Thad Miller: What Does Real Estate Have to Do With Dental Practice Transitions?

Apr 21, 2019 | Legal

Q: How does real estate factor into a dental practice transition? 
A: Real Estate is always part of the consideration when transitioning a dental practice. For the seller, who owns or leases space, it involves negotiating terms with the buyer. For the buyer, it involves how each potential scenario might affect their long-term goals. For instance, a buyer might consider if buying the building and the practice outweigh leasing the building and buying the practice. Each situation is unique.

I found that the clients were looking for assistance in this area, so shortly after founding DDSmatch, I become a licensed commercial real estate broker in Indiana. I engage in continuing education in connection with my license so I can provide a high level of real estate service to my clients, in addition to the sale of their assets and dental practice goodwill. 

Q: What kind of options does a dentist have if he/she owns his/her building and is attempting to sell the dental practice? 
A: In the initial meetings with a dentist in this situation, I use the first step of the Trusted Transition Process, called the “Conceptual Transition Experience.” This helps to establish the dentist’s goals for their transition. With their goals in mind, we can evaluate the options: 
1. Sell the building at the time of the sale of the practice; 
2. Sell the building to an outside investor who will agree to lease to the incoming dentist; 
3. Create a lease with the new dentist owner with an option to buy in the future; and 
4. Create an “option to buy” for the new dentist and an
“option to market” for the retiring dentist. 
I have found this fourth option gives the retiring dentist the most options now and in the future. Some clients only want the first option, which is understandable depending on their situation. Establishing goals at the start is very important! 
Q: If the retiring dentist is looking to lease the building while extending an “option to buy” in the future, how do you establish a value of the practice when the sale may not be closed for years? 
A: There are a few options, but usually we clarify in the lease how the real estate will be valued and by whom. This lease is created and signed at closing of the dental practice sale. As a licensed commercial real estate broker, I can give guidance to the seller on options and also introduce them to registered appraisers in their area. 
Q: If the retiring dentist is looking to sell the practice and real estate at the same time, how do you shepherd the sale? 
A: Most of my transactions are highly confidential– for fear of the staff or patients finding out about the potential sale before things are finalized– so my ability to handle both pieces keeps things discreet. A selling dentist need not worry about a big “FOR SALE” sign in the yard, or an outside real estate broker broadcasting the opportunity out of sequence. My involvement makes sense, since I will be the one connecting the buyer to the opportunity and the one seeing the entire process through to completion. I will work in tandem with the seller’s attorney in finalizing documents and establishing clean title in the sale process. 
Q: A retiring dentist currently leases office space. How does that transition work? 
A: Ideally, the retiring dentist can be fully released from the lease at time of closing and the new dentist can start a new lease with the landlord. If this is not possible, an assignment will need to be requested from the landlord and the selling dentist will need to remain on the lease for a period of time to make sure the buying dentist is financially sound in the eyes of the landlord. I have assisted in this process and can negotiate on behalf of the retiring dentist to help them to be released. If I can bring a financially sound buyer to the table, it helps in the assignment process. 
Q: What real estate advice would you share with a dentist who is considering buying a practice? 
A: “Location, location, location” is a critical factor in a practice and its potential for growth. A good visible location, even though likely to be more expensive, can be valuable in the marketing of the practice. If everyone knows where you are and you have good visibility, you don’t have to remind them of your location and you can get new patients just through “foot traffic.”

I also suggest the buyer consider the real estate transaction separate from the practice transaction. After all, if you are able to buy the practice and connect with patients during your first couple years of practice ownership, they should follow you to a new location if you feel a better location is available. 

Q: What if a buyer likes the practice, but not the real estate…and vice versa? 
A: As a rule, if it is a good practice in a bad location/building, I would suggest the buying dentist lease to start. If it is a struggling practice, but in a good location I would suggest that the potential buyer consider buying the building or get an option to purchase in the future.

As always, I rely on both sides to involve their trusted advisors in the process so we can isolate what is best for both sides now and in the future. 

If you would like a complimentary consultation, please give me a call and we can discuss how DDSmatch and The Trusted Transition Process can guide you in planning the ideal transition of your practice, staff and patients.