After imaging center administrators have applied the three rules of real estate to site selection -- location, location, location -- they may find themselves faced with a variety of choices when it comes time to negotiate a lease for the property. Unlike traditional medical office space, imaging centers are equipment-intensive, and have unique requirements that must be addressed prior to signing an occupancy contract.
"Typically, imaging centers sign longer-term leases, usually 10-15 years in length, than do other medical professionals," according to Megan Sherwood, senior vice president of leasing at The Plaza Companies in Peoria, AZ.
Sherwood shared her more than 17 years of experience in medical property management, leasing, and development during an American Healthcare Radiology Administrators teleconference last week.
Because of the tenant improvements and building modifications that must be performed to ready a space for radiology, picking up and moving every three to five years is not an option, she said. A practice will make many modifications to a property, so it’s important that the lease agreement contain a tenant-improvement allowance.
These allowances typically range from $25 to $45 per square foot, with the amount dependent on both the term of the lease as well as the lease rate.
"If your landlord is not willing to offer a tenant-improvement allowance, find another landlord," she said.
Savvy property owners will often work with imaging centers to help defray startup costs by offering rent abatements for the first few months of operation. Still, nothing in business is free, so this lagniappe will generally be recovered by the landlord through the percentage of base rent negotiated as an annual escalation over the term of the lease.
"Depending on the market, annual escalations are typically an increase between 3%-5% per year added to the base rent," Sherwood said.
No matter what type of lease agreement the parties negotiate, someone has to be responsible for covering the bill.
"From an owner’s side, we always want a personal guaranty. This means the radiologist signs on the line that he or she will guarantee the lease. In community-property states such as Arizona, the spouse has to sign as well," Sherwood said.
There are exceptions to this caveat: if a tenant has been in business for a number of years, or is a large entity that has a good track record and a solid financial statement with a lot of assets, personal guarantees may be waived. On the whole, approximately 95% of lease contracts Sherwood has worked with have included a personal guaranty, she noted.
An imaging center will also want to ensure that it will be the only entity providing radiologic services within a facility.
"From a landlord’s perspective we hate to grant exclusivity, but we do it all the time, and especially for imaging centers," Sherwood said.
Radiology equipment is extremely capital-intensive, of course, so an imaging center may opt to begin business with a few modalities and elect to expand its diagnostic capability with additional modalities, such as PET, as it grows more successful. Planning for future growth means that a group should negotiate the right of first opportunity to lease contiguous space as part of its initial agreement with a landlord.
A prudent practice will also include terms for lease assignment as part of its contract. Over the course of 10-15 years, a group may merge with another, or be bought out by a larger entity. If this happens, the acquiring group will want to have the lease reassigned to it.
"Typically, we would not let the personal guarantees off the hook unless the new owner was financially stronger than the existing entity, so you’ll want to make sure that there’s some assignment language in the lease," Sherwood cautioned.
In addition to creating the capability to reassign a lease, a group that wants to maintain maximum flexibility will want to have the right to sublet its space as business needs dictate. This should also be specified in a lease contract.
Signage is an often-overlooked aspect of leasing, Sherwood said. An imaging center will want to be located on the first floor of a building and have adequate signage to let every physician and patient coming through the door know that imaging services are provided there.
"Any time you can get a first-floor location off the lobby, jump on it," she said.
A practice will also need highly visible exterior signage to assist first-time patients in locating the facility, as well as create a persistent presence in the area. Signage placement and dimensions should be part of the lease contract, Sherwood said.
Patient parking is very critical, especially for facilities that have been repurposed to medical space.
"You want to be sure that you’re going into a building that’s been ‘parked’ for medical. This means that you need to ask the owner what the parking ratio is. Typically, this is five-and-a-half parking spaces for every 1,000 square feet of facility space," she said.
A group needs to be ready to set a timeline for its projected improvements and occupancy when it sits down to begin lease negotiations. This means that equipment, both manufacturer and model, needs to have been selected by the radiologists in the practice prior to locating a site.
The equipment itself may be the single most important detail of advance planning. Without knowing what make and model of modality will be installed, there’s no way of determining the amount of space a practice will need, or even if a property will be able to support the electrical, cooling, or weight-bearing requirements of the equipment. As such, it’s important that equipment vendors be involved early and often in the process.
"It’s crucial that suppliers be involved as early in the process as possible to ensure a smoothly run tenant-improvement process," Sherwood emphasized.
Finally, a group looking to open an imaging center needs to have a clear assessment of the time required for construction documents that are necessary for permitting within the local jurisdiction.
"For straight medical use in our area, an architect can generally do construction documents within two weeks. For an imaging center, it could be double that or easily even triple that time because of the detail involved with all the electrical, cooling, and shielding needed," Sherwood said.
By Jonathan S. BatchelorAuntMinnie.com staff writer
February 20, 2004
Related Reading
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Latest ACR data shows solo radiologists, small practice groups remain viable, July 29, 2003
Financial modeling assesses viability of imaging center venture, July 14, 2003
Universal room design can mitigate change costs, May 16, 2003
Ten points of the new healthcare architectural design, February 10, 2003
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