Lewis Gelmon, Author at The Wealthy Dentist - Page 2 of 2

Dental Lease Articles

Lewis Gelmon is a professional lease negotiator, educator advocate for the dental community and lives in San Diego, CA, with over 22 years of experience in the field. He can be reached for questions or comments at lewis@lewisgelmon.com or 760-479-9704.

Dental Tenants and Changes in the Landlord Relationship

Dental Tenants and Changes in the Landlord RelationshipGrowing up in the 1970s, as the son of a Shopping Center Developer, I became acquainted early in life with leasing terms such as Percentage Rent, Natural Break Point, NER and so forth.

My father spoke highly of his tenants and took a genuine interest in helping them succeed in their business. When a tenant had trouble paying rent, he would spend time with them trying to understand the reasons, and when possible, made concessions such as rent reductions.

In close collaboration with his tenants, my father appreciated that his success was dependent upon theirs. This is a contrast to the manner in which landlords operate today.

Looking Back

It takes me back to 1978, when I was a 10 year-old boy, watching my father prepare for the grand opening on the first expansion wing of what was, at the time, one of Western Canada’s first regional shopping centers.

He would walk the corridors of the mall with a bullhorn, directing construction workers, ensuring that the opening would be on time. Located in Red Deer, in the Province of Alberta, a town of 50,000 and a trade area of a quarter-million consumers, the mall was comprised primarily of local retailers who generally made a prosperous living.

Helping Retailers

The day before the mall was to open to great local fanfare, my father noticed that the new optometry store had almost no inventory, as their expected shipments had not yet arrived.

He immediately went into action, contacting optometrists at other locations he owned, and asked them to forward as much of their excess stock as possible. In return, my father gave them various concessions, such as future rent reductions.

By the end of the evening, over 40 boxes of frames, glasses and other eyeglass products had arrived at the new mall, and the optometrist was able to open his store, fully stocked. My father understood that a retailer never gets a second chance to make a good first impression.

1980s Inflation

Unfortunately, several years after the mall opening, in June 1982, Canadian interest rates similar to those in the United States had risen to 21.5%1,2. These higher interest rates were the result of the Bank of Canada’s and Federal Reserve’s attempts to contain spiraling inflation, which over the same period, had risen by more than 13 percentage points in both countries1,2.

Sadly, my father was unable to cope with the rising costs of operating the shopping centers, hurting his malls, his business and his pride. As visionary as he and many other developers at the time were, they were unable to foresee the business-altering impacts of inflation and the consequent rise in interest rates.

Tenants as Commodities

Today, malls, strip centers and medical/dental buildings are primarily managed by institutional owners, where tenants are viewed not so much as collaborating business interests, as they are commodities, where they are bought, sold, discarded or traded in favor of the mall owner’s and mall stockholder’s bottom-line.

When the costs of operating malls and other commercial properties unexpectedly and quickly began to rise as a result of higher inflation in the early 1980s, the mall and property owners were forced to absorb the additional expenses, thereby cutting into their profit margins. Many properties were foreclosed and resold to other interests. The new owners applied the lessons they had learned from their bankrupt predecessors, and redrafted their lease agreements to transfer inflation risks to their tenants through the “net lease” or Triple Net Lease Agreement (NNN).

This will make managing through the next inflationary period considerably more difficult for retailers and other tenants. Next week, I’ll explain why some dental leases can be so tricky.


Bibliography
1 US Business Cycle Expansions & Contractions (undated)
2 Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers – (CPI-U)

Most Dentists Forget the Risk Costs When Leasing Office Space

Rent May Not Be the Biggest Part of Your Dental Practice Lease

dental lease advocate Lewis GelmonSpecial Lease Feature by Lewis Gelmon

Have you ever sat through one of my lectures at the Greater New York Dental Meeting, the Pacific Dental Conference, or one of the dozens of local dental association or society meetings I speak at annually? If so, you’ve heard me say, “Dentists have a much higher degree of risk in their office leases then most other tenant users in the country because of the cost of the physical plant.

Dentists share the same types of risks as other commercial tenants in offices buildings and shopping centers. However, the cost to move their business elsewhere dramatically amplifies these risks for dentists and sets them apart. Rest assured, that’s something that most landlords are well aware of!

When a dentist opens up negotiations with a property owner, most dentists commonly overlook risk and focus on rent. This is true for both new leases on first-time locations and renewals on existing practices.

Focusing only on rent is a serious oversight. The total cost of renting space should be viewed as a formula:

BR + AR + RC = TCPL
Basic Rent + Additional Rents + Risk Costs = Total Cost of the Premises Lease (over the term)

Dentists often overlook the Risk Cost (RC) component of the formula, which is a significant and often a more costly part of the equation.

Look at it another way. Take a blank piece of paper and draw a line down the middle. At the top of left side of the page write Rents and underline it. At the top of the right side of the page write Risks and underline it. Under the Rents column, add up from top to bottom the annual rents you pay the landlord each year for the term of the lease. On the right side of the page is the Risk column; you’ll likewise have to add up the costs of the risks from top to bottom you’ll end up paying out-of-pocket during the term of your lease or career. To get the total cost of leasing your office space, you will simply add the totals of the left and right columns, right? The problem, however, is that many dentists don’t know what the right column costs consist of. As a result, they don’t factor them in during their negotiations with property owners until it’s too late…

The top Risk Costs (RC) I find in most dental office leases I review include the following:

  • Having the lease terminated by the landlord unexpectedly and having to move: $350,000+
  • Having to pay the landlord a portion of the sales proceeds of your practice when you sell: $75,000-250,000
  • Unexpected or hidden rental cost increases or charges: $50,000-75,000
  • Repayment of Tenant Improvement Allowances through base rents: $50,000-75,000
  • Cost of realization of personal guarantee after practice sale: $100,000-150,000
  • Cost to Estate without a Death and Disability provision: $75,000-150,000
  • Having a poorly worded Option to Renew or missing key dates: $50,000

Not all leases will have all the above Risk Costs, but most leases will have several of them hidden within. I will often uncover well over half a million dollars in Risk Cost in most dental office leases I review. The good news here is if the Risk Costs are identified in existing leases before they cost the dentist anything, there are effective ways that dentists can eliminate them and push Risk Costs to very nearly zero. Explaining these strategies will be the topic of my next article.

Post your comments

Looking for more information on the topic? You can reach Lewis Gelmon at (760) 479-9704 or lewis@lewisgelmon.com. For only $495, he will personally review your lease to determine the Risk Costs. Plus, get a $200 discount until October 31 just for mentioning The Wealthy Dentist. All reviews are guaranteed. If you don’t feel you have received the value, he’ll give you a full refund, no questions asked.

Lewis Gelmon is a former landlord, lease negotiator, and shopping center manager. Now a dental tenant advocate, he regularly lectures for dental groups across North America and the UK. He is the most published author on the subject of dental lease negotiations. His Good Leasing Guidelines for Dentists have been critically acclaimed by numerous dental groups. His mission is to raise awareness among dentists on the risks hidden in their office leases.

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