Congratulations! The group practice you've been courting has finally agreed to come on board. Whether they are staying in their current home or relocating to a new, larger shared facility, chances are part of the negotiations will center on what happens to the existing real estate. Before agreeing to assume financial and legal responsibility for a space here are a few questions to answer. 1) Does the space meet your needs? Here are some factors to consider when assessing the suitability of a specific space. Location - Is this where we want to be in the market, sub-market? Can the patient population you are hoping to service easily reach this location by public transportation or car? Size - Is the space large enough to accommodate the size practice you are hoping to establish? Is it more space than the practice can utilize or financially support? Quality - Is the property in good, fair or excellent condition? Does it convey the proper image to the market? Will the tenant improvements need to address any physical deficiencies in the property? Some problems can be solved by money, but in other instances you may be facing a money pit with no potential for adequately solving the problem or recouping your investment. 2) What's the Time Frame? Does this space meet your organization's needs in the near term? If not, is there a "price" at which the space can be made compatible with your requirements? Can the space be "lived with" in the short term without longer lasting negative ramifications for the business? In the intermediate term an organization's plans are often less clear. Will there be flexibility in that time period to either modify the configuration or size of the space, or vacate the premises? Understanding the most likely span of time a space will satisfy requirements leads to better informed expenditure decisions, and is also important in deciding on the nature of the organization's legal and financial relationship to the property. 3) What is this really going to cost? Whether buying or leasing, there will always be some transaction costs: at a minimum legal fees. Other potential expenses include: mortgage assumption or prepayment fees, environmental due diligence and remediation expenses, unpaid taxes, condominium fees or special assessments, and deferred maintenance expenditures. Hoping to avoid some of these expenses by assuming an existing lease? Frequently the landlord's approval of an assignment of lease or sublease, is contingent on the payment of an administrative fee and/or the landlord's legal fees. Is the existing tenant in good standing with the landlord? If not, the new tenant could be liable for unpaid and/or unbilled base and additional rent charges. Beyond the initial transaction costs, real estate taxes, condominium fees, utilities, and maintenance expenses will all be part of a space's operating budget. In addition, how is the organization going to support this site? Will an outside management company be on call to change light bulbs, fix leaky toilets and handle snow removal? Does your organization's facilities department have the capacity to handle another site? Both approaches are workable, but the most cost effective approach will depend on the specifics of an organization. 4) What's the Exit Strategy? Unless there is a high level of confidence that this location will work in the long term for your organization, then some thought should be given to the ease and steps which will be necessary to extract your organization from its legal and financial responsibilities for this site.
A straight ownership position is the most difficult to unwind. Though no one has a crystal ball to tell them the market for a specific property at some future date, an organization can still have an awareness of whether a space is likely to be functionally obsolete or in a location likely to be negatively impacted by ongoing population shifts. As recent events have underscored, an assumption of ever increasing or constant property values cannot be relied upon. If real estate will be sold within 12 or 18 months of acquisition, start the sales process as soon as possible. Finding and hiring the best broker for the job takes time, as does the marketing of the property.
Leases, particularly short-term leases, offer the greatest flexibility when vacating a site. When leasing a site from physicians joining your organization, the owners may want a lease term extending past your anticipated vacate date to provide a financial cushion in the event the property is not sold by that time. When assuming an existing lease whose term exceeds your time frame for occupancy, try negotiating an early termination clause along with the assignment of lease. An organization may not have answers to all, or even most, of these questions prior to assuming responsibility for a new site. However, taking the time to consider these questions, will minimize opportunities to be surprised or saddled with an unwanted real estate. | 
