Episode #2 with Dez Merrow of CARR Healthcare Realty
In this second episode of the Veterinary Start-Up Practice Podcast, attorney Rob Montgomery is joined by guest Dez Merrow, a buyer/tenant real estate agent in Northeast Florida for CARR Healthcare Realty. Rob and Dez focus their discussion on the key terms that real estate agents and attorneys like to see in a Letter of Intent (LOI) since the LOI helps to lay the foundation for a smooth lease or purchase negotiation. Having an experienced real estate agent, such as Dez, who is familiar with what’s important in veterinary office negotiations and who knows to ask the landlord for veterinarian-specific items (such as free rent during build-out, tenant improvement allowance, exclusivity, and favorable assignment language) can be invaluable for a veterinarian looking to do a start-up.
Dez dedicates her time at CARR to helping her veterinary clients find and negotiate land purchases for ground-up construction for their dream practice, as well as for the perfect retail or office space to open their start-up, satellite, or additional vet practice location. Dez also helps her veterinary clients renegotiate the terms of their upcoming lease renewals, as well as negotiate expansions into adjoining space or relocation to a better/newer/more favorable location.
Listeners who want to connect with Dez can do so at 904-686-5886 or email@example.com or visit CARR’s website which will allow them to find a great representative in their market, https://carr.us/lease-or-purchase-evaluation/ and those who want to reach Rob can do so at Rob@RMontgomery-Law.com or through his law firm’s website at www.YourVetLawyer.com.
See the full episode transcription below:
Rob Montgomery 0:00
Hello, everyone, I'm Rob Montgomery and welcome to the veterinary startup practice podcast. Where as we like to say we are seeking to demystify the process of starting a vet practice by bringing in experts and thought leaders from the veterinary world to talk about the startup process and what to do and sometimes even more importantly, what not to do. Today, we have a great guest on in Dez marrow, who is someone that we've had the privilege of working together on a number of deals over the years and Dez is a buyer tenant real estate agent in Northeast Florida and the Jacksonville St. Augustine area. For car health care real estate. Car is a national healthcare real estate focused firm that helps tenants and buyers with their real estate needs and Dez has been active in the healthcare industry for over 30 years, began working with Carr in 2018. And while she works in all healthcare verticals, veterinary and dental are the core of her business and her past work life. She spent the majority of her career in the dental world that 14 years in a dental office eight years for Patterson Dental. She may recognize the Patterson name and the vet world as well. And she did eight years doing it for dental and veterinary offices all over Florida. So moving the car was a natural fit for Dez. And her experience coupled with our 30 years and the Jacksonville St. Augustine market makes her exceptionally skilled at helping her clients find their perfect place to practice and through car she focuses on helping her clients to analyze their existing lease and provide purchase versus lease comparison to aid in their decision making process. She helps to find and negotiate land for ground up construction for a dream practices. She finds and negotiates the perfect retail or office space to open their startup satellite location or additional practice. She helps to renegotiate the terms of upcoming lease renewals, which is an important thing to expand to an adjoining space or relocate to a better, newer, more favorable location. And she also assists in helping to assemble the team, which is something that all of our guests are talking about in different ways in different capacities, and does this fiduciary duty is to her client and not to a landlord or a seller. So a client can rest assured that everything she does is in their best interest. And I think it's important for me just to stop here for a second. And let everybody know that in the real estate world. A lot of times you will have realtors that represent buyers and sellers, landlords and tenants. And this whole concept of dual agent representation as a lawyer who is bound by all sorts of ethical and fiduciary rules that's always puzzling to me. One of the things that I really like about working with car people and Dez is that they are not on both sides of the deal. And nor are they ever on the landlord side they are helping their tenants, their buyer clients, so they're looking out for for their people, not for somebody else. And that's a really, really important thing for for people to keep in mind as you vet realtors and you think about going through this process, that that's something that that car offers that most of your local and regional real estate commercial firms are not going to be able to do. So as I talk on, let's go back now without further ado, Dez Thank you very much for being on the podcast today.
Dez Merrow 3:41
Thank you, Rob. Thanks for having me.
Rob Montgomery 3:42
Yeah, so I know we've worked on a lot of deals, I didn't add them up before but you're absolutely one of our favorites around the country to work with. And you're an ace in that Northeast Florida market. And you know if we can before we kind of get into it, if you can just expand a little bit about you know, car and what you do in that healthcare, real estate space and just really kind of elaborate a little bit more on what we're talking about when you talk about being a a tenant, or buyer rep exclusively.
Dez Merrow 4:16
Sure. So, car began in about 2009 Colin Carr started the company because he noticed a hole in the real estate space for doctors having somebody to represent them. There's lots of of listing agents, lots of landlords that that work in the health care arena, but there was no one out there really protecting the doctors best interests and fighting for them. So Colin saw that need and started the company essentially in a historically bad time for real estate right there was there was that that huge downturn in real estate he brought the company basically up from nothing and now What we do is work to protect our doctors make sure that we get them the best concessions, the best rates, and the best space for them to practice in.
Rob Montgomery 5:10
Yeah. And then that's, obviously the economics of a deal are important. And the demographics and all these things we're going to be talking about with Dez. Today, and we're talking about with, with Peter McCann, her colleague, a car as well. But that that's important to note. And, you know, I will say what I tell a lot of our clients, which is, you know, we as lawyers can paper the deal and protect you and, and do the contract. But we are not magical enough to make a bad deal good in a lease or a contract. So the economics matter. But I want to make sure we really drive this home, and people are probably going to get tired of me saying this, on this episode. And in others, when you are looking at space, and you're thinking about doing a start up, you're either going to purchase real estate or look for a space to lease. Under no circumstances should you ever call the name on the sign. Okay.
Dez Merrow 6:13
Exactly. Right. That's one of the biggest mistakes that I see healthcare providers do.
Rob Montgomery 6:21
Yeah. So let's, let's say this, you know, this is one of the questions that we're asking all of our guests, there's a few questions that listeners will hear their their common threads. So let's just launch off with with that question on this issue, you know, mistakes that you see, veterinarians make when they're doing startups, there's an eye. For both of us, this is one of the main ones that I see, which is calling the name on the site.
Dez Merrow 6:46
Right, right, it's basically taking a do it yourself attitude, the worst thing you could do, one of the worst things you could do is call the name on the sign. The name on the sign is the listing broker that represents the landlord in the space, they don't have any type of fiduciary to the tenant or the future tenant, their job is to work for the landlord, and their job for the landlord is to get the most money they can without giving up anything, if possible. So they're not going to help you, they'll tell you, they're going to help you, but they're not necessarily going to help you. They're interested in leasing the space. So they'll get to a certain point, but in reality, they're not working on your behalf. And the landlord isn't taking a tenant or potential tenant, healthcare provider, whatever, as seriously as they would someone that's represented, they see them differently. They don't give them the level of respect, that they would another broker coming to the table and saying, Hey, we want to space and here's why. Yeah, the thing is, don't know what you don't know until you know it. So typically, a doctor who spent years in school learning to be a doctor should do that, you should be a veterinarian, that's where you should focus your efforts. bring someone in to help you negotiate the finer points of a lease, and get you the most that they can. Because if you don't know that you can get it, you'll never ask for it. And the listing broker will never tell you it's available, you could literally be leaving 10s of 1000s to hundreds of 1000s of dollars on the table.
Rob Montgomery 8:17
That is not an exaggeration, folks, I'll say the hundreds of 1000s of dollars is not at all an exaggeration. And I think, you know, there's a couple things to unpack there two days, I want to say that, you know, the there are what I see. And I probably see obviously, more of the sign callers than you do. Because, you know, the sign callers haven't connected with somebody with you like you because they've called the name on the sign. Right. So now I I'm the one that ends up dealing with that carnage of, you know, what it looks like? Yeah, when you're, when they're dealing directly with, you know, essentially the other side. But, you know, there are, you know, two deals really for for landlords and that situation, there's the deal that the represented party who is in the know gets that is, you know, competitive in the in the market that has the bells and whistles that needs to have, because that that landlord realizes that the tenant has representation and somebody knows what to ask for and knows what they what they should be getting. And then there is the big deal, which is this person, you know, fell off the turnip truck. Let's try to pull you know, get the best possible deal for us and nudge nudge wink wink, maybe they won't realize right. And so I think a lot of times people think mistakenly that if I deal directly with the landlord and I call the name on the sign, I'm somehow going to get a better deal and it doesn't work that way. When it comes to commissions in this space. Realtors are paid similar to way reorders are when you're selling your house that you list your house for sale. And if your realtor is able to sell it to their person, they get all the commission, if so real or bring somebody, they split the commission, it doesn't make the total commission any different. Same thing in this world, right? That's,
Dez Merrow 10:14
that's absolutely true. There's commission set aside, that's the cost of doing business to lease out of space. And, and frankly, the landlord doesn't care how many letters you have behind your name, they could care less, they can spend five minutes, whether it's the landlord or listing broker, spend five minutes in a conversation with someone who's not represented and know that they don't have the knowledge base to ask for the things that are going to cost the landlord more money. So they're going to take advantage of that. And the great news for them is if you come at unrepresented, either the listing broker is going to get the other half of the commission just like you said, Rob, or the landlord's gonna pocket it, and still only pay the listing brokers their percentage, either way, there's no one on on the healthcare provider site to fight for them. And that's, that's detrimental to your bottom line. Because again, 10s to hundreds of 1000s of dollars over the term of your of your lease, it can be crippling
Rob Montgomery 11:13
Yeah. And no to that once in the way this world works. Also, you know, kind of given you some, some behind the scenes, look at the at the way the industry works. Once you initiate contact with the landlord's broker, you can't bring your person in after the fact. And a lot of times, people, you know, the sign callers will reach out to us, they'll send this loi, which we'll talk about what that is, and some of the details of some of the things that you need to ask for. But we're talking about a letter of intent, which is sort of the initial process. Again, we'll talk about this in more detail in a minute. To get the negotiation starts with they'll send me a signed loi, and I'll ask them who their realtor is. And they'll say, Well, you know, nobody, I'm working with the same person as the as the landlord. And, you know, when I look at that, and I say, well, is the rent, right? Is that market rent? Could we get a better deal? On on the tenant improvement allowance? Or all these things? And the answer is, we don't know. Because at that point, you can't bring your own Realtor in, because the realtor for the landlord is not going to split their commission at that point. So it makes it economically impossible for you to get a realtor involved. And, you know, for me, or any lawyer, it's challenging at that point to try to renegotiate some of these economic terms. And we don't even always have access to very not always we don't have access to the same kind of database that, you know, someone like does has for or even not even database, just knowledge in the market as to what's reasonable and not so you exclude yourself from your your best advisor when it comes to the economics of the particular deal by reaching out to the landlord instead of bringing your own person to the table initially.
Dez Merrow 12:58
Exactly, exactly. And, you know, once you have that signed loi, even though it's not a binding document, you're still agreeing to negotiate a lease based on the terms that are written within the LOI. So it puts you Rob is, you know, in a bad position, when you, when you get somebody that asks you to try to change those terms. It's called trading deal points. landlords don't like that, that could potentially create a contentious relationship, which is what we're trying to avoid. We're a non conflict or conflict free, commercial real estate company. And our goal is to make sure that in the end, our our clients and the landlords have a good relationship. So separating them from that negotiation process allows that to happen. Yeah, it keeps you rob from having to fight that fight afterwards.
Rob Montgomery 13:49
Yeah, yeah, retraining the deal, we call it or in our world, when we're faced with doing that, it's we've referred to as trying to put the genie back in the bottle. Right, which is challenging, but as you said, these loi are not binding. That just means that it's not a contract. But if you try to change those terms, it can be a deal killer, you know, the time to negotiate the deal is before you sign the loi, not after, have we had success doing that after the fact? Yeah, sometimes, and sometimes they're big dollar amounts. But you know, I will tell you that our hands are tied, and our ability to do that is typically very limited. And I have fewer success stories for clients who have gone that route than I have stories of failure. Correct. So let's roll into that. So, you know, when we're talking about you know, the let's talk about the process as so, you know, we're, you know, somebody says, hey, guess what, you know, I am Sally veterinarian, and I would like to think about starting up a dental practice. And if we could for these purposes, So let's just focus on this as somebody that's kind of looking to lease as opposed to purchase, because that's a whole nother can of worms and lots of other subjects. So let's, let's stick to the lease. So thinking about leasing space for my startup practice, where when does that begin? When Should people reach out to you and kind of walk us through those initial steps of the process?
Dez Merrow 15:20
Sure. So I get these kinds of calls. People listen to the podcast, they find us on the website, and I'll get calls or they're referred to us and I'll get calls from from veterinarians. Sometimes they're looking to see what the market looks like, sometimes they're very serious, but I have the same conversation with everyone. The first thing I ask them is, do you have your financing in order? Are you working with with a bank? Are you in that phase? Do you know what you can do financially to make sure that this is feasible for you before you go, looking and calling on faces and getting your you know, getting your hopes up? And then finding out that maybe you're not financially ready yet? Let's make sure that you have that in order? Do you have a design plan? If not, you know what you least want in your office? So I have a basically a list of questions that I go through with my clients and ask them, How many treatment rooms do you want? Do you you know, are you going to? Are you going to board long term or not? Just just a whole gamut of veterinary specific questions. Are you going to have a freezer? Outside inside, you know, what are the what are the different things that you want to do in your practice that may maybe differentiate you from another veterinarian? How much competition Do you want to be surrounded by does that affect your your decision making process, there's, there's a lot of things that I go through just to gauge their seriousness, and to make sure that we find the right place for them. So once we narrow all that down, and we make sure that they have all those boxes checked, then we start looking for space. And what I do is I update my market information, I go through tons of available spaces, and narrow it down to about seven or eight different spaces that fit the requirements, the best. And I tore my client on those seven or eight spaces, all at once. And it's important because in a fast moving real estate market, especially here in Northeast Florida, you know, once COVID hit, everyone came to Florida, and they started disappearing very quickly. So we can't, we don't have the luxury of going to see one space, and then maybe going to see another space if the first one doesn't work out if it takes too long. And deals move too quickly here. So we have to have all our ducks in a row. So we pick three spaces, the top three that the client would feel most comfortable practicing in. And that's what we negotiate on.
Rob Montgomery 17:54
And I liked that multiple space approach. And I think it's important for people to realize the significance of that, like that's not to say that you may have sort of a favorite or a leader when you're looking at that. But I feel like that is like the people that are just always like focused on just one practice or one location rather one space really limit themselves as to what kind of deal they can get. Because they get once you fall, quote unquote, fall in love with a particular space, I feel like you've compromised yourself from an economic standpoint.
Dez Merrow 18:26
Absolutely well, and and, and not only that, because of the rate, that space disappears here. I mean, if you fall in love with just one space, and it disappears. It's heartbreaking. As you know, it's not your space until you sign the lease. And because of the market here, what I've found is that if we don't move quickly, then in the process of negotiating the lease, I've had spaces disappear, because a group, high powered group would come from out of state and offer the landlord a ridiculous amount of money. And take that space. No one wants to start over from from ground zero. And that's also why it's so important to have those boxes ticked, have the design plan, have your financing in order, you know, all of those things, have a team assembled, all of those things are super important because the speed of the process can cripple you when you get into your build out process if you don't have that in order.
Rob Montgomery 19:26
Right. Yeah. And that's really that's important for people to know. And so kind of going back that, you know, as she was talking about is, you know, what do you want in your practice, you know, and that's really important to know kind of what you're looking for. And you know, we've talked about this with some other episodes the V word vision, right? You What is the vision for your practice, and you need to have that because you know that that dictates how much space you need, which dictates you know what the construction costs look like, how much equipment you need, where you're going to be and
Dez Merrow 20:00
zoning considerations are huge for veterinary. Oh, for sure,
Rob Montgomery 20:03
for sure. And you know, and if you, you need to kind of have that, that information to be able to relate that to desk because somebody says like, hey, find me a space like that, sure there's space space out there does but like, you need to know what they're looking for what they want to be able to match them with available space, otherwise, you just right, you got this infinite search for something that that never, that never ends, right.
Dez Merrow 20:28
Right. For example, everybody wants to retail because it's good frontage, lots of traffic. But very often in retail, you can't have a fenced in green area or pet Relief Area. So I've seen veterinarians that are that have taken a do it yourself approach, they'll go in and negotiate this great space, in retail. And then after they've signed the lease, and they're starting their build out. Then they ask, Well, where do I put the fence for my relief period? Well, they can't do that, right? Well, where do I put the freezer for, you know, the pets that need to get picked up? Well, you can't put that outside. So then they have to re floor plan or adjust their floor plan to accommodate certain items that they anticipated would be outside and now are inside and it can kill their entire floorplan. So little minutia like that, that makes such a huge difference when you're looking for space. And again, if you don't know, what you don't know, you'll find out, it'll be too late, but you will find out.
Rob Montgomery 21:28
Yeah, and that's that's key, you know, and this is really, again, the importance of lining the team up and having everything in line because it's all interrelated. And, you know, as you said, if you don't know what you don't know, and that that takes us back to some of the specific terms of what we would expect to see in a letter of intent. So I'm going to kind of roll through a few, a few items. So one of the things that, you know, we would expect to see would be a reasonable amount of, quote, unquote, free rent, or build out time. Data, if you can explain to our audience what what that is, and why it's important.
Dez Merrow 22:14
So build out time is the amount of time it takes to build out your space. You don't want to pay rent during that time, because you're not producing anything in that space. So that allows the contractors to come in and do their job, the equipment specialist to come in and Dole and everything to get training and then get your SEO, once you get your SEO, that's when your actual lease should begin. And very often, we can even negotiate some free rent where there's a period of time once you get your SEO for you to start practicing, and generating some income to comfortably pay your lease. So it's super important because if you don't ask for it, you're going to be paying rent for when you signed that lease while they're building your practice. Now, reasonable landlords will point that out at the very beginning. But there are unreasonable landlords that may not bring that to your attention, because quite frankly, they're looking to get what they can out of that space. So having somebody that knows to ask for that is very important.
Rob Montgomery 23:15
Exactly. And that's something that should be in the letter of intent. And I will say that that is one of the areas where I see people who are not working with that specific realtors are at a disadvantage, where I'll see a signed loi that has 30 or 60 days of a build out period, which as we know, does especially in the 2020 to 2023 world that we live in. That is an impossible amount of time to build out the space
Dez Merrow 23:46
out right brown right now here. It's taking all of six months to do a build out. Yeah, permitting, permitting alone is taking three to four months. So and a lot of people don't think about permitting in their build out time. So having somebody that knows that is is important, because that will bring everything to a grinding halt. And the last thing anyone wants to do is to pay rent before they're seeing patients.
Rob Montgomery 24:10
Right. Exactly, exactly. There are a few business plans or loans that factor in and extended rent before open budget, I think necessarily, but that's important. And again, understand this is one other, underscoring the importance of working with somebody in the industry that understands how long it takes to go through the approval process and the permitting process and the construction process for for your vet hospital. The next thing that we're going to expect to see in a letter of intent, tenant improvement allowance, also known as Tia, telephones without SSH.
Dez Merrow 24:49
So tenant improvement allowance is the amount of money that the landlord contributes towards your bill that now he's not giving it to you for free. Typically what he's doing is amateur doesn't get over the term of the lease to get it back. But it's his contribution to get you started to get things going. And the banks like to see that in a loan, because that means you're not using up your entire loan, there's still some in reserve there for operating expenses. And, again, you're paying it back. But if you don't know to ask for it, they will never offer it to you, or they'll offer an amount that's well under what you could get. So not negotiating that properly, or not negotiating it at all could cost you on average, 120 $140,000 on a 2000 square foot space. It's a huge difference. Huge difference.
Rob Montgomery 25:43
Cheesy parlor trick here, if you don't know what ti A is, how would you know what to ask for it in a letter of intent? Right? It's super important. And that, you know, with a free rent, that's another place where I see people that are dealing directly with a landlord's broker, or working with a broker who doesn't understand commercial space. And maybe they're dealing with a residential realtor or somebody that's not the appropriate professional for them to have looking out for them. It's one of the the absolute blind spots in these deals where people can can be put themselves at a disadvantage.
Dez Merrow 26:24
It really is. And yeah, absolutely. Okay,
Rob Montgomery 26:28
next thing, oftentimes, we will see exclusivity. So tell the folks what that is, and why that might be something that they want to think about.
Dez Merrow 26:37
So exclusivity basically refers to the type of business that can operate within the confines of the retail stereo center. So for example, you don't want to, you don't want to have more than one veterinarian in a retail center, if you can help it, because that's just going to take this away from you. So if you don't know to ask, can you be the only veterinarian in the retail center, then the landlords won't grant it to you. And that that goes across the board with almost every type of retail center. So for my veterinarian, I asked him questions like, Are you going to do grooming? Are you going to do boarding, and those are the types of things that I asked that this particular tenant be the only one to do in that retail shopping center. So you're, in effect, you're you're preserving your ability to do that, and blocking out any competition from coming into the center?
Rob Montgomery 27:31
Right? Okay, it's important. Now, this is, the next one is one of these really counterintuitive things, because most people think, Hey, I signed a lease for this end cap, you know, 4000 square foot and cap space, you know, therefore, that must be where I will reside for the rest of my lease. And so what we like to see in letters of intent, so that they don't, these provisions don't end up in the lease are a statement that there can be no relocation. So tell folks why what that is, and why it matters.
Dez Merrow 28:08
And that's huge. So, especially in bigger retail centers, what will happen sometimes is, you'll go in or a business will go into the retail center, and a huge company, a box retailer, or someone will come to the landlord and say, hey, look, we want to come in here, but we need three units. And they have to be side by side. And we're gonna give you a ridiculous amount of money to put us here. If you have it, the landlord has the right to relate, relocate you, sorry, excuse me, they can take you and move you to another portion of the shopping center. Now, that's huge, because it's not just the cost and the time of moving but it's marketing material. For some healthcare professionals, it's credentialing, there's a lot of things that are involved in that, in addition to the inconvenience and the expense. So what we want to do is preserve your spot in that shopping center that so that they're not just moving you willy nilly to bring in a big box retailer or someone willing to pay a lot more. It's it's another another aspect of just protecting yourself in that shopping center. Right? And if you don't know it, it's going to be it's an every single lease. And I know Rob sees it in every lease and redlines it in every lease.
Rob Montgomery 29:27
Yeah, I mean, if you don't, yeah, that's kind of like stock language. And so if you if you don't know how to take it out, or you don't know to specifically ask that it not be included at the LOI stage, you would expect to see it and again, it's one of those things that's counterintuitive you think hey, I signed a lease for this space therefore that's where always be but there are so many nuances to that is Dez was was talking about that, you know, it's not just the actual cost of moving but the time your staff but you know it like at the end of the day if the space that you like and everything works out out. And you have to agree to a relocation provision in the lease, we've had clients that do that, because they've had to, there are other protections that can be built in making sure that the landlord has built out the new space prior to moving so that you're not closed for any period of time, certain times a year may be better or worse, you should probably get some sort of credit on the rent to account for and reimburse you for the administrative costs that your team has to incur to do all those things that has talked about the changing addresses for for various vendors and insurances, and, and things like that. But, you know, so you,
Dez Merrow 30:42
and not to mention, Rob, I just want to throw in making sure that the space that you're moved to is equal or greater size, and that the build out is finished to the same or better specs than what your current state is. Yes. Because that can put you in a really bad situation.
Rob Montgomery 30:58
Yeah, that's, that's a great point as and yeah. And so and like the size, you know, the size, but also the shape, right? So you can be in a space that's like, you know, a 4000 square, you know, square foot square. And then if the landlord wants to move you to a 4100, square foot you Well, that might make a big difference.
Dez Merrow 31:21
A triangle, I've seen that happen. Yeah,
Rob Montgomery 31:23
trying, I have not, that's crazy, like, three triangles, you make up make a rectangle, right? For whatever. Yeah, so that's key. So like, all these nuances, if you have to agree to that, is there a path? Yeah, there is. But there are a whole lot of things that you have to be careful about, and try to stack the deck so that you don't find yourself, you know, again, repaying the loan that you took out to build out this space that you're now no longer occupying. And that's something you have to be careful about. Sure, assignment language, you know, so this is a really hot, hot item, in all leases, because at some point, you're going to want to sell your practice and your ability to recoup your investment in this space, or to maximize the sale price is going to be contingent on your ability to deliver the lease to the buyer. And landlords are not getting any money from that transaction you are, they have no incentive to go along. So what we like to see is language that takes the sort of the approval process out of the landlord's hands as much as possible, because you don't want them necessarily having a seat at the table. If at all possible. When it comes time to sell your practice.
Dez Merrow 32:47
Absolutely, it's it's critical that you have the ability to assign the lease to someone else. It's, it's it's unfortunate, but not unheard of, for you know, a practitioner to have an injury that prevents them from practicing further and have to sell their practice earlier and not having the ability to sell their practice is awful. So Rob does a great job of making sure that that language is appropriate and beneficial to the practitioner, while still taking you know, the landlord into consideration. Because they do own the space, but we want to make sure that the practitioner is protected, and that you have the ability to sell your practice and get out from under that lease when you need to, or God forbid your loved ones have the ability to do that.
Rob Montgomery 33:41
Yeah. Yeah. And again, it's a continuum, you know, like, there's things that we try to get the best possible language and provisions in that there are, you know, fallbacks and compromises with that stuff, for sure. But, you know, as I said, it's important things can happen. And you were, you might be in the situation where you need to, to transition that practice and the way that you're going to be able to recoup the money to be able to pay for this, this fit out, could be with, with assigning the that lease to, to a purchase of the practice. And the other thing that kind of goes along with that is what happens to a personal guarantee. So overwhelmingly, 99% of the time, you're going to be personally responsible for your practice entities liability under this lease. So you have to be careful about what happens after you sell your practice and assign the lease to your personal guarantee. You know, are you still going to be personally responsible for a lease that you're no longer involved in? And we usually, you know, analogize that with our clients to like, leaving your credit card at the bar at happy hour and going home and hoping that everybody behaves or hey, we wouldn't do that. That's not a that's a good idea. And so, you have to be clear Careful about remaining personally liable on a lease when you are no longer the practice owner. Exactly. And, you know, at least say this one other thing, too, that I think sometimes people come to us that have kind of seen in blogs or on podcasts or had consultants tell them that yeah, you know, if you get sick or disabled, you know, you want to be able to terminate the lease. Now, our philosophy generally, I don't think that that's really sound practice. Because I think it fails to take into account the bigger picture, which is, you still own may owe the bank 450, or $500,000, for this project. So like, the idea of handing the keys back to the landlord, to me, is not one of your top five options in this situation. So we focus because we're very much involved in the transition world as well with practices and helping people sell and purchase practices. So we kind of see what like bad lease language looks like a bad assignment language, but we very much are proponents of, hey, what's the exit strategy here, you know, in the future when you're ready to retire? Or is that said, if heaven forbid, something happens where you become sick or disabled, or you have some sort of change in life circumstance, you might need to do it sooner, going dark and handing the keys back is not one of your desired strategies here, it's, it's to be able to sell the practice to try to recoup as much as possible to be able to pay off those liabilities. And that's where you want to really try to negotiate the best possible assignment language. Absolutely. So other issues that we may not see in the LOI does, but then kind of end up in when we're talking about the lease, or in negotiating the actual lease. Our operating hours, perhaps in a retail center, we talked about that.
Dez Merrow 36:52
Sure. And, you know, I see this in leases all the time, I haven't come up with any instances, at least in my area, where that's been an issue, but we still negotiate those, or at least specify in the loi, what the operating hours are. Okay, this comes into play more with medical office building, I think with retail, they just, they really just want to make sure that you're not closing your doors for a month at a time and you're gone for three months, they want to make sure that that that their tenants are doing business operating, you know, regularly and they're not just sitting there with their doors locked and not generating any income, because, you know, they've got a cap rate that they're trying to keep up and they want to make sure that that their shopping centers viable, the closed, shuttered business doesn't look good for the landlord, when he goes to sell if he should sell. So, you know, again, I specify those because it protects my client. And that way, the landlord can't come in and say you were gone for two weeks, well, we were closed for two weeks for vacation, we like to make sure that's in there. But I haven't had any instances where that's really been an issue, unless it's been, you know, a medical office building, and they're operating outside of regular business hours or that sort of thing. But it's important to have in there, if you're going to have any kind of unique business hours, or you could be closed in extended time. I like to specify it in there so that I can go back to it. If the landlord has an issue, I can go back and say no, no, no look here, every year in June, they're close for two weeks, because they do a retreat, or they go to you know, some sort of learning event or or vacation in general.
Rob Montgomery 38:32
So it does you are better than you are giving yourself credit for. The we see this is this does come up. Oftentimes for our clients where somebody is not there, their realtor is not getting out front of that issue. And then we're dealing with it at the lease stage. And there are some landlords that we've had situations with where we've had to really kind of go back and forth on what obligations are in operating hours in parked as because the table was not set properly, before it got to us. And where we've had, you know, retail landlords say, Well, you know, we expect you to be open the same hours as that cell phone store next door and that we can't do that, you know, or, or yes, we'll let you close for two weeks a year, but no more Well, boy, that doesn't work either. You know, and, and well, or the throw us the bone of, well, you know, you don't have to have the doc in there, but you have to you know, have the lights on and have somebody at the front desk. Oh really. So we just have to pay somebody at a time that we're generating new revenue, you know, so, when that issue is not properly managed, we unfortunately do see it come up. But, you know, again, this is another instance of dealing with somebody that a realtor who understands the industry knows that to have this conversation and frankly knows how to explain it to the landlord, you know, and when it lands in our lap Yeah, we have to have the conversation during the lease negotiation that, you know, Dez, or somebody of her quality would have long before that and have educated the landlord as to why this is okay, and why the same, you know, operating hours for the cell phone store don't work for, for the vet hospital, so, but you know, it's like it, here's another thing, and a lot of these issues, they just kind of kind of go back, you know, bigger picture here. For us, you know, what I tell clients, you know, when we get, you know, Dez goes through, does the LOI does a great job, gets all the important sort of economic things in but you know, what I like about working with Dez is, it's not just the bare bones, economic thing, she gets into these industry specific things are important too, which is important for us, because we feel like, if you get that stuff in at the loi, we got obviously a much better chance of getting in at the lease, you know, but if you don't get that stuff in at the LOI stage, then when it comes to the lease, now we're negotiating with a lawyer on the other side, who's trying to protect their client to the utmost. And they don't necessarily want to want to give in on those on those issues. But you know, what, realize that, you know, if you're going into especially a medical office building somewhat, but even more in like into a retail center other commercial space, we're getting a dry initial draft lease, that is probably the same lease that everybody in the shopping center gets.
Dez Merrow 41:30
Exactly, exactly. And I'll tell you one thing that get snuck in, or the landlord's try to sneak in is a percentage lease clause. And that's a big one. Because if you don't know what that is, that can cost you a ton of money, that and the little clause that says they want your they want to see your numbers at the end of every month. So that's a strikeout. So in other words, many landlords, especially in retail settings, will do what's called a percentage lease, that's where they are capturing a percentage of the sales of the business that's already paying rent to be in that retail center. Okay, that's not something that typically happens for healthcare, that's something we always strike out. But again, that's one of those you don't know you don't know. Right? Right.
Rob Montgomery 42:14
Dez Merrow 42:16
You can get yourself in a situation where you're having to provide your production numbers, your you know, any product that you're selling to the landlord on a monthly basis. And who has time for that in a practice?
Rob Montgomery 42:27
Yeah, what? Yeah, oh, absolutely. And you might have to get your your CPA involved to help with the preparation of those documents. So when we get that sort of same lease that everybody gets, our mission, initially with our first review, and revision to the lease is to take it and make it so that it's appropriate for a veterinary professional to operate that practice. And the needs that event has, is very different from the cell phone store, the nail salon, the karate studio, the pizza place, and because among other things, you are as a veterinary is are investing a tremendous amount of money into the infrastructure, if the space that you don't own, it's a quirky thing, you know, you're improving somebody else's space, who moves into an apartment and puts in a new kitchen, nobody in the right mind, right. But in the vast world, we do that right. And we build out this space that we don't own. And that's okay, because you know, there's return on that investment, you can make money, this is where you need to, to build your your facility so that you can, you can treat your patients. But what you have to be careful about is you still have to protect that asset. And so when we talk about things like good assignment language, that's because we need you to be able to transition in the future or not wanting operating hours that you can't live up to, or having these percentage rent, increase percentage rent payments, where you have to pay a certain percentage of your revenue to to the landlord as additional rent, you know, all these things that could lead to economic problems or lead to an accidental breach or default, or things that have the ability to harm that investment. So we were really looking at a lease, as you know, how what do we need to do to protect the investment in this project because commercial office leases folks make no mistake about it are very one sided in favor the landlord the way it is, and we're not going to try and change that. But, you know, there are the certain things that matter that could lead to what we call footfalls or accidental defaults or breaches are things that beyond your control, could cause you to have disruption or interruption in your practice that would prevent you from being able to generate revenue there. That is the focus. And so what specific for your event industry is different from all these other businesses, and that's where it's important, you know, one to get that good loi to set the table and then to go through the lease. and turn it into something that's appropriate for a vet.
Dez Merrow 45:04
Right. Right. You know, and one thing that we didn't touch on in the loi, and a mistake that I see a lot of veterinarians make is, is the term the actual term of their lease. A lot of healthcare practitioners think, you know, I'm gonna do a five year term, because I want to make sure that, you know, I can do this. And that's,
Rob Montgomery 45:26
let me stop you for a second. Yeah, when we hear that term, it's because I want to leave my options open, right?
Dez Merrow 45:32
Yeah, I want to be my options open, what if I decided on like, your, I'm not doing well, here, here's the truth of that. Your build out takes seven to eight years to pay off and landlords know that. So when you're doing a build out for veterinary dental unit, some of the most expensive build outs for commercial space are dental, and veterinary there are two of the the top five, they know that so they know at five years, you're not going anywhere. Right? You're not and they're not going to be as willing to renegotiate the lease terms, at the end of five years, they're also not going to give you the best concessions, they're gonna give you more tenant improvement, that tip that we talked about, they're gonna give you more on a 10 year lease, than they ever will on a five year lease, you're gonna get more free rent, because it gives them more time to recoup that investment. And again, they know you're not leaving it year five, you're going to renew it year five, unless you win the lottery, and you build a big building down the road, and then you can pay your way out of a lease anyway. Right. But you having the right terms, so that you get the best concessions from the landlord is important. Because again, if you're getting $15 a square foot in ti on a five year term versus 60, on a 10 year term, that's a huge difference.
Rob Montgomery 46:53
Yes, that's, that's an awesome point as and, and so yeah, you just, you're leaving money on the table, because practically speaking, you're not going anywhere in 10 years, from the first day or so, the reality is, you're not leaving your options open. Because you have to pay the bank, that's not an option, right. So as long as you got to pay the bank, you need a place to be able to generate the income to be able to pay them. So exactly, Mize will avail yourself of all the good stuff that comes with with a longer term lease. And sometimes two days we hear like people say like, well, if I go into the space, and then I grow out of it, I might need to move in three or four years. But that's, that's a difficult thing to because, you know, you're still gonna owe a half million dollars to the bank. So like, I don't know, where you're going to move that you're going to be able to get another million dollars on top of that. And so, and that's something that, you know, Matt Fletcher talks about on his podcast episode that we did is, you know, the need to have enough space that you can reasonably grow into it possibly over time, I can only have twice as much for me that you need by like, you need this goes back to your saying before, does at the outset planning, you know, like, how does this whole thing go together? How much square footage do you need? Now? How much might you need reasonably expected? need in the future? How much do you want to build out an equip now? And how much do you just want to kind of leave plumbing in for for future use?
Dez Merrow 48:25
Right, right. And that's, that's paramount, because a lot of a lot of startups think I need to get the smallest space possible, so that I can, you know, I can afford it. And I can make sure that this is gonna work. Veterinarians in general have a less than 1% fail rate. So you know, it, the odds are in your favor, okay? Finding the right amount of space, having the right team that's going to help you design a space that you can grow into that in five, six years from now, you're not going oh, gosh, I don't know what to do now. And you're leaving money on the table, because you can't get in the patients that you could potentially see as a problem. So making sure you have the appropriate amount of space to grow into is huge. And again, that comes down to having the right team around you that can advise you on that.
Rob Montgomery 49:15
Great, so does tell our listeners, what are some misconceptions that you see that veterinarians have when it comes to considering startups.
Dez Merrow 49:26
You know, I think probably one of the biggest ones is that it's just better to buy an existing practice. I hear that all the time. You know, I want to do a start up, man, I'm going to be starting to know patients and and I think if I just start somewhere where there's already some income coming in, then I'm going to be in a cash flow. Right? Right. Well, okay, so there could be something to be said for that. But when you buy that practice, you're buying everything else with it. You're you're starting with potentially team that's been in place for 20 years or more very often when when, if you're buying from a veterinarian who's retiring, chances are that team's been there for a very long time, they're very set in their ways are used to doing things, there's a resistance level of having somebody come in and change everything.
Rob Montgomery 50:15
And let me just step in for a second to and frequently those people are severely overpaid.
Dez Merrow 50:21
So that was my next point, zero really overpaid. So now you're paying for people that are potentially and this is not the case with everyone, I want to just make that clear, that's not 100% of the time the case, but it's more often than not, I see it a lot. So you're paying a high premium for people that are underperforming or have become very comfortable. There's often a lot of updating to do in the practice, because, frankly, the practices that are super high tech that are fairly new, a lot of times they get like corporate, they're not even available for the startup or the sort of can't afford a practice of that caliber. So they're going in, they're buying some of the smaller practices that have a small book of business, and then they're stuck in a lease that's probably way over market that need a refresher and update. And it's it's very often more expensive than going out, getting everything set the way you want it buying new equipment and training a team that can perform at the level that you expect.
Rob Montgomery 51:25
I love it. Well, I mean, that's it. I mean, you're buying somebody else's practice, you're buying semiosis problems, you're buying somebody else's vision, you know, and so
Dez Merrow 51:35
you're buying their philosophy, you know, sometimes even the team isn't the issue. It's the patients that are used to being treated a certain way, or maybe not paying that same day, and you have to retrain, there's going to be fall off from that as well. So there's a lot to deal with a lot of baggage that comes with buying an existing practice that's been in place for a long time.
Rob Montgomery 51:55
Yeah. And I think that that's important to note. And, you know, again, that's why we're doing this podcast is really to get people thinking that there is this other alternative, and it's a good one to do a startup because you're buying a sort of an underperforming business, because let's face it, most people that are owner operators that are veterinarians that are buying practices, can't afford the good practices now, because, you know, corporate is paying enormous sums for them. And it's okay, it doesn't make sense, it's not a good idea, you know, to even think about paying, you know, three times the amount for, for a practice, just because that's what corporates willing to pay. So what you're looking at is you're buying some practice that is essentially underperforming. And why is that practice underperforming? Like there's a whole myriad of reasons, some of them are fixable, some of them aren't, you know, and they're definitely challenges. So, you know, and as I've said, you know, in other other episodes, you know, I think we're all sort of like, programmed into this, like, you know, DIY, fix up your house home improvement, you know, TV world that well just buy a fixer upper practice and alternative. And big, like, it's not that easy.
Dez Merrow 53:12
You know, and another mistake, if I may, Rob Yeah, one other misconception is that startup, and I see this often across the board and healthcare, but particularly in in veterinarian dental, and I'm very passionate about this, because of my history is, I see startups come out. And because the dentists or the veterinarians that are coming in are much younger than the we are, unfortunately. But they are, they're used to this whole digital world, and Amazon and that sort of thing. And the problem with, you know, their thought process is I'm going to find supplies, and I'm gonna buy these things at the cheapest that I can, because it's gonna save me a ton of money. The problem with that thought process is that Amazon or you know, some other wholesaler is not going to help you find staff, they're not going to help you find associates. They're not going to help you with issues in your office, on a daily basis, that you need help with developing a relationship with a supply supplier, like a Patterson or, you know, that type of group is infinitely more rewarding financially. And just from a practice perspective, because they're going to bring that startup resources, information, people that they wouldn't be able to get, or they may, but it's gonna take them a while and they're going to learn some painful lessons. They're these companies that you partner with. Their goal is to help you be more productive. It's not just, Hey, we're going to sell you your equipment, hey, we're going to sell your supplies, they benefit and they're rewarded by you doing better. So they're going to do everything in their power to help you grow because if you grow you're going to buy more supplies you're going to need Need more equipment, but you've got to grow. So identifying and partnering with a company, for your supplies and your equipment, they'll help you with floor plan and design and all these things that it can bring with you, when you need an associate, they'll bring that to you, if your front desk person walked out, they can help you with another one. Having that is so much more productive and profitable for you than ordering your supplies from Amazon.
Rob Montgomery 55:27
Okay, I was just about to ask you Dez what are some good things you see veterinarians do with their startups? I think he may have answered the question before I answered. Yeah.
Dez Merrow 55:36
Yeah, assembling the right team ahead of time, Paramount.
Rob Montgomery 55:39
Yeah. And so this is a recurring theme of it talking about assembling the right team with all of our guests. And I promise and as you correct me, if I'm, if I'm not being truthful here, I did not tell everybody to say this. In the world that we're in, and in the community and the professionals that we service, we all see this, and we all see what happens when you don't work with the right team. And so, super, super important. Absolutely. No is sort of as we wrap things up here does, can you tell our listeners, what is one piece of advice, you know, in closing that you would give to a veterinarian, considering a startup?
Dez Merrow 56:22
You know, I think I think I've said it is assemble the team, I really think that's the most important thing is is. So a couple of things here, knowing your financial position before you start hitting the market. Getting representation, don't try to do it yourself. It's it's too complicated. It's not that it's so complicated. It's the what you don't know, factor. Get somebody that can help you whether if it's not car, find someone, anyone that can help you that has your best interests at heart, that's not working for the landlord, it's working for you to make sure you get the best concessions, the best deal, because over a 10 year lease, it could cost you hundreds, not hundreds, hundreds of 1000s of dollars in lost opportunity to your bottom line. There's a lot there that I've seen veterinarians negotiate a space and sign a lease, and then be unable to practice in that space, because they didn't investigate building, right. There's just so many things that you don't know, find a team, find the people that are there to help you, and let them help you.
Rob Montgomery 57:38
It's powerful stuff. And I think, you know, does what you're saying, you know, it's the difference between doing it and doing it right. Or doing it well, like, you know, and you said, there's a very low default rate for that in the, in the lease world in the practice finance world. Yeah, which is great, you know, so you can you can kind of do things wrong and not fail, you know, or guess what, you can do things right, surround yourself with the right team, the right advisors, put yourself in the position to thrive, not the position to not fail. And so while yeah, you can call the name on the sign, you can do your own design, I guess you can negotiate your own loi, you can negotiate your own lease, you could do all that stuff by yourself, and you may not fail. But you know, you also are lowering the likelihood that you're going to thrive.
Dez Merrow 58:33
The difference? Absolutely.
Rob Montgomery 58:36
So there's, this has been great having you on as I knew you would be a great guest Do we have a lot a lot in common with our our philosophies and how we approach these these projects. tell our listeners, how they can get in touch with you to learn more to get help or to ask questions.
Dez Merrow 58:59
Absolutely. So if you are in Northeast Florida, you can find me at the easy dot M E R R O W that's my first and last firstname.lastname@example.org at ca rr.us Give me a call at 904-686-5336 and if you're outside of my area, we have agents all over the US you can go to our website car.us. And in the upper right hand corner, there'll be a little button that says Find an agent you can scroll through all the different states you'll see pictures of the agents click on the link and you can reach them directly from there. Super easy. You can also go to the website and there's a evaluate my lease button, fill that out and you'll be routed basically to the the rep that is appropriate for your location and your vertical.
Rob Montgomery 59:50
That's awesome and we'll put all that up in the in the show notes too. And, and the website is good because when we have clients that are looking for realtors in other parts of the country, I use that too. Figuring out who we need to reach out to in different markets. So it's, it's a very user friendly website and that lease evaluation. Yeah, I mean, it's great that lease evaluation tool is awesome. There's lots of great stuff there with car you know and says said the firm is really committed to helping health care professionals who are really transitioning or expanding their practices and they do good work for folks. So there's it's been a pleasure. Thanks again for taking the time to come on today.
Dez Merrow 1:00:32
Thank you, Rob. I appreciate you having me.