Tips for Creating a Value-Add Medical Office Lease

Originally published in D Magazine, by Webber Beall, EVP Lincoln Harris CSG Healthcare Group

We’ve heard more than a few physicians and practice managers say that leasing MOB space is a nightmare. Others say the process is difficult and cumbersome, but shrug it off as a necessary cost of doing business. In this three-part series we will offer a few tips with the intent of not only relieving the stress of leasing MOB space, but also exploring the idea of the “value-add lease.” We refer to the value-add lease as the optimal mix of space, function, location, economics and structure.

Start with Strategy, not with Real Estate. The path to a value-add lease does not start with surveying the market and comparing the rates and amenities of the various MOB options. In fact the first step, which is arguably the most important (albeit often overlooked), has nothing to do with MOBs – it has to do with the core business strategy of your medical practice. It starts by analyzing your business model with a focus on; (1) the key enablers of the practice’s mission, and (2) the fundamental source of current and future revenue. It is important to understand the factors that influence both the efficacy and disrupters of your long-term plan as some of those factors should influence your choice of location, space, function and cost of MOB space.

So what does this high-level, strategic perspective mean and how can it possibly relate to leasing MOB space? It means that by knowing the characteristics of your future revenue stream (i.e. patients) you will have actionable information that will help you make better real estate decisions. Knowing where patients will live will give you greater access to your targeted patient population. It means by knowing both the who and where about your current and future patients you will be able to more effectively forecast demand. And when you can model the demand for your services you will have a better idea of where you need to locate your practice.

Forecasting Demand for Healthcare Services. There are a number of healthcare companies, hospital systems and practice groups that have developed and/or utilize tools to help with demand modeling and forecasting. For the physicians and practice groups that don’t already have the tools, there are readily available resources to help.

Off-the-shelf tools: Let’s say you have determined the primary revenue driver of your practice is a demographic group comprised of; (a) females, (b) ages 25 to 40, (c) high income, and (d) well educated. Companies like Regis / Sites USA provide off-the-shelf software products that synthesize the most recent census data to deliver maps and information that identify the optimal geographic areas based on the selected criteria. Other readily available information includes competitor mapping as well as a broad array of demographic data.

Customized tools: At a more sophisticated level there are companies like Buxton or Stratasan that offer analytical tools that are more precise and can be customized to an individual healthcare practice. Solutions include tools that:

· Distill the characteristics of a successful practice and identify the demographic groups and geographic areas that most closely match the profile,

· Assess the optimal mix of services for a particular location and

· Predict the future survival rate of specific healthcare service lines in a specific location.

· Identify trade areas where there is a need for certain healthcare services

Starting with strategy and demand analysis will give you a better idea of where your practice needs to be and why – hence, a step toward creating competitive advantage and a value-add lease.

Next month we will look at how space and function relate to the value-add lease.