How to Navigate Your Dental Office Lease Negotiations and Save Thousands of Dollars

Brian Mills ROAM Commercial Realty www.roamcommercialrealty.com Brian@roamcommercialrealty.com 949.529.4777

 

The Transcript

Art Wiederman, CPA And hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. I'm your host Art Wiederman. Welcome to the podcast. It is a beautiful, sunny day here in the first week of December. It's Thursday, December the 3rd. And as I've told all of you, we're now getting close to being nine months into this COVID-19 pandemic and things are changing every single day.

So I'm going to give you a little bit of updated information as to where we are with stimulus and the economy and stuff. And today's topic is very relevant because, you know, dentistry has done very well. Dentists are buying practices. Dentists are building out practices. Dentists are remodeling. They're taking more space. They're expanding, they're buying real estate. And my really good friend and as I've told you guys, it's not like everybody is my really good friend, but this guy is a really good friend of mine.

Bryan Mills is a buyer's representative when it comes to leasing and buying space. I've known Brian for probably 15 years, and Brian is the guy that I go to if I have a client who wants to lease space, who wants to maybe renegotiate a lease, get more space, buy a building. So, folks, because we have a pandemic, I mean, landlords are still landlords. They do what they do. They're not the most user-friendly people on the planet, as we've found out over my 36 years.

And so Brian and I are going to help you navigate today. You know, when should you renegotiate your lease? What should you be talking to the landlord about? Should you be talking to the landlord at all? I mean, you know, what things should you ask for? What's a recapture clause? We're going to open up the doors. Brian was actually my second podcast two years ago, and obviously things have changed a lot. So we're going to get to Brian in a little bit. I want to give you some information.

First of all, please check out our partner, Decisions in Dentistry magazine. Great clinical content, second to none advisory board of the who's who in clinical dentistry. Great articles, great continuing education, very reasonably priced. You can get 140 continuing education classes at your fingertips for one low annual fee, one annual price, and go to their website at www.DecisionsinDentistry.com. If you go to the podcast link, you can actually click on and request a complimentary 30-minute consultation with a member of the Academy of Dental CPAs, of which I am one.

And by the way, I am a dental director at the CPA firm of Eide Bailly. We merged our firm with Eide Bailly about four months ago. And it is the best thing we've ever done. These folks have resources that I could not dream of getting access to. And you've heard some of the folks from Eide Bailly, you'll hear some of them going forward.

So and if you are looking for a dental specific CPA anywhere in the United States, we have 24 CPA firms through the Academy of Dental CPAs that represent over 10,000 dentists. We have about 800 of those dentists at Eide Bailly. I am in Tustin. We work with about 300 of those dentists and we're certainly here to help. So if you have not met with a CPA or your CPA or your CPA doesn't know what a PPP loan is, give us a call. www.ADCPA.org.

So let me give you my update for December 3rd. I have been in touch with Megan Mortimer from the American Dental Association. Megan has been my right arm and my lifeline. If you like Who Wants to Be a Millionaire, she's the lifeline, or she's also phone-a-friend. I think she's all my lifelines. Right. And she and I have been talking.

So here's where we're at right now. A bipartisan group of senators and congressmen have introduced a 908 billion dollar package. Remember that the Democrats wanted through the Heroes Act that they passed months and months ago about a 3.2 trillion dollar stimulus package.

The White House and the bookends were looking at closer to a trillion dollars. But we realize, folks, that people are hurting in this country. I mean, they may very well shut down completely the city of Los Angeles in the next week. You know, we've got these this pandemic is just unfortunately raging and we haven't even seen what's happened from people getting together on Thanksgiving, so there are going to be more shutdowns. Although I'm going to give you some economic news here, that's going to be very surprising and there's reasons for it.

You know, so they've got to do something with stimulus. The federal unemployment benefits are going to run out here shortly. And, you know, they've got to do something to help people. I am going this Saturday morning to a local high school to spend three hours handing out boxes of food to people that are less fortunate than I. And I try and do that as often as I can. And it's very sad, but it's real life. So the government needs to do something. So where we're at right now is that, you know, Senator McConnell, who is the majority leader of the Senate, has come out with his own proposal. This other group has come out with this 908 billion dollar proposal, which, by the way, includes 288 billion dollars for a second round of PPP loans.

So, folks, stay tuned. We may have some more money coming to you. They're talking about anybody who's had anywhere between a 30 and 50 percent decrease in revenues in their business between Q2 of 2020 and Q2 of 2019, which is going to be many of you because that's what happened, because that's what happens when you shut a business down for eight to 12 weeks. You got no revenue. So keep track of that. And we want to, we'll be certainly on top of all of that for you.

So right now they're debating about whether to make the PPP expenses deductible. I was on the phone with Megan talking to her about the Congress is trying to you know, they're batting a ball around between making the EIDL grant not allowed, you know, for forgiveness versus the deductibility versus other things. They've got all kinds of things they're talking about. And this is all on the news and the Internet. So it's an hour to hour, day by day thing.

We think and Megan shared with me, they've got to do something by Saturday because the 11th the government runs out of money. So there will be something. It may just be a bill to extend the debt ceiling and allow the government to continue. And they'll kick the can down the road until the new administration and the new Congress takes a seat in January. We just don't know. It is literally an hour by hour thing.

At the moment, the expenses that you're paying for your PPP loan are not, I repeat, not tax deductible. So when you do your tax planning in your profit and loss statement, whether it's from your CPA or from QuickBooks or Quicken, you've deducted 50, 75, 100 thousand, two hundred thousand dollars in expenses, when we've been doing our tax projections, what's been happening is that we just add those back.

Now, there is serious bipartisan support and it is included, we believe, in this 908 billion dollar bill to reverse that and to make the filing for forgiveness much easier. We're telling people don't rush to file for forgiveness. The banks are pushing you because they don't want they want to be done with this because remember, the banks don't get paid their fees until the SBA forgives the loan. So basically, we don't you know, they want to get this done. We are in no rush because if they're going to make this a lot easier, they're going to make it a lot easier.

I'm just going to quickly give you some economic data, which is really interesting here. Let's see. I'm going to give you, I promise I'm going to give you some economic data. The unemployment rate, the jobs bills are going to, the job numbers are going to come out, I think either tomorrow or Monday. They are expecting a 6.7 percent unemployment rate. And the unemployment claims number did come out today. And they have the lowest number of new unemployment claims, which I believe was just about 700,000. And in addition, ongoing claims, claims that that people are claiming every week are at their lowest level in months. And you would say, wait a minute, you're hearing stories about restaurants shutting down and all this stuff? Well, what I think is happening is I think that the tech sector and the Nasdaq's gone crazy.

The tech sector is hiring and the service sector is hiring because they need people. So that may very well be overshadowing the fact that maybe restaurants and gyms and nail salons are not doing as well. So there's good economic news. As I look at the stock ticker this morning, December 3rd, the Dow ticked again over 30,000. So, I mean, all the economic indicators are good and dentistry has done really well.

And again, Brian and I are going to talk about this in this hour. Dentistry said, well, the dentists have come back. Well, most of my clients are at or near the profitability within 20 percent of where they were in 2019 and if you said to me, Art, we're going to have a pandemic, we're going to have 14 million people infected with a virus in this country, we're going to sadly have pushing close to 300,000 fatalities from it. We're going to have all the shutdowns and my business is off 10, 15 percent. I'll take that every day of the week. So very, very well. And we're very, very glad. And it's because of all of you.

Alright. Well, folks, with that said, I want to get to my guest, my good friend, Bryan Mills. He's with ROAM Commercial Realty. It's his company. I've known Brian for 15 years. And Brian is probably the most knowledgeable person that I know when it comes to dealing with landlords, helping dentists get leases, renegotiate leases, negotiate new leases, purchase buildings. And we're going to get into all of that today. So, Mr. Bryan Mills, welcome to the Art of Dental Finance and Management.

Brian Mills Thank you Art. I appreciate it. Excited to be here.

Art Wiederman, CPA How are you doing, man?

Brian Mills I'm doing well. Are you?

Art Wiederman, CPA I'm good. I'm good. And you're not too far from me. I'm in Laguna Beach and you're in, I think, San Juan.

Brian Mills I am.

Art Wiederman, CPA San Juan Capistrano.

Brian Mills The hills of San Juan Capistrano.

Art Wiederman, CPA And I hear that the children units in your house have been locked up in a freezer with the same temperature as the Pfizer vaccine while we do this podcast.

Brian Mills I don't know where they're at and I don't care right now.

Art Wiederman, CPA So your wife gets a medal. That's how it works, right?

Brian Mills She definitely deserves a medal.

Art Wiederman, CPA Well, very, very good. So, hey, Brian, why don't you just tell everybody about yourself, a little bit about your journey, your history, how you came to your company and all that stuff?

Brian Mills Yeah, absolutely. Well, the first thing, I love that you said landlords are not very user friendly.

Art Wiederman, CPA No, actually, the word that I used is landlords are evil human beings. But I wanted to be kind.

Brian Mills Yeah, we can talk about that. Yeah. I've been in the dental industry for almost 20 years now. I always think of myself as the young kid in the room and my clients are all these old doctors. And then I walk in and they're all ten years younger than me these days. It always shocks me.

Art Wiederman, CPA Well, you're like the cool son I never had.

Brian Mills You got a cool, you got two sons.  So yeah I've been in the dental industry specifically for I said pushing 20 years. I am the owner broker of ROAM Commercial Realty. We are a California based firm. We cover all the way up and down from Northern California all the way down to San Diego. We have a rockin team. There's two things that we do extremely well. Is number one and I think you talked about a little bit is we are a pure or true tenant buyer firm, which means we don't represent landlords whatsoever. A lot of people kind of say that on paper. But unfortunately, behind the scenes, that's not necessarily true. With ROAM, we only represent tenants and buyers. And number two, we specifically work with health care clients. 90 percent of our clients are dentists. So if you have to pick a vertical, dentistry is really where we're the strongest in.

So tenant buyer representation and really only dentists. So our fiduciary, which is a fancy word for legal, our fiduciary legal responsibility, similar to an attorney or your wealth advisor or your CPA, our legal responsibility starts and stops with our clients who happen to be dentists. Our job is really to save you as much money and protect you in any way.

Art Wiederman, CPA And again, I bring the best people on to this podcast, I don't have to advertise what Brian does. I've seen Brian save my clients tens, in some cases hundreds of thousands of dollars, which we're going to talk about how you can do that in negotiating a lease today. So let's get started talking about kind of how all this is affected.

So you might have heard we have this little pandemic thing going on. It's been going on now for almost nine months. How is that affected the medical, dental, let's say more dental obviously here, commercial real estate market?

Brian Mills Well, that's a great question. It's really market specific, so let's focus on California specifically.  So. At California, fortunately or unfortunately, most of our landlords are institutional, meaning they are very large organizations, oftentimes they are publicly traded Rietz or the likes of Irvine Co. I mean, these are some major heavyweight players out here. East Coast, West Coast, that is really kind of big boy real estate negotiations out here. You're not dealing with a Midwest, you know, mom and pop real estate landlord or somebody who owns one small retail center, one small medical office building. So here, solvency is not the biggest issue with our landlords.

Now, are there some vacancies coming up in retail spaces? Absolutely. Unfortunately, a lot of individual restaurants and service-based businesses are going out. It's really sad to see, you know, hopefully those won't be replaced by huge corporate organizations, but we won't see for probably a year. But in terms of medical, that's part of the reason why I'm in this niche is because it's a very safe niche to be in, even in this downturn. Some doctors are doing even better than they did before. Yes, it has hurt definitely some medical practices, some dental practices for sure. But in terms of the state of real estate specifically, it's not like it has opened up this huge vacuum and all of a sudden you can cut your lease in half or do these crazy deals that you couldn't do a year ago.

I always say, you know what? If I did a deal for you as one of my clients a year ago and now in the thick of COVID, if all of a sudden we cut that deal in half, I didn't do my job appropriately 12 months ago. So whether it's an up economy or down economy or we've got something crazy like COVID going on, you should always be maxing out your opportunities financially with your real estate anyway. And the market doesn't swing that much even in this crazy time, to where the deals should be that far apart.

We do have some really much needed leverage right now, but the real estate market hasn't changed that much in terms of California specifically. Now, if you go to Kansas or Oklahoma, it could be a totally different story. If you have a landlord that has one single retail location or medical office building, the deal could be significantly different there.

Art Wiederman, CPA It just depends on the landlord. And again, we're going to talk about landlords here in a second. Your favorite topic as is mine. And I mean, you've got, like you mentioned, Irvine Company, you've got Blackstone Group. You've got all these big, big players who couldn't care less if a meteor was headed for their building, there's still going to act the same way. So our landlords, Brian, acting any differently and maybe take it into two groups, the big box landlords, the people that are worth more money than God, that this pandemic maybe isn't affecting as much because they've got a war chest and with a stupid amount of money versus the, you know, maybe a dentist who owns a building. And this is one of their real estate investments and they're using it for retirement. They don't know as much and maybe they're a little more user friendly. Talk about the different types of landlords and how are they acting differently than they were before a pandemic?

Brian Mills Yeah, well, I think a good example of what's going on in the market right now in California, again, specifically, is several landlords actually just pulled back all their vacancies off the market, which was a little bit shocking to some people, meaning there is a vacancy on the market, pulled it off the market and said, you know what, we don't. Again, solvency is not our biggest issue, speaking for the landlord. And they said we don't need to succumb to the market that's in flux right now. So we're going to take this 3,000 square foot space and we're just going to put it in our back pocket. We're going to pull it off the market. We're going to let it sit vacant. And when the time is right, we'll come back to it.

That's how, you know, you're dealing with an organization who has some really big cash reserves is when they take their product off the market and says, hey, listen, we know we've got this wedding cake sitting on the shelf, but the time is not right to sell it. We're going to pull it back. And when the market is right, we'll bring the product back to the market. That's a real indicator of who you're dealing with. That doesn't make it bad. That's just somebody who is very solvent and knows their business and knows when the time is right to strike and when the time is right to pull back from the market.

Art Wiederman, CPA So they're willing to forgo rents for maybe a year or two versus getting back into the market when they can get a better long-term deal. Is that basically what the deal is?

Brian Mills Yeah. We don't want to get too far off in the weeds. But most of these portfolios are valued on investment numbers. It's called capitalization rates, if you want to get technical. And so landlords, rather than strike a below market deal, will wait for the right deal, whether it takes a year or two years, three years, one thing they know is their spreadsheet math very, very well. So landlords will pull back properties or they'll sit on properties vacant for a number of years until they get that right deal rather than devalue their entire property. Because one bad deal in a huge retail or medical building can devalue the entire medical office building or retail center by half a million dollars just based on one little deal.

Art Wiederman, CPA So, Brian, I want to cover three major areas in our discussion today. I want to cover lease renewals. I want to cover someone who's going out for a brand new lease. They haven't leased in a particular space before. And then I want to talk about buying real estate. So let's start off with lease renewals. So how long before someone's renewal is coming up? Should they be thinking about talking about re-upping on their lease? Walk through the process. I mean, how should they do it? Do they call the landlord and say, hey, Joe, I'm up in six months. What's the process?

Brian Mills Yeah. So this is a great kind of segue back to your other question, which I didn't answer completely, which is, you know, how are landlords behaving in the market? Well, a lot of landlords are using this opportunity to get really greedy right now, unfortunately, because of some of the missteps by some of the tenants right now. So you've got to be careful with your posture and your leverage right now. If you think that it's a wide open market and that landlords are desperate and you approach them incorrectly, they're going to get really greedy and you're going to find yourself in a very cumbersome situation. So that's specifically when it comes to lease renewal, which was your question.

Now, so when it comes to lease renewals, 12 months is really kind of the golden time period. You hear people say 18 months, 24 months. I want to start as soon as possible because the buildout is going to take me forever. There's a real tack to doing this. And this timeline is really, really important. A lot of people even, there's some brokers and some agents out there who say, well, you got to start two years in advance. You can definitely start looking in the process and engaging with your client, you know, 18 months to two years in advance. But the last thing you want to do is engage with your landlord 18 months or two years, because guess what you've just done, you've given them this long runway to go to the market and say, okay, thanks for the opportunity. Now I'm going to put this space on the market and see what I can get to box you out. So if you tell the landlord, hey, you're going to start renegotiating this lease renewal a year and a half to two years in advance of when it's up the land, we're going to use all that time to see if they can get a tenant to pay more money than you're paying and force you out.

Art Wiederman, CPA So, Brian, this has been an issue that's come up with me not only in the CPA practice, but in our dental practice brokerages. I'll get someone who, new client and they say, I've got to renegotiate a lease. Well, how much time do you have left? Well, I have 30 days left. I mean, let's talk about kind of the timing on leases and maybe options on leases, because if a dentist has six months left on their lease, but they have a five year option, they're in a little better shape than if they only have six months because they only have six months. The landlord's got all the leverage pretty much right.

Brian Mills So you always need to make sure that you have renewal options no matter what. Every time you do a new lease or you do a lease renewal and you use an option, you need to back that up with at least one more replacement option, because renewal options are always for the benefit of the tenant, not for the landlord. So the renewal option is what gives you a legal right to stay.

It doesn't give you, it doesn't name the price typically in your lease. Sometimes it does, but usually it's very ambiguous terminology, which is not necessarily a bad thing. But you need to have a renewal option. Without a renewal option, you have no legal right to stay or negotiate or have that conversation whatsoever. So once your options are done, the landlord can boot you out within 90 days. Is that a realistic time frame in California? No, but again, it doesn't give you a legal right to stay and it doesn't give you anything to sell. So if you're getting to the sort of the season of your career, where you're thinking about selling your practice, if you don't have any options, you don't have a practice to sell, unfortunately.

So 12 months is really the magic number, and that's where, yes, I'm a real estate broker, but I would say my 20 years in the dental industry is what's even more valuable. You have to understand timeline periods in terms of construction. If you should need to move, you have to understand build out costs, all those things that go into it. Because, you know, staying in a place just because it's comfortable, doesn't mean it's the right thing to do. There are often times where it's the extreme value to look at moving your practice.

But if you want to get the most bang for your buck in terms of a renewal, you do not approach your landlord any sooner than 12 months. I would typically say we start the conversation with the client at 12 months, but we probably don't reach out to the landlord until, you know, maybe more like nine months, seven months, sometimes even six months, because we want to get as close to that period as possible so that we can keep the landlord sort of guessing and worrying about what we're doing. But we want to do all our due diligence in the background.

Art Wiederman, CPA Right. So again, I would encourage every single one of you listening on this podcast to use an agent because you're going to get more value with your landlord. But let's assume that we have a lot of doctors who will call me up. Here's the conversation, Brian. And I'm sure you've never heard this, right? Oh, yeah. I've been here 10 or 20 years. And I know Joe, he owns the building, he's a really good guy. And, you know, he'll take care of me. And because dentists, God bless all of you, you are the most trusting human beings you've ever met, which is why I've spent my career in this profession working for you. Is you are, they're just trusting, trusting people.

And so let's assume the dentist is going to go in within the 12 months and maybe we kinda piggyback this and say, okay, if it were you going in representing that dentist, what do you go in and ask them, what are you looking for on a lease renewal? Joe's been a, Dr. Smith, Dr. Wiederman has been a tenant here for 10, 15 years. And then they hear this podcast. Oh, well, maybe, Brian, I'm going to bring Brian in. You know, first of all, how does the landlord feel if his tenant has been there for a long time and now there's a Brian involved? And second of all, what are you asking for? What do you what's your what are you looking for? What are what should our doctors, if they're doing this on their own, should be looking for?

Brian Mills Yeah, dentists are really easy prey. And I say that with all due respect, because like you just said, dentists are typically really nurturing people. They get into dentistry in large part because they want to help people. That doesn't play really well when it comes time to a financial negotiation with a very sophisticated landlord and their team of brokers and attorneys, etc.

I hear this story all the time. And this is kind of I guess best and worst of it is, you know, the dentist thinks that, hey, Joe is my friend and I'm sure he's giving me a good deal. And then when I show them actually what the market analysis or maybe a deal that I've done in their building on the floor up or right next to them now, it's sort of like, oh, gosh, my friend owns the bar and he's been charging me 12 dollars for a Coors Light all these years and I just didn't know any better.

So those are some of the situations where doctors really get in trouble. Is they over trust without verifying any of this information. So part of my job as your representative is to show you what the true market is, not what the advertised market looks like, but where the true deals are being had. And we do hundreds of deals in the market every single year. So it all starts with education to show you, okay, here's what you're paying. Let me show you how much over market you are and where this where this lease really should be.

So, yeah, those are things you have to be careful of. When I get involved, you know, do the landlords like it? No. Because they know that they're dealing with a professional and they typically know me already and what I do often. But they would rather that a client or a tenant be unrepresented because they're at an extreme disadvantage. They know that inherently they really have no idea where the market is. And so the landlord can sort of name the price and say, hey, trust me, that's a good deal. That's a great rate.

When the delta between what they're offering and what we negotiate oftentimes is two, three, four, five, 600,000 dollars in difference. These are not made up numbers. It's not like we're trying to save a nickel on a box of gloves here. We're trying to have a windfall result for our clients that allows them to go out and upgrade their practice or buy a new technology or just save that overhead and put it in the bank or invest it with their CPA and their wealth manager.

Art Wiederman, CPA Now, Brian, the other thing that people need to know about what you do is that your services, as a general rule, unless things have changed, you're generally getting paid by the landlord, right? Isn't that how that works?

Brian Mills That's right. And people would say, I see the wheels sort of turning when I meet with my clients. And I always tell them, hey, if you're not asking me this or you're not thinking this, you should be thinking it or asking it, so let me approach the subject for you. If I'm getting paid by the landlord, isn't that a huge conflict of interest? Absolutely it could be. But first of all, this relationship has to start with trust, right. So it goes back to this relationship. How the heck do I know I need a crown on number 19 if I'm paying you for those services? Well, I have to trust that you're doing what's in my best interest. You're going to find that anybody that you work with in this arena is should be referred to you by more than one person. Right. A colleague, your CPA, your attorney or your dealer rep Patterson or Schein, a consultant, etc.

And I don't want to be a bragger, but if I'm not referred to you by at least two people and then I may not be the right person for you. But anybody who's doing any type of negotiation on your behalf, whether it's your attorney or myself, they should be able to clearly and succinctly tell you how they're going to use leverage and posture to affect change in any situation right there. There's some companies out there that that do. I would never badmouth anybody in the industry, but there's lots of companies out there who do lease negotiations and charge the doctor for it.

Well, you have to ask yourself or maybe specifically ask them, how are you going to affect any change in the situation which would be different than what I could as the doctor? Right. Most great attorneys will tell you they're focused on the legal aspects of a negotiation. They're not in the financial world. They wouldn't know a good lease rate from a bad lease rate or a tenant improvement allowance from a bad tenant improvement allowed or how much free rent or anything else. If they're a successful attorney, they're focused on doing what they're hired to do, which is negotiate the legalities.

When it comes time to negotiating the financials of a lease, my posture, my leverage comes from being a real estate broker. And number two, asking for a commission. I'm going to approach the landlord not with, hey, my tenant is a nice doctor. And we've been paying our bills on time and we really think the lease rate is a little too high. Would you do us a solid and knock it down by 25 cents? Guess what that's going to get you? A cup of coffee and probably your lease rate's going to go up.

So these are sophisticated negotiations. When I approach a landlord, whether you're scared about this or not, I'm going to tell the landlord I've been hired to move this client and we have a backup option. And this is what our terms look like. If we can't agree to these terms, we are ready, willing and able to move. Is that often of a huge bluff? Yeah, definitely could be. But guess what? Why are the best poker players in the world, the best poker players in the world? It's not because they can get all the good cards all the time. It's because they know how to use posture and leverage. And if I approach the landlord and don't ask for a standard real estate fee, the landlord is going to say, well, why the heck would you do this deal pro bono if you really had a backup option? That doesn't seem like reality to me.

Art Wiederman, CPA And Brian, what's interesting is, and I teach this to clients and in my lectures and the podcast and the webinars is what should I offer? What should I do or what should I ask or what should I try and get? And it comes down to this, in any negotiation, now we're talking either, we could be talking, a lease, we could be talking about you negotiating with one of your children as to whether they're going to eat their vegetables. What's your leverage? Your leverage is they're not getting any Christmas presents, right? That's your leverage.

Brian Mills That's right.

Art Wiederman, CPA Right. Yeah. OK, so whatever. Well, you're not going to do that. But anyway, the leverage in this negotiation controls if this is the only medical dental building in your town and you have no other choice and that landlord knows it, your leverage is less. But if there are lots of other buildings and there's vacancies and Brian comes in and says, by the way, Dr. Wiederman, there's three medical buildings within a two mile radius that are just as good, if not better than this building. Who'll give you a better TI allowance. Who'll give you a lesser rent. Who'll give you more of this and that and the other thing, right. Isn't that gonna come down to what leverage the doctor has, which is why you don't want to wait till 30 days before your lease runs out.

Brian Mills Yeah. And you never want to give up your, I keep saying this word posture. Posture is really the perceived reality of a threat. Right. If the landlord doesn't think that this is going to affect their pocketbook, then they're not going to change anything. You're going to continue to get what you've always got and maybe worst, so you've summarized it really, really well. You have to come from a position of strength in any negotiation and I'm probably going to get blasted on this one. But no matter what you think of our current administration, one thing that that Donald Trump has said that I will agree with is your biggest leverage is the ability to walk away from a deal. We're not talking about politics right now. We're just talking about deal making.

If the landlord thinks you're able and willing to walk away from a deal, that's how you establish true leverage in any negotiation. That doesn't mean you're going to. And I know that scares a lot of my clients, but that's why they need to continue to practice medicine and dentistry. And let a professional negotiator do these things because there's a very, very specific tact and strategy that you use. And if you don't know how to use it, you're going to find yourself on the wrong end of that negotiation.

And landlords, surprisingly, don't typically know the medical market, whether they are holders of tons of medical office buildings or retail buildings. They have no idea that there may not be a built out dental space or something else down the road. But you cannot give up that leverage in that posture of that perceived threat. You always have to exude with confidence to the landlord that we are ready, willing and able to move. And we have a backup plan ready to go should we not come to terms here.

Art Wiederman, CPA Brian, what I want to do now is I want you to give out your contact information. And again, folks, I want to remind you, I don't get anything from Brian. I don't get anything from any of the people that come on to this podcast other than the satisfaction that I know that they're giving my listeners really good, timely and important information. If your lease is coming up, okay. I mean, have you just signed on to a brand new 10 year lease, I don't know how much Brian can help you. Or maybe you can. I don't know. We'll get to that in a second.

But if your if your lease is coming up and it's one to three years, if you're looking for a lease space, if you're looking to buy a property, you want to own real estate, which I think is the cornerstone of a dentist retirement plan, you know, just give Brian a call. And just to say this is my situation, Brian, I'm sure you'll have a complimentary consultation with a with a doctor. And I mean, your fees don't cost them anything anyway. And you'll take a look at what their lease looks like.

And it's like me. I can look at a tax return in about 30 seconds. I can tell you well we can fix this and this and this and this. You can probably look at a lease, maybe not as much from a legal standpoint, but you can look at lease and say, hey, this thing looks pretty bad and this is what we should be doing, right?

Brian Mills Absolutely. And I'm always here as a free advocate. I believe that everyone in this network should be giving back without any expectation of return. So I'm always here to to guide clients, to give evaluations, to give input so never hesitate to reach out to me. Like I said, I'm always here to help you. But at any stage, or every stage of your career, there's a specific way that you should be handling these negotiations.

It's really sad when I see my clients who are at that season where they're ready to sell their practice and they've made a huge misstep. So waiting till you have a year left on your lease to sell your practice is not the appropriate thing to do. There's a specific strategy to do there. Buying a practice and assuming what the seller is paying in terms of a lease is not the appropriate action step to take there. There's definite things that you should do to set yourself up for success. Continuing to lease in a bad situation that doesn't match your brand of dentistry is not the appropriate action step to make.

One quick story. I had a just an amazing client just in the last couple of months who said, hey, Brian, I need you to help me with my lease in Irvine against the Irvine Company. No problem. Irvine Company doesn't scare me. I'm happy to help you. But, you know, in conversation, I said, you know what doc? You've told me kind of what you're looking to do. And I see some really cool, unique equipment around here. Tell me more about your vision. Come to find out, he had this grand vision that just got super excited and he was at the latter stage of his career. And so I end up finding him a dream space and got the landlord to pay for the entire thing, while decreasing the rent, while providing free rent. And this is a premier class A building like you've never seen before with views that will knock your socks off.

We got the landlord to pay for the entire thing that'll be on the cover of a magazine. And he just wasn't aware of that. So he had no idea that he could probably move for free. Once he found that out and he saw the space, he said this is a no brainer for me. My production is going to go up. I can practice the next ten years of my career in my dream space. This is really easy. I just had no idea.

So sometimes my biggest competitor is not another real estate agent out there that does medical stuff or anybody else. It's typically the doctors themselves just not knowing any better. You can go out and buy your own building for 100 percent financing if you got an existing practice. So, yeah, if you just signed a 10 year deal, call me in year six or seven and I can show you how to buy a building and amortize the remaining lease rate into your real estate purchase. It's not going to cost you 70,000 dollars. It may cost you an extra 200 dollars a month in your payment. So it's not going to greatly affect your cash flow. So anyway, I digress. I could talk forever and ever.

Art Wiederman, CPA I know you can. That's why you and I are friends.

Brian Mills We're just at the tip of the iceberg here. My contact information, is you can just email me directly brian@RoamCommercialRealty.com. Again, that's brian@RoamCommercialRealty.com . Our website is RoamCommercialRealty.com. You can always reach us through there. There's a submission form on there. Again, we have a dynamic team that covers all of California and we would love to be of service to anybody that needs help.

Art Wiederman, CPA And we'll put your contact information in the show notes for when this all goes out. Alright, Brian, let's talk about the doctor that wants to go least their first space. So they're going to lease a new space. Let's get into the weeds just a little bit and then we'll touch on real estate and we'll call it a podcast. Let's talk about, you know, what are some of the specifics that you are asking for? Talk about tenant improvements and rent and free rent. What are some of the things that you as an agent are going to go in where you're going to really get some bang for your buck?

Brian Mills Yeah, so I always sort of say in jest, but it's true. My job is to get the good stuff up and the bad stuff down. So I want to get you as much tenant improvement allowance or TI as people say for short. That's money that we negotiate against the landlord to help you build out a space. Again, sometimes we can get the entire thing paid for, but ideally, we don't want to amortize that into the lease rate. There are times when there's a really low lease rate that that may be appropriate, especially for a startup. But ideally, we're lowering the lease rate while at the same time getting the tenant improvement allowance way up and getting the free rent way up.

So deals that I was doing even before COVID were sometimes 130, 40, 50. The last one that I just mentioned was 190 dollars a square foot in tenant improvement allowance. That is an earth-shattering record and it had really nothing to do with COVID. It had to do with posture and leverage and presenting the client in the best light to the landlord and justifying that.

You have to know the landlord's business too, even though you're not representing them, if you don't know what the landlord's operating costs are and when they're going to lose money and when they're going to turn the corner and make money on a deal, you're just guessing. You're pulling at straws here. You have to know the business of real estate in order to know if what you're presenting even makes sense.

I had a client the other day who presented something before me, and the landlord says, what the heck is this? I won't even respond to this, nor will I even engage with this client anymore. And the doctor was not a bad person. They just had no idea. They were, you know, they were looking at a new Mercedes SUV, so to speak, and offering 10,000 dollars. And the dealership was saying what the heck is this? So you have to come from a frame of reference so you know what you're talking about, you know what's appropriate.

Art Wiederman, CPA So what are some of the biggest mistakes that you've seen dentists who've negotiated their own leases that they've made?

Brian Mills Oh, gosh, there is a myriad of things.

Art Wiederman, CPA We only have an hour on this podcast, so come on.

Brian Mills So either being too aggressive or not aggressive enough, and that just comes from not knowing the market. Right. You have no frame of reference to even start with. So either just taking the landlord at face value every year when I'm speaking at the CDA or somewhere else, I'll have a doctor come up to me and say, oh, Brian, I already got a great deal on my lease. And here's what I got. You know, I got four months worth of free rent and how about beyond that? Well, that's it. Well, the build out's going to take six months. So you already just got shortchanged by two months. Did you get any tenant improvement allowance? Well, no. You know, what's tenant improvement allowance?

So not having a frame of reference really puts you in danger. Although I'm not an attorney and in California, as a broker, I cannot practice law or give legal advice. I can at least give you some frame of reference in terms of assignment language and tell you if what's presented by a landlord is going to be a deal breaker or not. So I have doctors who sign with assignment language that says they have to guarantee their lease in perpetuity, meaning once they sell the practice, they have to stay on and guarantee that.

And you may think that's really far fetched. It's not. I have doctors every day when I look at their lease who are selling their practice. And I have said if we were to take this right now, you have to guarantee this lease forever, regardless of if you sell the practice or not. So it's really being uneducated and having an agent doesn't mean that you're protected. You need to make sure that you're working with a firm that knows dentistry, who has a history in the marketplace and is expert in negotiations.

Art Wiederman, CPA And you've got to have a team because we need not only Brian to be involved, but we need a dental attorney.

Brian Mills Yes.

Art Wiederman, CPA And you and I, you and I are, you know, we know all the players. We know everybody, we know, you know, and most virtually all the dental attorneys that hold themselves out are very, very good at what they do. And I know them all and you know them all. And we see them all at the events. Well, we haven't seen anybody at events in a while, but.

Brian Mills I wouldn't even do a deal without a dental attorney. I tell clients regularly, if you're not willing to protect yourself and spend a few thousand dollars on the dental attorney for something that could cost you a million dollars, I cannot associate with this deal, it puts you in too much jeopardy to do this on your own.

Art Wiederman, CPA My classic story is about a client who 20 to 25 years ago basically got a space, killer space. And I said, did you have an attorney look at. No, the attorney wanted to charge me some money and the landlord said it was really good.

Well this is this is a landlord that my attorney that I wanted, that actually ended up helping him a little bit at the back end when he sold his practice, uses this as a case study. I ended up having to deliver a, I think it was a 100,000 dollar check to the landlord so that we could transfer the lease to the seller. And I went to the landlord after all of this. And I looked him in the eye and said, you're evil. And he just smiled at me, give me my check. So he had to give up 100,000 dollars of his 1.1 million dollar sale price to get out of his lease so he could sell his practice.

Brian Mills Well, you've got to imagine, you know, we're sort of vilifying landlords and I'm and I'll be the first often to do that. You know there's some things that landlords do that are just egregious and above and beyond. And even some of the big ones here lately just proactively came out and said, hey, we're not going to be of any help, pay us, just for no reason. I mean, the question wasn't asked. They just came out and said that.

These are huge major landlords. I was like, I was pretty shocked even being in this business for so long. But, you know, landlords are in this to make money. You know, they're not in it because they want to see their name on a retail center or anything. They're in it, this is their business and they're here to make money.

So you one upped me there. I had one just late last year where it was, it's actually a publicly traded landlord company and they're usually pretty good. But before I was involved, the buyer and the buyer's attorney called me and they said there's no options here and the assignment language is really pretty bad. And so the landlord said, yeah, sure, we'll give you an assignment and some options, but for 50,000 dollars we'll do that. And just because we can. You backed yourself into a corner. And so this is what we can do.

Thankfully, I was able to negotiate around that just because of my position in the marketplace. But you can't always count on that, on somebody willing to do you a favor like that. And so if you make a misstep, you can find yourself either, A, without the ability to sell your practice, which is real, or paying a big lump sum 50 to 100,000 dollars just for the right to sell your practice,.

Art Wiederman, CPA I do want to, and I was remiss in mentioning this, we are having a, we're putting together a series of about 20 webinars next year for the sixth largest local large local dental societies here in Southern California. If you want to be a part of that, we're going to be talking some about real estate. I'm going to have Brian involved in one of them, one or two of them, and send me an email, awiederman@EideBailly.com.

This December the 9th, which is when this podcast is going to come out. If you hear it, and you want to come, just send me send us an email. We'll get you on it. But we're going to have in February, one of the dental attorneys here in Southern California, I think it's in January, actually is going to talk about the legal aspects of leases. So we've got information coming up.

Brian, let's spend the rest of our time. What about a doctor who wants to buy a building or buy an office condo or suite? Talk about the process, what should they be looking for? Give us some advice on that.

Brian Mills You want to buy your own real estate in California? What, are you crazy?

Art Wiederman, CPA Are you insane?

Brian Mills Again, this is where education is vital. There are some areas where you just cannot buy real estate. That's a simple fact. And you can stomp and kick and scream, but you have to be educated that there are some areas where you will never with a capital N be able to buy your own real estate. But on the flip side of that, there are lots of areas that shock most of my clients where you can buy. And I would say the thing that shocks them the most is, again, just like I'm a dental specific real estate broker, Art is a dental specific CPA guru, legend of the industry, mentor to many.

Art Wiederman, CPA Why are you stopping, keep going. Legend in his own mind.

Brian Mills There are several lenders who are niche specific who only do real estate for dentists. So this is what, again, shocks a lot of my clients and where they become their worst advocate or enemy or my biggest competitor is if you have an existing practice, let's say you have a practice and you have collections of a million dollars. Right. Well, there are some phenomenal dental specific lenders who will go out there and do projection based lending and allow you to do two and a half times what you're doing in production to buy a building, do construction, buy all new equipment and put it all on one project loan at drum roll...100 percent financing.

That means that literally no money out of pocket whatsoever. I have lots of clients who are very well qualified, but guess what? On a three million dollar project, they don't want to put 20 percent down. They may be able to. But if you don't have to, why would you?

Now, if you can and you have the means and you're OK and you're secure and you have some more liquid backup behind that, absolutely. Go put 20 percent down. Basically what you're doing is you're buying down points, but there's a really unique way to buy real estate as a dentist that everyone should explore.

You should at least have that conversation with me or someone else and say, hey, what's the likelihood of me buying real estate in, you know, San Carlos or Irvine or Temecula. The opportunity may shock you, but if there's no opportunity, I'm going to tell you this is a master plan community and there's not a freestanding old blockbuster here that you can buy the city or the developer owns every single thing here and they're not going to let one of these old pad buildings go. It's just not a reality. So let's put you in the best possible scenario with your lease rate. So, again, it starts with education, knowing what the ability and the availability is.

Art Wiederman, CPA I mean, it may be, Brian, that you say, listen, doc, let's do this, sign a five year lease, get some options, but let's start looking for some real estate down the road and maybe we can get out. Maybe you buy out some of this. I mean, there's all kinds of options.

But and again, you know, Brian, you and I are in Southern California where real estate is, I would say pricey is probably a good word. I mean, if you want to buy a practice, if you want to buy a real estate in Santa Monica, West L.A., Newport Beach, forget it. It's just don't even think about it.

Brian Mills But don't let that price tag scare you, too. You know, I sometimes I hit people with these big price tags. Listen, here's what's available. And it's a really good opportunity. But, you know, the total project looks like two and a half million dollars and people will rare back and they'll say, oh, God, two and a half million dollars. There's no way I can afford that. Well, this is where I play amateur CPA. And I say, don't listen to me. Take this spreadsheet and give it to Art and his team. Let him verify this.

They'll usually say, hey, yeah, that's some that's some pretty conservative back of the napkin math here. We can do actually way better than that. But when you come, when it comes time to buying real estate, once you look at just the basic depreciation of the building and the depreciation of the structure and Art is really good about talking about cost segregation studies and classifying all of this build out as now equipment and doing an accelerated depreciation schedule, ]the numbers will shock you. Once you see a two and a half million dollar project doesn't look like 20,000 dollars a month.

And once you take in conservative tax depreciation numbers and principal pay down and all this other really conservative accounting math. Now, it looks like probably half of that. And if you have a tenant next door occupying, you know, 30, 40 percent and paying part of that mortgage, sometimes you can get in and most often, once you look at the depreciation and any passive income from a tenant, should there be that opportunity, you're paying far less than you would be paying in a lease.

And it's not about appreciation. We're not, this is not like flipping a house. We're not looking for some four or five, six, seven percent return every year. We're looking at rent replacement. What does that look like at the end of a 20, 25 year career? What have you lost in rent that you've paid to a landlord and flushed down the toilet every month versus what do you have an equity in owning your own building? If those two numbers are even close and you look at what the end of your career looks like now, you sold your practice for 1.2 million dollars and you're sitting on a piece of property that's worth three million dollars and even better now you keep the real estate and you generate passive income for the rest of your life. And you end you pass that on to your heirs should you choose.

Art Wiederman, CPA And again, we have, Brian, we have listeners all over the United States. And I believe we're in 65 or 70 countries that people have been listening to us. And so obviously buying a piece of real estate in the heartland as you mentioned, Kansas, Oklahoma, Iowa. I mean, and I'm not, I just picked those three states off the top of my head, is going to be less expensive than buying a piece of property in Newport Beach, that's a fact.

But it's much easier to do it because my dentists who actually don't live in metropolitan areas, actually make more money. The reason they make more money than those who live in metropolitan areas is that the wages are low, the costs are lower, and the fees for dentistry are not that much lower. They make more money. So Brian, we are at about the time that we need to call it a podcast. You have done, as usual, a stellar, fantastic job. The children are still in the freezer, right?

Brian Mills I'm just getting warmed up. Don't cut this thing off yet.

Art Wiederman, CPA Sorry man. We will do this again. Brian is one of my go to people, he is my go to guy when it comes to leases. And we encourage all of our clients to use a professional. So any final words of advice, encouragement, warning that we can give our listeners about this world that you live in?

Brian Mills Reach out and touch someone. What was that old AT&T commercial, is that what it was?

Art Wiederman, CPA Exactly. That's right.

Brian Mills That's what I would leave with, is you have a wonderful network of people, reach out and make contact. You know, I know that sometimes we get busy or you get intimidated. You don't want to have those conversations. But the dumbest question is the one that you never asked. So there is a specific answer in a strategy for every point of your career. Don't put your practice on the market without talking to me about where you're at in terms of your lease.

I'm going to probably tell you something that's a complete opposite of what you think you should do based on tons and tons of experience. If you want to buy a practice, reach out and talk to me. In the beginning, I'm not a practice broker. I'm not looking to get involved that, you know, the forensic accounting, that's Arts world and the world of practice brokers and attorneys. I'm just helping to guide you in terms of the real estate so that you don't make a misstep.

Again, buying buildings. I'm in escrow with a startup, believe it or not, on a two million dollar building. And who would have ever thought a startup would buy a two million dollar building right out of the gate? But it was an opportunity that once we looked at the numbers, it made total sense because we said, here's what you're going to be paying in a lease space with a build out and everything else. And here's what buying looks like. And here's how we get some of your down payment back. So don't make a misstep. Reach out, talk to somebody, talk to Art, talk to your attorney, talk to myself, talk to your consultant before you do anything.

These people, this network is here to guide you. We're not looking to charge you. We just want to make sure that the world of private practice dentistry stays really, really strong. And the only way to do that is to make sure that the doctors, too, are practicing today, do better than they did last year, and that the young doctors coming out of school are invigorated and excited to go open a private practice and not just be a great employee for a large dental service organization.

Art Wiederman, CPA So first of all, when you were talking about all those wonderful things you were telling me about Guru and this, I started to remember what Jerry Seinfeld was, he was the master of his own domain. I guess that's what I am. I couldn't remember that. But and then you said to me when we, before we went on to record this podcast, Art, we can keep this to 30 minutes. Yeah, right. We've got way too much to talk about.

One more time Mr. Brian Mills, give out your contact information to our listeners. Folks, again, it doesn't cost you anything. Pick up the phone. You got a lease coming up. You got, you're looking at leasing new space. You're looking at moving and relocating. You have three or four operatories and your practice is doing really well. And you want a six to eight operatory office. Brian can just walk you through, I mean, he has saved my clients hundreds and hundreds of thousands of dollars, period, end of discussion. And it's just a great thing. So give out your information, Brian.

Brian Mills Yes. Thank you, Art, we are two yentas on here. We could probably talk for a couple days.

Art Wiederman, CPA Did you know my mother. Did you actually know my mother. My mother was a yenta. God bless her.

Brian Mills So, yeah, our website is RoamCommercialRealty.com , again, RoamCommercialRealty.com. You can email me directly at brian@RoamCommercialRealty.com or even info@RoamCommercialRealty.com. We do help doctors all across the country. We may be able to help you wherever you're at. If we can't, we can refer a really good partner who's trusted and we'll take equally as great a care as we would to you. But it doesn't really matter where you're at. We can definitely help you and guide you and be a resource for you.

So, again, thank you, man. It's so great to see you. And I look forward to seeing you in person when we're on the other side of this. I love what Dr. Fauci said, the cavalry is coming. That gave me the chills when he said that the other day.

Art Wiederman, CPA Now it is. And folks, I want to again tell you, I've been using a five. And Brian, hang on till after we sign off here. I've been using this five word phrase on my podcast, on my lectures, on everything. Anybody listen to me. Folks, failure is not an option. I mean, this is a one year, maybe a little longer, one year blip in all of our lives that we are all going to be, on New Year's Eve, everybody is going to be cheering wildly that 2020 is over. We all know that.

But the dental profession is strong. It's stronger than I would have imagined it was going to be. My patients, my doctors' patients are, they're coming in. They're having work done. They realize that COVID-19 is a virus that can be mitigated, vaccine or not, if your mouth is healthy. And that's the work, that's the story that you've got to give to your patients is folks, this COVID-19 how horrible it's been and everything it's done to all of us.

What it's done is that it has reinforced the fact that your patients need to know that by having a healthy mouth, this virus, this illness and any other illnesses that are coming down the pike can be mitigated to some extent by good, healthy teeth and good quality dentistry. And we need to remember that. So again, folks, if you want to get a hold of me in my office in Tustin, I'm at 657.279.3243. Email me at awiederman@EideBailly.com.

If you're interested in the research and development tax credit, go on to www.EideBailly.com/DentalRD and we've got some great information and you can contact us about that on this webinar on December the 9th, which is the day this is coming out, we're going to be talking about tax planning and we've got a whole series of webinars with six local dental societies here in Southern California. Please, if you're if you're if you're a member of these societies it's Los Angeles, West Los Angeles, Orange County, Harbor, San Gabriel Valley and San Fernando Valley. But even if you're not a member of one of those societies, get a hold of me, it's all virtual. The more the merrier. I think our platform at Eide Bailly holds 5,000 people.

Let's get you on there. We get a lot of good information coming down the pike. Go to our Decisions in Dentistry partners website www.DecisionsinDentistry.com, click on podcast. You can get a 30 minute complimentary consultation with a dental CPA who's a member of the Academy of Dental CPAs and go to our website for our wonderful, wonderful group, my wonderful friends at the ACPA. 24 CPA firms that represent over 10,000 dentists anywhere in the country we've got you covered www.ADCPA.org.

Brian, thanks for your time. Thanks for your great information. I mean, you are just a wealth of knowledge. And you can go ahead and take the kids out of the freezer. I don't know, maybe you want a thaw or something, whatever, that's up to you.

Anyway, folks. That is it for this episode of The Art of Dental Finance and Management. Please, God bless all of you. Please stay safe and we'll keep bringing you this great information. Please tell all your friends about the podcast. We want to get as many people getting this great information as possible. And we'll see you next time. Bye bye.