Episode 135 - Mike Slattery of Crown Tenant Advisors

This week, the Dental Amigos welcome Mike Slattery, a Managing Director at Crown Tenant Advisors, a boutique healthcare real estate firm. Mike has over ten years of experience in the healthcare industry working with young dentists to find the perfect location and space to start their dream practice and with assisting established dental practices relocate, expand, and purchase property. Mike offers a results-oriented approach through analysis, tenacity, strong negotiation skills, and customer focus.

In this episode, Mike discusses the start-up site selection process, emphasizing the importance of analyzing demographics and market competition in chosen areas to ensure that they fit the vision and goals of the practice. He then emphasizes key concessions to negotiate with the landlord, including tenant improvement allowance, free rent, permitted transfers, and renewal options.  Mike also discusses critical risk mitigation language to be negotiated at the letter of intent (LOI) phase to protect the dentist, including relocation and exclusive use clauses.

To work with Mike and his team, visit crowntenantadvisors.com or call him directly at (619) 306-5048.

Listeners who want to reach out to Paul can do so at Paul@DentalNachos.com and those who want to reach out to Rob can do so at Rob@RMontgomery-Law.com.

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Full Episode Transcript

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Bumper  

Welcome to the Dental Amigos podcast with Dr. Paul Goodman and attorney Rob Montgomery, taking you behind the scenes of the dental business world. All the things you didn't learn in dental school, but wish you had. Rob is not a dentist, and Paul is not a lawyer, but since Rob is a lawyer, we need to tell you that this podcast is for informational purposes only and shouldn't be considered legal advice. Listening to this podcast does not and will not create an attorney-client relationship. As is always the case, you should formally consult with legal counsel before proceeding with any legal matter. Learn more about the Dental Amigos at www.thedentalamigos.com. And now, here are the Dental Amigos.

Rob Montgomery  

Hello everyone and welcome to another episode of the Dental Amigos podcast, the only podcast that is hosted by a lawyer and a dentist. I'm Rob Montgomery, and I'm joined, as always, by the Head Nacho himself, Dr. Paul Goodman.

Paul Goodman  

Great to be chatting Rob.

Mike Slattery  

Hey Rob. Hey Paul. Thanks for having me. I appreciate it. Look forward to chatting with you both today.

Rob Montgomery  

It's good to see you, Paul. And today we've got a great guest, someone that we do a lot of work with, super realtor that helps dentists that are looking for help with leases and real estate purchases for their startups and additional practices. Mike Slattery, Mike's a great guy, and he's had over 10 years of experience in the healthcare industry, and he's currently a managing director at Crown Tennant Advisors, which is a boutique healthcare real estate firm, which is mostly in the southeastern United States and was founded by Andrew Riepe. Mike covers the Carolinas North and South Carolina for a Crown Tenant, and has helped numerous healthcare providers achieve the goals of their practice through  real estate acquisitions and leases. Like I said, we've had the opportunity to work with Mike a lot over the years, and from working with young dentists to find the perfect location and space to start their dream practice, to assisting established dental practices to relocate, expand and purchase property, Mike is committed to setting his clients up for success. Mike offers a results-oriented approach through analysis, tenacity, strong negotiation skills and customer focus, well-known to go above and beyond for his clients and getting the best market has to offer for them while protecting their interests. And we're going to talk a little bit more about what Mike does, how we work together, and some things for people to be aware of and think about if they're getting ready to do some sort of real estate transaction. Fun fact, Mike and I attended the same high school in Fort Washington, Pennsylvania, the Germantown Academy, many years ago. I was many years before Mike. I think Mike was a star basketball player there, and a legend certainly at the University of Delaware as well. So without further ado, here's Mike Slattery, welcome amigo, and thanks for being on the show. Yeah, I have been looking forward to this. Excited to chat with you, Mike. We start with the hard hitting questions. I'm a big fan of nachos, so if we were in your area, what is your favorite Nacho topping, and where would you take us for nachos?

Mike Slattery  

Yeah, that's it's tough, because I actually moved from San Diego to the Carolinas in 2018 so I was spoiled with  everything San Diego had to offer. There is a really good local place near us up in Lake Norman. It's called Osidos Tacos. I'm pretty boring in my food selection. I try to be fairly healthy with a lot of the options, so I stick with like, chicken, cheese, beans and guacamole and a little bit of green salsa. And that's kind of my go to.

Paul Goodman  

I like it. I'm a big fan of the chicken nachos.

Rob Montgomery  

Yeah, simple. Sometimes simple is good, right?

Mike Slattery  

Traditional TV.

Rob Montgomery  

Absolutely. You know, it's funny. We've talked about this recently. I think it seems like the places that are, you know,  Southern California and Texas have these names that are really good, that don't sound at all like a Mexican restaurant.

Mike Slattery  

Our go to in San Diego was a place called Lolitas, and it was some of the best Mexican food I've ever had.

Paul Goodman  

It's awesome. Great place for that.

Rob Montgomery  

All right, so, Mike's got two places for us. Hey, so Mike, let's just jump right in. You know, one of the things that that you do an excellent job with and we've had the opportunity to work together on are startups. You know, startup dental practices. Obviously, one of the most important aspects of a startup dental practice is, where is the startup dental practice? So site,selection process, talk to our listeners a little bit about what some of the things are. What are best practices when it comes to that? What are some of the things that people should be thinking about, what are some of the mistakes? And then we just want to talk about also, what are some of the differences between spaces where we're talking about retail or medical office buildings, what is sort of the process that you would take your clients through, and what are some of the things that you would say as an introduction to people that are thinking about doing a startup?

Mike Slattery  

I think first off, one of the main goals is trying to understand what type of practice you want to have. Are you looking to be fee for service, or do you want to be insurance based. Are you going to be a Medicaid office? And really understanding what those demographics look like when you're going through this process? Because if you take different pockets of the market, you're going to attract different types of patients. So really understanding what type of practice you want to have is the first step in the process. The next thing is understanding what the market looks like from the analysis perspective of competition versus what you're really looking to do. So I think when we're looking for site selection for startup dentist, we have to think about the budget that they're going to have from the lender. So we're going to have to make sure that we're going to an area that they can afford rent wise, we want to make sure that they are focused on the right size selection for a startup. Because some of the startups that we work with have larger ideas of what they want their practice to be, but when you get a budget, you need to stay within that number. So we really want to focus on what the right size of the office is, how many operatories, how you're going to design your office? Is it going to be more of a slender lien design? Are you going to do the traditional layout and then understanding what the concessions are provided by certain areas and certain economics? Because the landlord is going to be able to provide you with tenant improvement allowance, a free rent, but they're going to amortize that back into the rental rate that they get. So if you're looking for an office in a very low, lower income area that's going to be a lower cost, you may not get the same concessions as if you were going to an area that has a little bit higher of a rent. Could be a little bit more attractive, but you can get some better concessions based on choosing the area.

Rob Montgomery  

Mike, let me just stop here for a second. When you talk about concessions, again, you're talking about things that the landlord is giving you essentially, right?

Mike Slattery  

That's correct. So the landlord, in this process, is going to provide you with tenant improvement allowance, typically, to assist on the build out of the space. They know that the cost of a dental practice is going to be pretty extravagant, and they're going to recoup those costs in the rental amount that they're getting back over the certain period of time. So if you're doing a five year term or a 10 year term, a landlord's guaranteed that amount of money over those set periods of time. The longer the term, the more tenant improvement allowance you're going to get. Same thing with free rent. So you're going to have a build out period that we're going to negotiate to allow you to get your permits, get your plans done, and get the construction completed, and then we want to see free rent after that build out period where you're seeing patients without actually paying rent, so you can maximize your reimbursements from insurance. You can get your cash flow up. You can get your patients up and really get the marketing out there by getting Google reviews. So there's a lot of concessions that are economic the landlord will provide during this process.

Rob Montgomery  

process. Hey, and so, Mike, so when we talk about sort of longer term, you're saying, the longer the term, the more concessions you get, especially tenant improvement allowance. I think that's something that it's important for people to be aware of, because we'll have conversations with with clients frequently. They'll say, like, well, you know, I don't want to sign a really long term lease. I'd rather have some more flexibility. Can I just do a five year lease with five year renewal terms? And I feel like I tell them, yeah, you can however one you're not going anywhere after five years, because you're probably going to borrow money for this project on a 10 year loan. So it's really hard to move when you still owe a lot of money on your startup loan, and if you don't stay for if you don't sign a 10 year lease or commit to it, even if you end up staying that long as you probably will, you're going to lose a lot of sort of the benefits and the concessions that you said that you would get with tenant improvement allowance and free rent.

Mike Slattery  

Absolutely, if you're doing a five year term, you're going to start looking for your relocation in years two and three. So you're probably not even maxed out or at your full capacity at that point, and you're already looking at real estate so you did not take advantage of the ability to use that money that the bank gave you to amortize it over a period of time before you ask for more money. So we have that same conversation where people want to do shorter terms, and they work when you're finding a second generation dental space, or maybe you find a medical space that you can configure pretty easily into a dental space.

Rob Montgomery  

And cheaply, right? More importantly, it's going to be $700,000 for example.

Mike Slattery  

Absolutely your cost is at half that, maybe. And that is, that's an avenue that makes more sense. But if you are going into this project, the likelihood of you relocating that quickly is very, very small. So it's more important to right size your office in the beginning and maximize those concessions. So when you do come to the period that you have seven, eight years of experience, you're going to know exactly what size office you want to either relocate into if you're going to buy something, you're going to build something, you're going to have a lot of experience in knowing what your practice is going to be best square footage wise. So I think it's important to know how long you want to be in a space and what the reality is of that length of time.

Paul Goodman  

I want to jump and ask a quick question. So since I'm only dentist of the three of us here, people say there's nothing 100% in life, but this is 100% every dentist, five to 10 years in their career, wish they had one more op, right? They wish they had one more up. No matter how many ops you have, you wanted one more. What's the most common number of ops that dentists are selecting? I know it could be all over the map, but like, what's the most common that you're seeing with the  startups?

Mike Slattery  

Yeah, for a startup, it's five to six ops is the normal number for for a solo doctor, if they're looking to have associate or two associates, obviously we're looking at a larger square footage, but to stay within the budget, and I can only specify my market exactly, when you get into that 2800 to 3200 square foot range, you're really putting yourself at risk of not staying within the construction budget or the rent number. So 2400 square feet right now, if you're going more lean design, you're getting six to seven operatories, if the layout is correct. But traditionally speaking, six operators 2400 square feet is that sweet spot?

Rob Montgomery  

Gotcha, okay, Mike, and just kind of go back for a second with the tenant improvement allowance too. You mentioned this in passing, but I think people need to understand this too. That's not a gift from the landlord, right? It's not like free money, hey, you know, and sometimes it can be as much as 70, $80,000 or more, where the landlord is writing a check to the tenant to reimburse them for a portion of their construction costs, but talk to our listeners about where that comes back into into play, and how that factors into the the economics of the deal.

Mike Slattery  

Yeah, we wish it was free money, but the landlord is going to get that back. So the landlord has a pro forma based on when they want to see their returns starting, and they're going to give concessions up to a certain period of time. Our job on the tenant broker side of things, is to maximize that number for our clients. So a landlord might want to start to see returns in years two or three, sometimes sooner, but they are going to start to get that money back in the rental rate, where they're paying out of pocket for the tenant improvement allowance, the free rent, the brokerage commissions to their broker and to the tenant broker. So all of that comes to a number where their break even is, and then they start to make money on the project. So if they're giving you $50 a square foot on a 2000 square foot space, you're getting $100,000 in tenant improvement allowance. Your rent might be $25 a square foot. So that number would be a two year break even for them. And now a landlord's broker and a landlord want to see it sooner, and on our side, we obviously want to see it longer. So understanding and knowing what we do in the dental space specifically to maximize those numbers, to make sure we can get you the best value, I think it's important to have a healthcare-specific real estate broker who works on that side of a transaction to really push those numbers, because a lot of landlords will say, hey, we can get an Office user or a restaurant user if you're going retail, and they might give less in that improvement allowance number, but the construction cost for a dental office is pretty significant. So being able to have that talk track to explain to landlords, broker and to the landlord, why we need this money and what they're going to see in a long period of time, it's a benefit to both sides at the end of the day.

Rob Montgomery  

Yeah, I think that's really important, Paul and to our listeners, this is why it's so crucial to work with a realtor that understands the dental industry. Because what Mike just said there is just so, so impactful that your realtor needs to basically advocate for you and your use and the deal to the landlord. They need to, they need to educate the landlord as to how good of a tenant you are, what this is going to look like for them long term, how dental practices trade, and that in some respects, they may have just signed a tenant for the next 40 years, because you're going to lease the space, and then you're going to sell their practice, and somebody after that's going to lease it. But if you don't have a realtor that understands the economics and how strong a dentist is as a tenant, then you lose that leverage, and with that, the loss of that leverage in those discussions the landlord, you lose benefit too, because they have to really embrace how good of a tenant you are, and if they do and they understand that, then good things generally flow from that. But for somebody that doesn't understand, a realtor that doesn't understand the dental world and how these projects work and how the dental business works, you can be leaving money on the table.

Mike Slattery  

Yeah, Rob, and it's not just money, it's also some risk mitigation factors as well. So having somebody that's focused in the dental industry, we're going to we're going to prioritize what the numbers need to be to stay within those budgets, but we're also going to take advantage of the ability to negotiate language in the letter of intent to protect the dentist for those instances where they trade later, they sell the practice, they need to be relieved of obligations, things like that.

Rob Montgomery  

That's a great segue into what we want to talk about next is really some of the maybe non economic things that you would see in a letter of intent or an LOI. And you just spoke about one of them, which is, you know, permitted transfers. And, you know, spoiler alert, that's one of the subjects that we in our office feel like really strongly about, you know, which is the ability to transfer the lease to a purchaser of the practice with little to no landlord say.

Paul Goodman  

To jump in, I like give Rob credit, Mike, we share jokes and things, but we went out of network with a dental insurance plan in 2022 and it caused, uh, a ruckus in our practice. Patients were upset. People were coming to the front desk with these letters. We tried to handle as best we could, but it was challenging. And I made a video, and I, um, used one of Rob's phrases. I said, we do not want your dental insurance to have a seat at the table when making the best decisions about your teeth. And it was really powerful, right? We don't want your dental insurance to have a seat at the table and making the best decisions about your teeth. In our practice, we utilize dental insurance like a coupon. Many people use it, but we don't want them to have a seat at table. And I got that from a lease discussion. So is this part of what you're talking about? You two talk leases a lot. So maybe just kind of whether it's clarify that for our listeners, I think that'd be important.

Rob Montgomery  

Sure. I mean, just to jump in with that. So when it comes time to sell a practice, in order to fully recoup the value of the practice, to get fair market value, you're selling the patient list, the goodwill, but you have to be able to deliver the location too, which is the fit out, equipped dental office. And if you don't have the ability to transfer the office, vis a vis assign the lease, to pass off the lease, then the sale of the practice, you'll be lucky to get maybe, you know, 25% of what the fair market value is. So you need to be able to transfer that lease.

Paul Goodman  

Permitted transfer, Mike, more exciting than you might think. The word itself is not that exciting, just so you know, right? Do you want to hear about permitted transfers? Right? Yes, before I go to bed to fall asleep, yes, it's true. But when yousort of say you might lose 75% of your practice value without doing this, I think our listeners are now lean closer to listen in.

Rob Montgomery  

Well, it's the number one deal killer in the practice transition world for us, I will tell you, because obviously listeners know we help people that are transitioning into and out of practice ownership with startups, practices, practice purchases, practice sales. But the number one thing that goes wrong when something goes wrong is an uncooperative landlord. And the reason why the uncooperative landlord is a problem is because the lease allows the uncooperative landlord to, as you say, Paul, have a seat at the table. And so for us, from our perspective, when we're transitioning a practice, we want to have as little say for that landlord as possible. And ideally, we would like to say if the tenant is going to sell their practice and they're selling it to a dentist, there's certainly other criteria you may have, then the assignment happens without the landlord having to approve it. If you take kind of what is the language right out of the box, you take what the landlord would offer initially in the lease, it's probably going to say that the tenant can't assign the lease to anyone without the landlord's consent. It may say which shall not be unreasonably held withheld. That's one of those, like lawyer legal punts, you know, like, what? What does unreasonably withholding consent mean? You know, well, is it unreasonable to say that I don't want to consent to the assignment of a lease because there's a dentist here. He's got $350,000 of student debt. They've got $100,000 in the bank, and the landlord says they've got a quarter million dollars of negative net worth, and you want me to approve that transfer? And what do we say? I'm like, Yeah, well, that's who buys dental practice. So what we like to see, and you know, a good dental focused realtor does, is to set the table on that issue in the letter of intent and so, and I can imagine, because a lot of times, you know, we work with with a lot of good realtors. We're lucky, because through consultants in our relationships, there are people are working with, with really the best out there, and Mike is one of them. So we're not involved with the, necessarily, the negotiation of those terms of the LOI. We get it, we get the LOI on Mike Slattery deal. And look, it's got that good language in there. So Mike, talk to Paul and our listeners a little bit about kind of how that process goes and kind of what you have to do to kind of get that issue. And we'll talk about some other issues in a moment, how to get those things tackled in the letter of intent, absolutely.

Mike Slattery  

And I think this might be the number one item that we get push back for in a letter of intent. Economics being one thing going through free rent, talking about ADA compliance, exclusive use, etc, this permitted transfer language is the most difficult thing to negotiate during the letter of intent. Like Rob said, the landlord doesn't want to give up any control, and I understand that it is their their project and their ability to say what they will and won't agree to, but we will walk away from deals if we can't get the right language in here, or at least conceptually agreeable to a certain extent that we can move the project forward. I think the big thing that we focus on is just ensuring that the landlord will allow the assignment without consent as the number one priority, and then the secondary priority is to get relieved of all the obligations of the lease. So if we need to end the personal guarantee as well, if you're signing a personal guarantee, which is very commonplace, so if we can get the assignment without landlords consent, I find that to be number one big win. Second is, how are we going to get you off of the lease at the time that you do sell the practice and assign it over to the purchaser? Right? And if we can do those two things, and we've done our job, so we've been creative with conceptual language in that process to push it to the attorneys. If we have really difficult landlords, we've had very specific language that our may or may not have used from Rob's team before. That helps us get the deal moved forward. But we want to make sure that this is correct, because not only can they prevent the sale to practice, I recently had one where the landlord wanted the pros some of the proceeds of the sale right? And there was no language in there, because this was an old lease that was done way before my time, and they prevented them from selling the practice to a DSO. And at that point they had the tenant had to stay in the location. The landlord would not renegotiate terms with them that were market terms. So we had to relocate them, and they paid $14 less a square foot, and they got the permitted transfer language in their lease when they do decide to sell in the future. I think it's significant to make sure that this is done, because when it gets to attorneys, even when we negotiate it correctly in the LOI, the landlord's attorneys sometimes just put their standard language in and act like we didn't negotiate this LOI, and we fight that battle. But more often than not, when it gets to that point, we at least have some legs to stand on.

Rob Montgomery  

And that's a great point.  I think sometimes people don't realize. They think, well, it's just an LOI, it's just a letter of intent. And, you know, sometimes somebody that's not all that sharp is telling them, like, don't worry. You know, it's not binding. But like, these are the things, if you don't get them in the LOI, as Mike said, When you get to the lease, and I'm negotiating with a lawyer on the other side, and the table has not been set properly for me with this issue or others, it gets really hard to get the landlord's lawyer to agree to this, because the landlord's lawyer is wired to protect their client at all costs. When Mike is negotiating with the business people, he has the ability to get concessions on all sorts of things, and part of that conversation and trying to make a business deal is trying to sell them on the importance of these provisions. So he's in a much better position to get that. And you know if Mike gets this in the LOI, it's going to be in the lease 19 times out of 20. If it's not in an LOI, I'd be lucky to get it in at least one time out of 10.

Paul Goodman  

The LOI for the deal manages expectations. It's my famous line. I would not tell my kids, we maybe are going to get ice cream. If I put the ice cream in the LOI, we're getting that ice cream. One of Rob's phrases I like is when you meet someone unreasonable, they rarely get more reasonable over time. I'm the dentist, I don't do this all the time. I own one place. We have a lease in one place, like the landlords who wanted the proceeds from the sale. To use a technical term like nacho nuts., They just wanted money. When the practice was sold and they had thought they had a right to it.

Mike Slattery  

Correct. They didn't have a right to it. There was nothing in the lease that prevented it, nor did the tenant have the ability to assign without landlords consent. So as part of their consent, they wanted to be compensated.

Paul Goodman  

Just for context, I don't know anything about the real estate market. When it's hot, it doesn't change my life. When it's cold, it doesn't change my life, right? So I know this is all part of your worlds. If a landlord was a stickler, it doesn't make their space less attractive, they just sort of want this control.

Mike Slattery  

So this landlord purchased the shopping center from a previous landlord. They're a national group. I guess it's just how they run things. But no, this was a very attractive shopping center. The space got back, filled pretty much immediately. It was a good space. So they have the ability to do those things. This language, getting it in your client's lease up front prevents this from happening if the landlord sells to another landlord, so it stays in the lease. So if you can get it in your lease up front, you don't have to worry about this in the future, whether it be the current landlord that you're dealing with or a future landlord that buys the building or the shopping center.

Paul Goodman  

I'm learning a lot here. My last thing is, I was a big Seinfeld fan, and they had spin offs, but only one was successful, JuliaLouis-Dreyfuss, The New Adventures of Old Christine, the other ones flopped. But I think you and Rob have a spin off five minute YouTube series like our broker friend does, Tales of Uncooperative Landlords. You just get on video, and you talk for five minutes, and then you end it. And I think it will, it will be a dental sensation, because as the only dentist here, and you know now as an entrepreneur, I don't really live in fear as an entrepreneur that my space is going to change, but I do for my dental practice, and I don't think dentists think enough about this, right? And I just think it's important that we're doing this work. And you know, that's my suggestion for your spin-off.

Rob Montgomery  

I like that. It's a good idea, Paul, let me say this too, though, Mike's talking about a scenario where the lease is silent on that issue, where the landlord is trying to get a piece of the proceeds of the sale. We see in leases from time to time where the lease will have that in there, that the landlord is entitled to some sort of payment in connection with the sale of business. So, you know, and I think when you look at different types of of spaces, you can kind of expect to see different types of things and, you know, all leases and all lease types are not the same, like if you're going into a privately owned medical office building versus a retail space that's owned by a big, national real estate investment company. They're both commercial leases you're going to get from those landlords. So it's sort of the same agreement,  quote, unquote, however, those two documents and what you could expect to find in each of them is completely night and day. I mean, one is all hands on deck. We got a retail lease. What things are going to be in there? They're going to be really bad and potentially harmful to the client who is investing the $700,000 or more in the space that they don't own, versus what might be a friendlier lease in the medical office building context. Mike, you mentioned too, like you know, the ability to to keep the space, another provision that we will see sometimes in leases that do a good job at kind of fleshing out in the LOI are relocation clauses as well. If you can speak about those for a moment too.

Mike Slattery  

Of course, again, it comes down to landlord's control so they want to have the ability to place the tenants and maximize their profits as much as they can. So a landlord will ask for a relocation clause in an LOI or a lease to be able to relocate that tenant into a different space in the shopping center and then put somebody else behind them, potentially, most likely at a higher rental rate or a better use that's more visible to attract different people to the shopping center. Now, I see it for a lot of smaller shop users, rather than dental where they have I've reached out to people, and they've said, this person doesn't have any prevention of us relocating. We can relocate them for your dentist, because dentists are a very attractive use to the center, but we want to prevent that from happening to our clients, so we will strike any language that comes up on a relocation. And if we have to agree to a relocation because we've had before, we will try to make it so expensive and so unreasonable for the landlord that it just doesn't make sense. We don't want them, our client, to spend, you know, 4, 5, 6, $100,000 in construction, and then two years later, have to relocate, and potentially, depending on how it was negotiated, not get the full amount reimbursed to them or covered by the landlord. Right? Okay, so our big protection is, if there is a relocation clause, we want it to be essentially the same size with the same visibility. If it's a smaller space, we want to pay less rent. If it's a larger space, we want to pay no more than the rent that we're paying currently. We want the landlord to cover the cost of the entire construction. We want to have the construction done to in hand, have the ability to train their staff on the new space if there's any difference in the layout before we actually have to vacate from that space. But that's worst case scenario. I feel very strongly in my conversations with the landlord brokers to explain this, that it's not something that's really feasible because then they have to go back to the Dental Board. You have to change your address, you have to change all of your marketing. You have to change a lot of stuff. Yeah, it's just more simple, if we can just get it out of the lease, or the LOI up front.

Rob Montgomery  

Yeah, absolutely. And that's another thing, Paul, that you talk about things being nacho nuts. You know, who would think that you sign a lease for an end cap in a shopping center that that doesn't mean that you couldn't be moved to like the back part of the shopping center without realizing that. And Mike, I think it's important too, like you said, yeah, it's a square footage, but it's also the layout. If you are in a space that's very efficient, or you can efficiently lay out six ops in the same number of square footage that if in another space, you may only be able to fit five that could cost you $250,000 a year in revenue with that one less up. So just because you're moving from 2200 square feet to 2200 square feet may not be okay.

Paul Goodman  

I one time had a chiropractor as a patient and Ididn't totally understand what they needed. But, you know, I really liked her, and I go, must be nice to do your job like only you and the table have to show up to do your job because, like, maybe something was like, going wrong with one of our hand pieces. Running a dental practice, all the stuff in it, it's just wildly complex to do every day, all the stuff that has to go into making it happen. And if everyone's listening, think how much you dislike moving as a personal human being, it's a factor of like 100, a dental office, and I think you're really sharing some awesome value. I had a question, Mike, like every professional, you have to re-manage people's expectations, because we're the experts. And sometimes people come in and say, I want my teeth to be as white as possible. When I say, that's really important. Mrs. Smith, but how about we make sure they don't fall out of your head first, right? But I say it nicer than that. I say it nicer. I say, you know, it's great to have teeth that look great, but the foundation of your teeth is really rocky, and we have to deal with that first. And of course, they don't want to deal with that first. They want the white teeth in the searching for spaces. Because you're talking to these dentists and this is their dream. What do you wish they knew or thought about or what do you sometimes have to say? Like, Hey, I know you want this thing, but it's not as important as you think.

Mike Slattery  

This may get a little bit of backlash, but I think the days of being extremely visible have changed because of the marketing ability, where I've gone through the process of people that wanted to be in the most visible retail site. And it's just very challenging to get in a lot of the larger markets these days, because you have DSOs coming in, you have individuals that have been there for a period of time. So I've had people essentially go 1, 2, 3, years and not do a project because it wasn't the most visible location for their practice. And I think if they were able to prioritize, how are they going to attract patients otherwise, through marketing, are they still going to be in the area that's going to pull from the patient population that they want? Is this going to be the services that they're going to provide to the community and create a why in their own community. I think sometimes those would outweigh just having the first sign of a shopping center.

Paul Goodman  

I love it. I'll share with you.  I have one of the most visible locations for my primary dental practice in the entire town, like probably one of the best locations you could have for a dental office. We get very little walk up appointments, right? So even though we're very visible, it's  purposeful and we've talked about this before with Ideal Practices, yeah, dentistry is a purposeful visit. I think that's a great tip, because I think you can get blinded or misled by saying, I want it to be like a Starbucks or a fast food restaurant, and I wish people liked us that much. But even with my visible location, Mike, not many people walk up and say, hey, I want an appointment.

Rob Montgomery  

That's Steven Trutter says. Exactly what Mike is saying, those spaces that are highly visible in a retail environment are really expensive for impulse buys. One thing, if you're driving by and you say, I would like to go get a latte, you know, at Starbucks, oh, wow, there it is.

Paul Goodman  

It's not like to get a crown impulse around, right?

Rob Montgomery  

Yeah I came over the crown crazy, you know? And that's, that's where my that's a really great tip.

Paul Goodman  

Because you just think, oh, I want to be seen by everybody. But obviously the being seen by everybody, what you're saying, could come with a cost, or it sounds like if people have delayed their dreams over it, which was probably not a smart move.

Mike Slattery  

Absolutely. And I do think that we try to go through the process with everybody according to how they want it to go,  if they have that idea that they want to be in the high traffic, most visible area, we will try our best to get them what we can but an example I have is I did this with a general dentist who wanted to be in a retail site. And so we actually went and toured a couple of retail sites, and then she relocated into an office building because she did super high end cosmetic laser dentistry, and it was the perfect fit. It was much better of a feel for her, and that's the practice that she wanted to have. So she she had to go through the process to learn what was actually right for her. So I don't think that we would just quickly make a transition into a suggestion. Hey, you don't need this. I think you go through the process, but having people being a little bit more open towards suggestions would be helpful to secure locations that will still work.

Rob Montgomery  

That's a really nice way of putting it. Mike, I'm gonna be a little less. Yeah, when I think it's important to be flexible and open minded and to absolutely defer to the consultants and the team that you have. And to your point, it's this issue, what type of space we see a lot? This is a whole nother rabbit hole that we don't have time to go into today, which is, I'm going to try to buy the real estate. And you might spend four years trying to find this unicorn for your practice, and the cost of delaying your practice startup by four years while you shop around for the unicorn is there's a number associated with that, and it's well into the seven figures, you know. And at the end of the day, was it even the right place for you? But, yeah, absolutely being flexible, being open minded to what's available, I feel like Mike on the market at that time, and not necessarily looking for something that doesn't exist or may not exist at any time in the future. Totally agreed. Yep. So as we talk about kind of the beginning of the process, we talk about the ability to assign these leases, but let's talk a little bit about, as we wrap up, Mike, sort of the end of the process. So if somebody signs this 10 year lease, and the practice is booming, they made the mistake, maybe, of only signing a lease for a space that has four ops they've outgrown the space, or whatever other reason they may have that they want to move. Let's talk about kind of what that process looks like. When Should people think about that? What are some things that they should be thinking about doing?

Mike Slattery  

And I would say at 18 to 24 months is the ideal time to start with the next step. I'm sorry, 18 to 24 months before the expiration of the term, they should start to get a plan in place, whether their space was too small, too large, maybe they didn't have an option in there and they're forced to relocate, or maybe it's time to buy land and do a ground up construction, potentially buy a condo or a building. So really formulating that plan 18 to 24 months prior to the expiration of that term will give them enough time to go through the process and really have the ability to move their practice without the fear of being shut down or not being open or being out of a space for a period of time, it's going to be almost impossible to time it perfectly where you're within the same month that you're moving over. So I think it's better to give yourself a cushion and not run that risk. So for us, best case scenario, they love their location. They love their space. They want to stay there. They want to exercise an option. A lot of people miss the opportunity to negotiate additional rent concessions or some tenant improvement allowance to spruce up their space when they're exercising an option, even if their release says that they have an increase on their annual escalations and they can just sign it and move forward, there's always the ability to negotiate the term for the option period, it's much less expensive for a landlord to sign on with you than it is to then go put it on the market, try to find another tenant, pay out a lot more money to people. So that would be the best case scenario. If somebody is happy or want to stay where they are,  I'm completing one right now, and we got 10 months of free rent, and we're getting some tenant improvement allowance, and they're doing a longer term, and they've saved a significant amount of money, rather than just signing the lease if they decide that they want to relocate again. I think there's the importance of understanding where you are now where you want to be, so getting the right size space, but you also have to understand where your patients are coming from. So our company does what's called a heat map, where we're going to analyze where your patient population is set up. And most dentists can do this on their own. You're just pulling the zip codes of the locations of where people are coming from without obviously going against any HIPAA compliance, and then really trying to focus your efforts on those areas. If you can stay within a short distance away, that's best case scenario, but sometimes lenders will require you to stay within five miles in a dense populated area in order for it to be a relocation and not another startup. So it's also important to have a conversation with your lender to see what that would look like in terms of your buying power, for purchasing your relocation distance that you can go, and then understanding what the economics of the market arebecause you're going to have to do another up fit of the space.

Rob Montgomery  

Yeah, that's great. Great suggestions, Mike. And one of the things that we see in practice transitions too, is where people just automatically renew their leases for years and years and years because the lease allows them to. You know, our listeners have heard us say this before, but I can't say it enough times that as your lease is expiring or renewal term is expiring, you need to get back with your realtor to talk about getting their help to renegotiate the lease terms, to get you additional concessions, like Mike said, or to renegotiate the rent like that, that automatic renewal provision in your lease is sort of an insurance policy like that's the worst case scenario. You should still do much better. And we see this. Sometimes people may have been in their space for 30 years, and they go to sell their practice, and the buyer says, Well, gee, everybody else in the building is paying $7 a square foot less than you, you know, like that hurts cash flow, and cash flow affects the purchase price. And so it's just people not realizing that, hey, this is an opportunity to negotiate. Like Mike is saying, totally true. This has been great. Mike, really good stuff. Like I said, We've always enjoyed working with you. You do do an awesome job for for your clients. How can people get in contact with you and learn more about what you do and the team at Crown Tenant Advisors.

Mike Slattery  

Yeah, so our website is www.crowntenantadvisors.com, my cell phone number is (619) 306-5048, you can find all of our team on that website. We're in the southeast, and we are expanding a little bit right now, so you'll see some new people on the team coming up great in the next couple of months. But yeah, we'd love to assist anybody who's looking in this area. I don't know if we touched base on it, but we are buyer/tenant only, so we only help doctors who are looking to start up, relocate, find land, etc. We never work with a landlord. So we're really uncompromised throughout this entire process.

Rob Montgomery  

People don't realize, just to season that for a second for our non sort of real estate savvy people, what Mike means is they are only ever on one side of the deal. Most commercial realtors kind of flip-flop between representing tenants and landlords, and sometimes they may be representing a tenant in a deal with a landlord that they're also representing that landlord in other deals. So you can kind of, you know, connect the dots and imagine where their fiduciary interest comes from. But Mike and his his folks at Crown Tenant do not do that. They're only on one side ever like that. That's great, man. Well, thanks for being on the show. Look forward to continue to work with you. Great stuff here for our audience. Mike, thanks for taking the time. Thanks for sharing.

Mike Slattery  

I appreciate it. Thanks Dr. Paul, Thanks, Rob.

Rob Montgomery  

Appreciate it. Lots of great information and tips.

Paul Goodman  

Rob, leasing is more exciting than you think, and I just think it's one of the things that I was kind of alluding to when we deal with patients, is because it's the disasters that happen when you're not paying attention to what is the quote, unquote boring stuff to dentists, boring stuff to patients, like, Oh, you don't want, you know, just floss the teeth you want to keep, right? Is one of our clients. So it's like, pay attention to your lease if you don't want to be shoved out of your building.

Rob Montgomery  

We see this in all agreements, whether it's leases or employment agreements. And unfortunately, a lot of times, people don't realize what's in the agreement, the lease, or the employment agreement or the partnership agreement, until there's a problem, and at that point it's too late, you know. And sometimes you can sign a bad document, a bad lease, a bad employment agreement, and may never impact it, unless, of course, it does. And then these are types of problems that can really be defining and not such a good way to the practice, because Paul and I appreciate you giving kudos to some of these phrases I have. I'm starting to realize I've got, like, a collection, but without an office, you can't have dental, right? And, and these things can really come back to bite you, but Mike Slattery and Andrew Reappe and the rest of the guys at Crown Tenant Advisors. They're good people. They're really good in this space. And you know, if you're in the southeastern United States and thinking about doing any kind of real estate project, they're definitely good people to talk to.

Paul Goodman  

Yeah. Love. Rob, thanks for reframing my expectations on leases.

Rob Montgomery  

Always a pleasure Paul. Thanks everybody for listening.

Bumper  

Thanks for listening to another great podcast with the Dental Amigos and don't forget to tune in next time to have the dental business demystified. If you're looking for more information about today's podcast, you can find it on thedentalamigos.com. If you're looking for Paul, you can find Paul at drpaulgoodman.com and if you're looking for Rob, you can find him at yourdentallawyer.com This podcast has been sponsored by Orange Line Media Group, helping dentists and other professionals create content people love. Find out how we can help you take your business to the next level at www.orangelinemg.com. Til next time.

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