleaners for a couple hundred thousand dollars extra and I don't have anything that I can do about it."

Dr. John Meis:
Yep. Another pitfall I'm sure you're going to talk about is waiting for a lease renewal, waiting till just a few months before the lease is up to negotiate the renewal. And at that point, you have very little negotiating power [inaudible 00:07:15].

Colin Carr:
Yeah, that's another huge mistake is doctors will wait too long, like you said, and the clock's running out. They don't have enough time to posture, or even go get a new property if they wanted to, and landlords are aware of that.
Doctors will a lot of times start the process like two, three years in advance and they don't have any real posture there because the landlord knows they're on the hook for the next two, three years. So you could start at too early and lose your posture or you can start it too late and lose your posture as well.

Dr. John Meis:
My experience with your company was really very, very positive. I had a general area in a town that I wanted to go to and I just said, "Go find us something" and as is common, there really wasn't anything so they had to get very, very creative. We didn't want to own the real estate, we wanted to lease it, but we had a very specific building that we wanted. So they did a great job in finding someone who was willing to own it and somebody that was willing to build it, and it really worked out really, really slick and it took very, very little of my time and ended up being really a very reasonable price.
So that's kind of what you do is right from start to document signed and just getting the whole thing going.

Colin Carr:
Yeah, that's exactly what we do. And you've got scenarios like you had where there's very little inventory and you've got to get really creative and you've got to get a lot more proactive in finding opportunities, calling out properties that are not listed, maybe bringing in a new developer.
Then you have the other side of the coin, or the other scenario, where you might go to market and have 15 properties and you're trying to whittle down to what's the top property for my practice not only now, but what's it going to be in 10 years? Is the area gentrifying? Is it getting better? Is it getting worse? Who's my landlord? Do I want to work with this landlord for the next five or 10 or 15 years? Who's going to be giving the most competitive terms?
And as you know, it's not just the face rate of this or the advertised lease rate, it's what's the total cost of the deal? I mean, you can have a property that has a lower lease rate that's being advertised, but if you have to borrow a lot more money in that transaction because they're going to give you a smaller build-out allowance or less free rent, you can have a lower lease rate cost you hundreds of thousand dollars more over a 10 or 15-year period of time. So looking at the overall cost of the deal, that's important.
Assembling the best team. You've got to have the right architect, contractor. You've got to have the right people that are involved in the process to make sure that it goes as smooth as possible. It's not just, "Can I find a property, can I get a deal done?" You need to have a good real estate attorney. You need to make sure that what you think you're getting is what you're getting. And not just on the economics, on the business elements, too. So assembling the right team, it's all part of the process.

Dr. John Meis:
So the complexity of leases is such that there's so many levers that can be maneuvered by the landlord that ends up screwing you. Your base rate may be really low, but then all of the other elements of the lease may be detrimental to you. So really figuring out what the total cost of the deal is is one of the key things.
It's just not something that most dentists are familiar with. They don't have the knowledge to be able to do that so having someone on their side that is an expert is necessary really.

Colin Carr:
Absolutely. Yeah, I mean, the landlords understand that they're working with people, again, that just don't understand the industry. If a landlord was in a negotiation with Chipotle or Starbucks or Charles Schwab or pick some large national retailer or user, they're not going to try to play the same games. They're going to know they're going to get caught. They're going to know that the person's not going to want to work with them.
But when a landlord's dealing with an individual person, whether it's a doctor or someone that owns a restaurant or a CPA, when they don't have representation and the landlord knows that they've maybe done no transactions in their career or maybe only two or three, they're not a market expert, they're going to try to do things and push things through in the lease or in the economics and just assume that they're not going to get caught or that you don't know better.
And you say, "Well, why would they do that?" It's what they do for a living. And a lot of times people will start trying to poke at landlords and say, "Well, my landlord's a bad guy or I don't like them," really that doesn't have anything to do with the negotiation. Whether you like the landlord or you don't like the landlord, they're in it to make as much money as possible.
And you can prove the same thing. I mean, if you're going to sell your house and you thought you had a buyer that would pay an extra a hundred thousand dollars for your house more than you were hoping to achieve for it, you're going to sell it for the most you could possibly get. Now, hopefully, do it with integrity and honestly, but landlords are going to try to get the highest return they possibly can on every transaction. If they can save 10,000 here and 20,000 there, or maybe the annual increase costs you an extra 15, 20,000 over the term of the lease and you don't know it, they're going to try to capture as much money as they can and they're aware of all the different little areas where they can kind of poke you or gouge you a little bit.
The reality is most healthcare providers, especially when they're unrepresented, they don't realize it's happening, like they don't know how much money they're losing and it's important to capitalize. Every dollar counts.

Dr. John Meis:
You were talking about the landlord that you like or the landlord that you don't like and how that doesn't really matter.
One of the great helps that we got was what is the reputation of the landlord or developer? What's the reputation of the construction company? Because if you're not familiar, like you said, you might do one or two your whole life and so having that help with understanding who are the ones that are dependable, who are the ones that are high class, who are the people that are going to maintain the property at a high level, all of that kind of reputational stuff is really important and you could be helpful with that.

Colin Carr:
Absolutely. Yeah, the property manager is going to be more impactful than the owner is because that's the person you're going to be dealing with on a daily or weekly basis moving forward so there's definitely due diligence you want to do on who the ownership group is. But who manages the property, what your lease says your remedies are, if there's breaches or if there's issues with maintenance, that's the kind of stuff that really makes a huge impact once you get into the lease.

Dr. John Meis:
Yeah. We were fortunate right after we built it, there was a terrible storm and we actually had water come into the building and the management company was out there. They fixed it, they identified the problem, they fixed it, they fixed it really fast and there was no charge for us.
If I didn't have the protections that were in my lease, I'm not sure that the outcome would've been the same. Maybe it would've been, but maybe it wouldn't have been. So having that expertise was really, really helpful.
So what's another kind of common mistake or pitfall that we healthcare professionals do when it comes to leasing? Sorry.

Colin Carr:
Although another big pitfall, and I'm going to combine two together, but they go hand in hand, is taking the do-it-yourself approach of not having professional representation, of just trying to figure it out as you go.
The problem with that, as we've mentioned, is the landlord knows they're dealing with someone who's not a professional negotiator. They know the person doesn't know the market, they know they don't have the time, like they're running a practice, they've got other things they're dealing with. So the do-it-yourself approach opens yourself up to a much more challenging negotiation and process.
But alongside of that, what most people do when they're taking the do-it-yourself approach is they'll just pick one property. They'll find one property and they'll start negotiating and the landlord realizes if you can't point to other properties that you're negotiating with or that you have as backup properties or other options for you, if they don't get competitive enough, that really limits your posture.
For instance, if a landlord thinks on a lease renewal that you've not been to market, you don't have the time to go to market, you're not willing to move, you're not willing to go through the process, they have no reason to do anything for you. Like there's no reason for them to lower your lease rate. There's no reason for them to give you money to renovate your space or free rent because you don't have another property or another option.
That happens both in lease renewals and it also happens in new transactions. Tenants will show their cards that "This is my favorite property" or "This is where we want to be," again, the landlord knows they've got a captive audience there and they're going to do the best they can to maximize their profitability with that.
It's different when you tell a landlord or when your agent tells a landlord, "Look, we like your property. You're one of three landlords that we're negotiating with currently," and then when they come in with a high lease rate, you can say, "Look, your tenant improvement allowance is competitive, or your free rent's competitive, but your lease rate you're $4 a square foot above the other two properties that we're looking at. And so it's not that it's not worth it, we just can't afford to pay $4 a square foot more when we have two other properties that have more competitive terms."
What that gets into is factual negotiating versus emotionally begging people to do things because you just want a better deal. Negotiating versus bartering is probably the better way to say it. So do-it-yourself approach, that one gives you a lot of liability, a lot of exposure.
Then the other one is only negotiating on one property. It's a really bad game plan. You don't have the posture. But the other side of the coin for you, too, is you don't have the peace of mind, either, like you don't have anything to compare it to.
When you're negotiating with three or four landlords simultaneously and, by the way, that's done on a non-binding basis, but when you're negotiating with three or four landlords, you don't have to wonder, "Am I getting the best terms possible?" Like you don't have to wonder, "Did I leave money on the table or could I achieve a higher tenant improvement allowance?" You're going to know that you've got the most competitive terms because you're seeing a full picture of the market, the full scope. Three or four different landlords, two or three rounds of negotiations, you're going to know these are the best properties, here are the pros and cons of each one. Then when you do select that property, you're going to have the peace of mind that "I made the best of the current opportunity or market that I could," and then you have the peace of mind to move forward with it.
Honestly, the economics are important, but the peace of mind is equally important. You don't want to make a decision on a million dollar or multi-million dollar transaction and then wonder after the fact, "Could I have done better?"

Dr. John Meis:
Yeah. Couple of mistakes that I've seen our clients make one is, you kind of mentioned it or close to it, was that falling in love with that piece of property and "This is the one I want." That puts you in a bad negotiating position.
The other one is trying to use a piece of property they already have or came across somehow and it's not a good location, it's not good visibility, the zoning may be difficult. Those two things I've seen repeatedly be a problem.

Colin Carr:
Yeah. A lot of times people will take that approach if I already own the property or maybe they decide that they have to own and they'll choose a location or building or space that's dramatically inferior because they think "I have to own it," or "Hey, I want to build that additional asset."
I'm all for owning commercial real estate, but not if it's going to put you in a worse position for that property. And so you have to realize as a dentist specifically like your main asset, your main income source is your practice, not the real estate. The real estate should complement it. And if you can find a good piece of property or a good building to purchase your own and it's a good property for your practice, too, that's great, but you got to have both.
You can't pick an inferior location just to own or "Hey, this is a cheap building, I'm going to buy it." That's going to backfire because, yes, you might be paying down three or $4,000 per month in principle, but if your practice produces 25 or $30,000 less per month in income or revenue, did it really make sense to purchase?
So that's the balance of you've got to have a property you like, it's got to make sense to you, you've got to want to be there, it's got to meet your needs aesthetically, but it's got to make business sense, too, and it's got to be the best property for your practice as well.

Dr. John Meis:
Yeah, I love that idea of separating the investment decision. Practice is one thing, real estate is another. If you can't own and get the right piece of property, you can rent somewhere or you can use the money you would've used to buy that property to buy some other property that's a commercial real estate or give it to a REIT or something like that, that allows you to have the benefits of real estate ownership, but not have the two of them combined.
In a lot of ways, one of the things in the buying and selling of practices, often the seller of a dental practice owns the property and they want to sell it at the same time, which makes it more difficult to sell their practice because they have to sell the real estate or want to sell the real estate at the same time. So if the two are separate, it really provides less complication over time. So to get-

Colin Carr:
Yeah, I mean, we're-

Dr. John Meis:
Go ahead, Colin. Sorry.

Colin Carr:
I guess that we're big fans of people owning real estate, but it's got to make sense for the practice, too. Exactly.

Dr. John Meis:
Yeah, absolutely. Practice first because that's going to be the thing that's going to make the most income and is going to drive the most value over time.
Getting specialized help like yours, that must be very expensive.

Colin Carr:
Yeah, that's one of the parts that we love the most about what we do. Commissions in commercial real estate are paid by the landlord or the seller so it's just like a residential real estate transaction.
Most people have been involved in buying or selling a house. If you're selling a house, you hire a listing agent, you agree to a commission, and that commission is built for two people. It's built for the listing agent and it's built for the buying agent.
In commercial real estate, it's the same way. A lot of times, especially healthcare providers, they'll think, "Well, if I don't have an agent, I'm going to save myself money." The landlord's not cutting you that check. They're not giving you any of that money. What happens in that scenario is the listing broker just gets a double commission or the landlord pockets that money.
So the beauty of what we do is that the doctor, as a tenant or buyer, they don't pay the commission and so they can get expert representation without having to pay a commission. That's a win-win. You should be getting a much better deal, hopefully to the tune of a hundred, $200,000 in savings and those are real numbers. You should be saving 30, 40, 50 hours of your valuable time.
Then ultimately, you should be avoiding like costly pitfalls and complications and a good agent who understands healthcare, who understands commercial real estate, they'll help you navigate those issues and there are issues out there.
Commercial real estate transactions are fraught with complications and issues and it's not always what you see right now. It's what you didn't see that comes up three years down the road or five years down the road, or when you go to sell your practice and you get a wake-up call that you missed something. You don't want to be in that place.

Dr. John Meis:
Yeah, for sure. So if someone wants to use your services, how do they get a hold of your company?

Colin Carr:
The best way to reach us is our website, and that is carr.us, C-A-R-R.us. Upper right-hand corner, you can click to find an agent in the area or market you're located in if you want to get a free lease versus purchase analysis or a market analysis. Let's say you signed a lease last week and you've got 10 years, we'll still do analysis for you and tell you if you had a good deal, an average deal, a bad deal and that's important because it helps you prepare for the future. So you can get in touch with an agent, you can get an analysis done, or we've got a significant amount of educational resources.
If you're the type of person that does want to know more about it or wants to get into the details, FAQs, glossary, like literally hundreds of videos, educational articles, we can give you as much information about commercial real estate as you like. For some people they like to know what's going on behind the scenes in addition to having a professional, too, so lot of resources for you.

Dr. John Meis:
Yeah. Well, like I said, that we've sent a lot of clients to you and have had really good results. And personally, I'm a client of yours and was very, very satisfied with my experience with you. So that's a bit of testimonial for you there, Colin-

Colin Carr:
I appreciate it.

Dr. John Meis:
... because it really went well.

Colin Carr:
[inaudible 00:23:48]

Dr. John Meis:
So I want thank you for being on with this, Colin. It was a good discussion.

Colin Carr:
I appreciate, too. Thanks, John.

Dr. John Meis:
All right. Well, that's it for this episode of the Double Your Production Podcast. We'll see you next time.

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