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After my recent survey found dentists more likely to own than rent their dental practice facilities, we started discussing dentists and commercial real estate. While I advised that a dental lease is often preferable, some dentists touted the benefits of ownership.
Well, here's a horror story to make any dentist think twice about purchasing a building!
The short version is that a couple in Petaluma, California (he's an endodontist, she's an orthodontist) bought a building for their practice. After two years and half a million dollars, the dentists are still no closer to moving in — all thanks to some less-than-gracious neighbors determined to stop the project.
The property itself is a fairly unremarkable medical building that has been vacant for several years, located on a quiet block with several other doctors' offices. The big controversy is that the new owners want to build a second story, which would bring the total square footage from just over 3,000 to just under 7,000.
The dentists hired an architect to draw up plans. They applied for all relevant permits. They were confident they would be approved, since Petaluma's General Plan calls for infill of existing vacant structures and discourages "urban sprawl."
The city approved their plans. Neighbors raised objections over the height of the building, traffic patterns, and sewage issues. Though the original plan was up to code, the dentists made some changes to appease the neighbors' concerns. The plan was approved a second time.
So what happened next? Some neighbors formed a coalition, hired an attorney, and filed suit to stop the project on the grounds that an adequate environmental review had not been conducted and that it did not fit with the city's General Plan. (Did I mention that Petaluma is an upscale town with wealthy residents?)
Except… the building does fit with the city's General Plan. And, since it will stay under 10,000 square feet, state law does not require further environmental review.
And that's just what the dentists will point out at the trial, now scheduled for January 2010.
Calling the whole thing a "nightmare," the endodontist says he would never have bought the building had he known what he was getting into.
Two years and $500,000 down the drain… with nothing to show for it but a thick stack of paperwork.
Read more about it here and here
Post a comment
October 7th, 2009 at 6:28 am
As a Canadian, I have always said that the American legal system encourages this sort of frivolous lawsuit. Since there is no consequence to those who file suit against another and lose, anyone who has any complaint will take it to court. And who wins? The lawyers. And who makes or changes the laws? The lawyers. If those who filed suit against someone and lost that suit and had the consequence of having to pay the legal fees and damages of the defendant, I think there would be much less of this kind of stupid lawsuit that we see so often “down south.” IMHO.
October 7th, 2009 at 6:32 am
I agrre with Ronn 1000%. Remember the old saying”What do you cal a lawyer in the bottom of the ocean?”……………..”A GOOD START”.
October 7th, 2009 at 7:48 am
Here’s an old Realtor’s joke:
Q: What’s the difference between a medical office condo and a venereal disease?
A: You can get rid of a venereal disease again!
The underlying issue being that high-cost specialty improvements requires specialty buyers whom are less common than others. What lawyer, CPA or architect would want a sink in his office?
If you buy your office, you also put your investment egg in with your professional egg in your financial basket, with less diversification. If you buy/build a dental office, plan to stay in it at least 10-15 years. Consider getting a 4-plex, shared with a family doc, chiropractor and a dermatologist for cross-referral traffic and to reduce your specialty risk tied to your real estate risk.
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Keith C. Borglum CHBC
Licensed Medical Practice Broker & Appraiser Lic#s: CA-00767129 FL-BK3206346
Certified Healthcare Business Consultant (CHBC)
Professional Management & Marketing, 3468 Piner Rd, Santa Rosa CA 95401-3954
ph (707) 546-4433 fax 546-4437
Web Page at http://www.MedicalPracticeAppraisal.com
CV/Credentials at http://www.MedicalPracticeAppraisal.com/kbcv
Member: Institute of Business Appraisers; National Society of Certified Healthcare Business Consultants;
Industry Expert in Medical Practice Valuation: Business Brokerage Press;
Author:Medical Practice Valuation Appraisal Guidelines & Workbook by PSR Inc.2006
October 7th, 2009 at 5:27 pm
Wow… Thank you, Keith, for adding some off-color — and yet totally on-point — humor to our blog!
October 12th, 2009 at 6:37 am
This is so common here in Austin. Sounds like they are on pretty solid ground for their case. Let’s hope that there hasn’t been enough ill will generated to hurt their practices. Probably, not since these things are usually driven by a very small number of activists.
October 21st, 2009 at 8:14 am
Just curious, what sort of pre-purchase due diligence would have revealed this sort of opposition from their neighbors?
could a pre-purchasse consultation with a local real estate lawyer have pointed out this risk?