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VIDEO - DUwHF #873 - Jeff Grandfield and Dale Willerton
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AUDIO - DUwHF #873 - Jeff Grandfield and Dale Willerton
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The Lease Coach is North America's #1 Authority on Commercial, Retail and Office Leasing for Tenants. Dale Willerton and Jeff Grandfield have exclusively worked for tenants including Dentist and other healthcare professionals since 1993 and successfully negotiated over 3000 tenant leases across North America. Willerton and Grandfield are co-authors of the book Negotiating Commercial Leases & Renewals FOR DUMMIES.
www.TheLeaseCoach.com
Howard: It is just a huge honor for me today to be podcast interviewing Jeff Grandfield and Dale Willerton of 'The Lease Coach' dot com. The Lease Coach is North America's number one authority on commercial retail and office leasing for tenants. Dale Willerton and Jeff Grandfield have exclusively worked for tenants, including dentists and other healthcare professionals, since 1993 and have successfully negotiated over 3000 tenant leases across North America, United States, and Canada. Willerton and Grandfield are co-authors of the book 'Negotiating Commercial Leases and Renewals for Dummies.' Please visit their website: theleasecoach.com or call toll free 1 800 7389202. That's 1 800 7389202.
By the way, you guys are in Edmonton Canada right now and that is exactly seventeen hundred and forty miles straight north of here. And the reason I know that is because in Phoenix there's a whole bunch of retirees and 10 percent of Phoenix is retired Canadians. And so many Canadians, when they come down here, they want to have their car, so they actually drive the 1700 miles. And every single person says that is the prettiest drive on earth. It is just unbelievable. I've made about half of that drive. I've almost made the whole drive.I've driven to Salt Lake several times. You know, you drive up Phoenix, you leave a desert, you go up into the mountains, you go around the Grand Canyon, you go through all these -- Utah's got more national parks -- I mean, have you guys ever made the drive to Phoenix?
Jeff: No I've flown it many, many times, Howard, but not -- I like to fly.
Howard: My gosh. You should have driven down here and done the podcasts at my house. You would have been so thankful.So, you know, the problem with dentists -- My dad always told me, when I graduated dental school, he said, "Remember Howie, you're a doctor of dentistry. You don't know shit about anything else." And it seems like if you're a dentist, a physician, a lawyer, everybody's told you you're the smartest kid in the class since you're in grammar school. You've got a doctor, they try to do everything themselves. They try to do their own marketing and their website looks horrible. They try to negotiate their own leases. They know what they know but they don't know what they don't know. They mostly know calculus, geometry, trig, chemistry, physics, biology. But what do think -- right now you're talking to a lot of dentists -- what do you think they don't know about signing a lease?
Dale: Well, I'll jump in, take one of those points. Doctor [00:02:47] fair [0.3] ,it's really a pleasure to be here today. Dentists don't recognize some of their weaknesses. A lot of them are very -- they want to avoid confrontation and so they can sometimes get beat up by aggressive real estate agents and landlords who tell them what they want to hear, but it doesn't always show up in our lease agreement. Jeff you want to comment?
Jeff: Yeah, I would agree on that, and that's really what we want to discuss today, throughout our time here on the podcast, is you kind of hit the nail on the head there; that there's so much that dental tenants overlook and what they fail to do through the negotiation process. We could probably spend several hours talking about what dentists need to do, but as we move forward in this, what we really want to cover is touching on some of the most common and costly mistakes that the dental tenants make when going through this process. Because that gives us a very effective and concise way to help dental professionals just avoid a few -- what can be very costly mistakes going through the process of negotiating a lease or a renewal.
Howard: Well you say they want to avoid confrontation. You guys just think that because you're Canadians. Those are the most polite people on earth. My God there's no one as polite as a Canadian I have ever met growing up in Kansas, Americans are crass and crude. But I want to -- you know this is dentistry uncensored. I want to talk about the controversial things no one wants to talk about, because signing a lease is no different than buying a dental practice. And a lot of these young dentists, they meet this really aggressive salesperson and they don't realize that who they're dealing with is representing the old man selling the practice. And they tell them, "Oh, you don't want to get a lawyer," and all that bull crap, "You want -- we just want to get this deal done." And they think this person has their best interest because they're so nice and they're taking him to lunch and they're sweet talking him. But, you know, if I'm buying a practice, I want someone representing me. If I'm selling your practice or my home, I'm going to get someone that sells -- that represents me. It's kind of funny, when you're selling your home, everybody knows the broker is representing the seller. So my first question is: when they're getting a lease, who is the broker representing? The guy that owns the commercial building? Or are they representing this dentist who's signing a lease.
Dale: Go ahead Jeff.
Jeff: Well, I think this is -- I'll weigh in on this one and Dale I think this is a good time to -- maybe you can share after my comment on, kind of, why The Lease Coach does what we do.
Jeff: But the short answer to that question is; is that the broker that is listing a property, if the dentist is looking at leasing that space and is is having that property with a sign on front; their name in front, they are getting paid pretty hefty commissions to get that deal done and get the strongest deal terms for the landlord. The landlord is paying their fee. They're serving their master that's paying their fee and their job is to get the deal done, not get the best deal for the dentist that's looking at that space. And that's why The Lease Coach exists. And Dale, maybe you can give a little history on why we do what we do that'll fill in the last component of that answer.
Dale: Well Howard, I have an unfair advantage. I have an advantage in the sense that prior to 1993 I used to represent landlords. I was a shopping center manager, a commercial leasing agent. It was my job to find tenants, sign them up to leases, collect the rent, evict them if they didn't pay the rent. And after a period of years, even though I was being paid very well, I realized I was on the wrong side of the table. So in 1993 I trademarked the name The Lease Coach and moved to the tenant side of the table, because, especially dental tenants were leaving an awful lot on the table that they could have negotiated for had there been someone in their corner. Okay? You'd brought up real estate agents. You know, we don't believe that the real estate agent is out there to hurt the dental tenant. We're just not convinced he's there to help the dental tenant
Howard: You said you used to represent a lot of commercial real estate people, right?
Dale: Absolutely.
Howard: And aren't they really getting crushed because of Amazon? I keep reading these stats. I mean, when you drive around any city I lecture in, it seems like the number one sign you see in retail is 'space available.' And I've read reports that every time Amazon's sales go up a billion dollars, that's going to be counter measured with a billion dollars worth of retail. We have like twelve hundred malls in the United States, and like 300 of them are almost ready to file for bankruptcy because they're losing all these major anchors of retail; like Sears and Kmart and all the stuff I got. So is it a renter's lessee's market now? Since everything's moving online sales through Amazon and there's so much -- there's got to be a massive amount of excess capacity of real estate.
Dale: Well, we have dental clients that are located in enclosed shopping malls, retail plazas, office buildings, everything you're saying is true, but it hasn't reached that crescendo yet. So it's coming. Everything you're saying is coming. It's going to be a lot more difficult for the landlords in years to come and rents are creeping up and that makes it very difficult for the dental tenant.
Howard: You say rents are creeping up, even though they have so much excess capacity?
Dale: Oh yes. I spend about 18 days out of a month working in the US; back and forth. Canada, the US -- we've got offices in California and Dallas and Orlando and New York. So we're visiting our clients all over the place. And I just finished doing a dental lease for a client in Manhattan. And, you know, Manhattan is very unique, but the landlord was pushing for rent increases even though the building had vacancies.
Howard: Wow. "Greed is good," they said in the movie. I don't know if it's true, but I saw it in the movie that greed is good. Do you mostly represent new tenants or lease renewals? Because I know a lot of times that dentists renew their lease, a lot of times they wait till the last minute. Do you think time -- how does time play into the negotiating factor of a -- or are you doing mostly new or renewal? And either side, you know, you never want to have a motivated buyer, because then the seller reads that you're motivated; that you only got three months to renew your lease and you're not going to move your dental office. They could take you to the cleaners. How is time a variable in these negotiations?
Jeff: Well, I'll weigh in on that, and that's really one of the first mistakes we wanted to talk about today; was that oftentimes dentists don't allow enough time to go through the process. And your question was: do we work with more renewals, more lease agreements? And generally we're working with a lot of dentists -- a majority of our work is helping dental tenants through the lease renewal process. Just statistically, there's more leases renewing out there than there are new dental offices opening. So that's just where we focus a lot of our time, but we do a lot of work in both fields and the timing is critical in both cases. If the doctor is opening up a new dental practice or a second or third location, they really have to give themselves at least nine months to go through the process of when they expect or want to open that practice, seeing patients. And the reason for that is, by the time you go through the site selection; you go through the negotiation; you go through design; permitting; building; nine months can go by in the blink of the eye. And you're absolutely right that if they don't give themselves enough time, they're putting themselves at a disadvantage in the negotiation with the landlord, as they're desperate to get things done in a timely fashion. On a lease renewal we actually encourage our clients to start addressing that 12 to 15 months in advance of their lease expiring. You're right, a lot of tenants -- I can't tell you how often we get calls from dentists that are two months, three months, four months, six months out from their lease term expiring and they're trying to wrap things up in a hurry. And that certainly doesn't benefit them if the landlord knows they're committed to staying and that they're going to run out of time and they couldn't relocate their practice even if they wanted to.
And the key here, for what we share with our clients, is that even if you've got a lease renewal in place, those clauses usually say you must give the landlord notice: six months, nine months, 12 months, in advance of that deadline if you're going to exercise your renewal. And most of the projects we work on, our clients don't exercise their lease renewal option. We encourage them to spend at least three months before that cutoff date to find out your landlord's expectations. Do they want to keep you? Do they expect the rent to go up? What are their expectations? And that way you've given yourself time to search, look around, find other alternatives, find out what the market looks like. Find out your landlord's expectations and negotiate the best deal possible for you through that process.
Howard: Okay, so here's my homie's homework. When you get to your office, I want you to find out: when does your lease expire? And then you need to go to your Outlook calendar and put the date on there, and then you need to put an early date -- what do you say, 12 months? 15 months? When should they put a reminder date? When they get to work -- you know, almost everybody's commuting to work right now, about 85 percent -- so when you get to work you need to find out: when does your lease expire? Put that on your calendar, then put a reminder: how many months ahead?
Jeff: Yeah I would put in -- if you don't have a renewal clause -- 12 months at least. You want to give yourself at least 12 months. Now if you have a renewal option clause that says you must either exercise it or not 12 months in advance, which approximately 25 percent of the lease renewals will say 12 months, you want to put it out even 15 months. So there's really -- you can never have enough time. So as far as reminders go, I would recommend 12 months at an absolute minimum in every case, but ideally 15 months and maybe even some cases 18 months. Because if your reminder pops up and says, 'start thinking about your lease,' it'll probably take you a month or two to really get into it and you don't want to leave yourself short changed on your time.
Howard: By the way, I don't know if I would let you guys represent me, because I know since we stalled your Winnipeg hockey team down here in the Phoenix Coyotes, you would probably really try to get revenge on me, wouldn't you?
Jeff: Yes we would.
Howard: I knew it! So that's another thing: you know, there's a lot of people -- there's a thread on Dental Town today about someone complaining how they're an associateship, they hate their office manager, she's crazy, blah blah blah blah. And what we see with dental associateships is, whether you're in corporate dentistry or a private practice, the associate turnover every one to two years, the only publicly traded dental offices in the world are two in Australia, one in Singapore and they have 20 percent turnover of their dentists a year. So if you're working as an associate and you know you're going to quit and open up your own office, how early do they need to call you? Because they might think, "I'm going to quit my job and go rent some space and have a dental office open in three months." They might be budgeting personal expenses for three months, but it's going to take a lot longer than that. If you're working as an associate, and you got your eye on a piece of real estate you want to lease, how long in advance should they contact you?
Jeff: It's amazing how many associates actually come to us, because we've done a lot of leasing seminars for university grads of the dental colleges and things like that. So, at least 12 months in advance. Better to give yourself more time than less time. It depends what stage they are at Howard, because if they haven't found the real estate it can take three to five months just to find the proper site negotiate a deal, and then you've got another five months to design and build out. So it depends if you've got the real estate.
Howard: But I know she's driving to work listening to you thinking, "Yea, but they're probably not going to take my lease because I'm 27 years old and I got $500,000 in student loans." How hard is it for these young dentists to sign the lease when they're upside down in debt?
Jeff: No, it's not difficult. Dentists are -- from all the years that I used to represent landlords, and I've managed a ten story office tower and retail complexes -- that dentist is the golden tenant to the landlord. Landlords love dentists. The fact that you're in debt, it's going to be your first practice, isn't ideal, but you're still more likely to be in business 10 or 15 years from now than the restaurant or the coffee shop or the retail or the flower shop. So no, there's a lot of power in the dental tenant's hands when it comes to negotiating. They don't know they've got it, but they do.
Howard: I've been at the corner of 48th Street and Elliot, in Phoenix Arizona for 30 years and in my shopping center, I mean, oh my god, the turnovers been insane. I mean, I think the only tenant that's been there since 97 is actually the Safeway grocery store and me. I mean, even the bank on the corner has changed names three times. The Pizza Hut is now rented out to a Greek restaurant. The chicken place franchise is now a Barkford. I mean, nobody stays. So dentistry is far more stable than a yogurt shop.
Jeff: Howard, I want to throw in one important point for the listeners today. One of the biggest mistakes that a dental tenant will make, negotiating a new location: they're going out to open up a practice or relocate. They will look around, they'll find a location they like and they'll stop looking, they'll start negotiating, and that's wrong. So if that deal doesn't come together, they start looking again and they find another one. That doesn't give you any leverage. When we take on a dental client, we want them to pick two, three, four, five locations that they think are suitable and we will create a bidding war between the landlords for that dental tenant, okay? That's the key. You don't want to be just negotiating on one location at a time. Competition.
Howard: You know, that reminds me of one of the greatest business books ever wrote was Phil Knight the founder of Nike, and his book 'Just Do It.' And everybody said, "You could never do business in China because they'll just hose you, and you there's nothing you can do." So what did he do? He thought about that first and he opened up 10 Nike factories in 10 different provinces, because the provinces were so independent. And when anybody started jerking his chain he just started moving shoe orders to other factories. So he played all 10 of those provinces on each other to give him the best deal. And that's what you're saying, that you don't want to be the only fish in the bowl and be negotiating, the one tenant, that you want to be playing this guy leasing you the space with three other people.
Dale: That's right. And if you're -- I want to address his one point, Jeff. If you're a listener and you are facing a lease renewal negotiation, you probably feel like you're captive. You don't want to relocate. And that reminds me of Dr. Vincent Lee, one of my favorite clients, hired us several times for his dental leases. And Dr. Lee took one of my afternoon seminars: came up after the seminar and said, "Look, here's my situation. I bought my practice a couple of years ago. I'm paying $25 per square foot rent now. The landlord wants to bump it to $27 per square foot. Can you help me?" And I said, "Well, I'm sure I can but I don't know -- I don't have a crystal ball. I don't know where we're going to finish this deal." So I said to Dr. Lee, "Where would you move if you couldn't stay here.? He said, "Dale, I'm not moving. I just bought this practice.
Dale: "I know. Where would you move if you had to move?" It took two or three times before he understood what I meant. He said, "Well, I'd move over to that plaza or I'd move over to this plaza." So I went to those landlords and I said to them, "Would you like to have Dr. Lee as a tenant in your building. We'll be doing a 10 year lease." Of course they wanted them. They both wrote proposals back to take away his tenancy from his existing location. With my briefcase full of proposals, I went to call on his landlord. And we finished the lease renewal negotiation this way, Howard, instead of -- because Dr. Lee had said to me, "As long as my rent doesn't go up, I'll be happy." He was paying $25 per square foot. They wanted him to pay $27. We renewed Dr. Lee for an eight year term at $10 per square foot. His rent went down twenty five hundred dollars per month because he let us shop the market for alternative locations. He did not want to move he, was not planning to move, but his landlord didn't know that. That's the power of creating competition for your tenancy.
Howard: You know, you said you didn't have a crystal ball, let me make a suggestion: you can buy a Ouija board at Wal-Mart and usually you can get it for under 10 bucks. So if she's working at Aspen or Hartland or Pacific and she sees this really hot location, she loves it: the sign, 'space available, call this agent.' Should she call that agent? Because that agent is representing the seller. Who should she call? What's the answer?
Dale: Well she should call The Lease Coach and let us call them.
Howard: Do you think that's better? You make initial call better than her?
Dale: Hundred percent, because we're in control. Here's what I want to put into perspective. The listing agent for the landlord is in line to receive a commission. When we call up the listing agent for our property, and we say we're representing the dental tenant, we don't want any commission, the listing agent rolls out the red carpet. That's exactly what they want to hear, because the listing agent doesn't want to split their commission. So we're able to negotiate a much better deal and often get get what would have been some of that commission back for the dental tenant. But it is better if we call for them.
Howard: What if she's not sure, she wants a document, but what does that call cost? I mean for her to call you at 1800 7389202, how much does it cost her to run an idea by you? Or location by you?
Jeff: Absolutely nothing at all. I'll weigh on this Dale. We encourage, and we have calls every day, Dale and I and other consultants in our office, speaking with dental professionals that are just looking for some basic information on: they're planning to open up a new practice; they're thinking about the renewals coming down the pipeline. There is zero charge to have an initial conversation, initial consult for us, so any of the listeners out there that have general leasing questions, we encourage you to call our number, visit our website. We're happy to speak with you and there is absolutely no charge to have that initial call.
Howard: So do you think it works against her when when she doesn't call you first, and she calls the leasing agent and then she starts really kind of telegraphing her punch. I mean, we got a huge fight coming up Saturday night: Conor McGregor versus Floyd Mayweather, and the rule number one in boxing is not to telegraph your punch. Do you see a lot of these young, green dentists telegraphing their punches by talking to a leasing agent or sending emails telling what they want and all that stuff?
Dale: They do, and let me put it into perspective for you. A dentist will see a 'For Lease' sign. They'll phone the real estate agent and say, "I'm planning on opening up a dental office. Don't tell anybody, it's confidential because I'm still associating over here. Right? And I'm really interested in leasing space in this building." The real estate agent in his head hear's 'caching caching.' That's exactly what he wants to hear. When The Lease Coach phones the real estate agent, when we phone the listing agent, we say to the real estate agent, "Do you think the landlord would like to have a dentist in their building? Because maybe they want a coffee shop instead. But most of the time, Howard, they're going to say, "Well, I'm sure the landlord would like to have a dentist." You see, we're trying to make the landlord pursue the tenant. We don't want the tenant to pursue the landlord. That's a very, very, very critical juncture in the negotiating process.
Howard: Yeah, and I'm in Arizona where, in 1966 United States Supreme Court decided the historic Miranda vs Arizona, declaring that even when a police officer arrests you he has to read you your rights. "You have the right to remain silent, anything you can, anything you say can and will be against you in a court of law. You have the right to an attorney. If you cannot afford an attorney one will be appointed for you." You can't start singing to the leasing agent and the owner, because if he knows what cards you're holding, that will be used against you in the negotiation, right?
Dale: That's exactly right.
Jeff: And to that point: even on new leases, absolutely. But I can't tell you how many times I have spoken with dental tenants that have started the renewal process, and I'm dialoguing with them and asking them, "What have you done so far? Who have you talked with?" And they say, "Well, I spoke with the property manager and I told them that I want to renew my lease agreement." And similar to that example Dale was saying is: you really want to turn it around and make them re-earn your tenancy on there, is that you should be speaking with them and saying, "Is the landlord interested in retaining us as a tenant?" If you go in there saying, "We want to stay," what incentive does the landlord have to keep your rent escalations down, lower your rent, offer you inducements as part of your renewal? Very little, so you've really got to be careful not telegraphing those plans on a renewal as well.
Howard: And you know how you started this program saying that dentists don't want to be confrontational; I would say that all social animals are programmed to work together, all social animals don't like confrontation. And one of the mistakes I see is when I got my Masters in Business Administration from Arizona State University, the most famous professor at the MBA school was Robert B. Cialdini, Ph.D. He wrote the national bestseller, "Influence." And I see -- he's got the research: if a salesman takes you to lunch and buys you lunch, you're programmed to return a favor and do something. And I see these dentists going to dinner or going to a game with their landlord or their leasing agent and they're starting to get buddies, and then if you start getting buddies, your hard wired sapient brain is even going to be less confrontational. You're going to want to return the favor and do something nice and sign the lease and you just want to get it done. And then if the deal is really bad, they get emotionally locked in and they don't realize that no deal is always better than a bad deal. And now they're doing a deal they don't want to do because it's your buddy, your friend. Do you know what I'm talking about or do you see that in the field?
Dale: Well, absolutely. And you have to be a pretty skillful negotiator to turn that to your advantage if you're the dentist. Remember, the dentist has one landlord. The landlord might have 100 or 200 or 300 tenants. So the relationship is not like husband and wife. This is their business. For most dentists, going through a lease renewal process or a new leasing process is painful and unpleasant. They don't like it. Another thing on Dental Town; we have 50 categories and one of the categories is exactly what you talk about. There's a lot of people wondering -- if I'm 25 and I'm going to practice till I'm 65 or 75, I mean, I'm going to practice 40 years to half a century. My next door neighbor who motivated me to be a dentist, Kenny Anderson, he just celebrated his 50th anniversary. So when you're asking for a lease, what type of timetable are you looking at? I mean, your five year leases, seven year leases, one renewal, two renewals. How does your brain work when you're looking at the length of time of the lease, when you got someone who's going to be doing this for half a century?
Jeff: Well, I'll jump in, I'll share you a quick example. I had a dental client that I was working with, probably five or six years ago at least now. And they they'd come to us to help them negotiate the renewal. They had negotiated the initial lease on their own and they decided -- I'm not sure who advised them or how they did this -- but they signed a five year lease agreement for a brand new dental practice. Invested well over a million dollars. Just absolutely beautiful practice. Spent over a million dollars and did not have even a proper renewal option on the lease agreement. So they essentially had a five year term with a massive investment in there. And the landlord knew this coming into the renewal, going, "Well, they've got no option to stay. They're not even close to paying off their obligations in here." And really had an opportunity to put the screws to them to increase that rent, because they knew that they weren't going to move. So when you're opening up a new practice, you've really got to look at the length of the term to justify your investment. And most dental tenants are looking at that 10 year term, that's going to be what their financing is tied to, and getting renewal options on top of that are great. So most of the deals that we're looking at, they are for a new dentist are a 10 year term initially, with multiple five year renewal options, maybe multiple 10 year renewal options. The renewal option is 100 percent for the benefit of the tenant. So really the more that you can get on there, the better to you. But the landlord is usually going to limit that to an amount equal to the initial term. So whether it's -- if you do a 10 year term it's often one 10 year option or two five year options. So the 10 year term is usually what you're looking at on a new practice, but when it comes to renewals it may not be that straightforward. Maybe you're looking at relocating the practice at some point, maybe you're not sure about the transition, so you may want a 10 year option, you may want a five year option. You may want multiple shorter terms in there. It really comes down to the dentist's unique situation and what they are looking at.
Howard: You know, a lot of leases that dentists are talking about on Dental Town is -- they say that the landlords -- inflation is what I'm talking about, inflation is a big issue. A lot of them say, "Well I will raise your rent every year based on the rate of inflation as published in the Wall Street Journal or some Federal Reserve benchmark." Is that that common, or is inflation not such an issue anymore after Paul Volcker slammed the door on inflation in 1980 and drove interest rates to 21 percent until he killed it? And it really hasn't been back since 1980. So is inflation that big of a deal and what are your thoughts on inflation?
Dale: It's very common Howard, and we see that a lot in California, more than any other state. Something about California, the landlords think they're entitled to a three to five percent rent increase per year. I'm just finishing a lease renewal for a dentist in Hawaii. Now he's coming to the end of his ten year term. Because he had rent increases, now it's too expensive. So as part of negotiating his lease renewal, we got a rent roll back. We negotiated for a lease renewal rent reduction plus five months of free rent to offset all of the rent he paid in the past. So it is exactly what you say, but it's really negotiable at the end of the term.
Howard: You know what I'd like to do? Did you realize that Canada and California are the same -- I mean, they both have about 36, 39 million people, they both have the same number of dentists. California's 10 percent of Canada, I mean it's 10 percent of the United States and it's the same size as Canada. And what I am trying to do is sign a petition where we trade Canada for California. And do you think you guys could help me get this petition signed in Canada?
Dale: I don't think that's going to happen!
Howard: This would be a perfect trade. Come on you trade hockey players all the time. You trade hockey players with the Phoenix Coyotes. Why don't we just trade Canada for California. They both start with C, they're both the same size, same GDP, same number of dentists. It'd be a perfect trade.
Jeff: Maybe we could -- of the trade.
Howard: As what?
Jeff: If we could get the weather thrown in as part of the trade.
Howard: Oh my gosh. So you've been you've been talking a lot about numbers deals, financial deals, economic deals; link the term, these are all numbers. Are there any non-numbers things that you think are critical issues that don't have to do with the price, the renewal, the length, the terms. What are non-number things that you think about when you're negotiating a lease?
Dale: The lease assignment, Howard, is a really big one. Jeff, why don't you speak on that.
Jeff: Sure. Yeah, and I agree with that Dale. That's probably, in my opinion, outside of the true numbers, the most critical component to the lease for a dentist. You touched on earlier Howard, on signing or selling the practice and transitioning in there. And the lease assignment clause is really the clause that's going to dictate how that process goes. And I've seen a lot of nasty clauses in there where the landlord can, in their sole and absolute discretion, withhold assignment. They can put in transfer premiums, transfer fees. They even, in cases, have the right to terminate the lease rather than grant the assignment. And with so much invested in the practice, your ability to transition and sell and assign a lease is absolutely critical and can be far more costly to a dentist than a dollar per square foot on rental rate. So that is a massively important component to the lease, is the lease assignment.
Howard: One of the things that I feel strong about is: a lot of these dentists, they don't go to good locations. I mean, not only do they not do a demographic research, so they don’t know -- you ask any anybody signing a lease, you say, "Well, what is the number of dentist per thousand?" They have no idea, they did no demographic report. Another thing they do is they don't talk about marketing. Like I got a lot of friends in my zipcode that signed long term leases, then didn't find out until after they signed the lease that they can't put a sign on the outside of their building. And so I talked to one, I said, "Well, why don't you put a lit sign inside the window?" And he put a lit sign inside the window and then she made him take that down. So its like, you sign this lease and then you have no visibility and you're basically in a cave. So I always think visibility or signage or lighting or some type of marketing your location -- is that ever an issue in your negotiations?
Dale: All the time, including parking. Really, really important. If a dentist comes to us, a virgin tenant dentist, and they're going to open up their first practice, we'll take care of that. We'll make sure all the signage is in line and they have the right to the signage and the right parking and things like that. It's all of these dentists that are coming to us for renewals that have all of these bad or weak clauses in their lease agreement, so we're having to go back to the landlord and say, "Well, why can't we have parking over here and why can't we have a sign over there?" And oftentimes the landlord will say, "Well you should have negotiated for that in the beginning." "Oh no. Times have changed. We need them now.
Howard: Now -- go ahead.
Jeff: I'll just add one point to some of those non financial points, because this is really timely. Just this morning, right before we got on this, I got an e-mail from a past client of mine that said that the landlord had approached him yesterday and said, "Hey, we're putting up a new building in the parking area of your Plaza and we'd like to put in another dentist. Is this OK with you?" And so he e-mailed me and asked me what he should do. And so I looked back at least to make sure we negotiated the proper terms and a key point is that we had negotiated an exclusive in there, through his existing term, through all of his renewal options, and I said to my client, "You have the absolute right to say no to this. You've got an exclusive that is valid for you that prevents any other dentist to come in through the rest of your term, through all your renewal options, so if you don't want them in there, you can let them know." And he emailed them back and said, "I'd prefer not to have another dentist in here." And they backed down, because he had the unilateral right to reject that and that's important to have clauses like that in there.
Howard: Nice. I actually rented my space initially and then I bought one of the pads in the parking lot, and I was negotiating against a Long John Silver's and a Burger King, and I won as a dental office. And the reason I won is because the leasing agent knew I would be happy. So I called them up and I said, "Who's going out there?" And he said, "Well, you know, we're talking to Long John Silver's out of Iowa, we're talking to this Burger King guy." And I said, "Who do you think's going to win?" He said, "Well, one's offering this much, the other one's offering this much. I'm going back but they're pretty much maxed out." Then I took that number and I raised it ten thousand and submitted a deal, and then he got all mad at me because he thought that was underhanded, but he just looked at a dentist who would never buy a commercial pad and he said, "Well you're a dentist, you don't need all that." But I got an exclusive in that deal too. And then later on, some dentists tried to lease. I had bought the pad, owned the land, building, the pad. But in the center, I still had that exclusive. But he was a pediatric dentist and I just thought well hell that would be nice as hell to have a pediatric dentist and send all your screaming kids across the parking lot and not have to deal with that. But yeah, an exclusive is nice. Dale, how many years have you done this? You said since 19 -- you guys been doing this since 1993?
Dale: Yeah. In 1993 I switched from the landlord side to the tenants side. Even in the 80s I was involved.
Howard: And, just your gut -- I mean, I know the devil's in the details, but do you think dentists are doing better in medical dental buildings with low visibility, or do you think they're doing better in strip centers that are more commercial in nature?
Dale: Well, what happens is, at the very beginning, if you're opening up a brand new dental practice you need all the patients you can get. So you need to start in a more retail type setting. After 10 or 15 years, if you're thinking of relocating, you can often take your 2000 patients and then move to an office building because they'll follow you. They're very loyal. But we believe that the better the location your dental office is in, that is part of your marketing package. You know, sometimes we say to the dentist, "Look, take a little money out of your marketing fund, put it into your rent fund and now you'll have a location that's visible to 30,000 people instead of 10,000 people."
Howard: And how much usually is the retail versus medical dental bill? I mean, how much usually cheaper is it?
Dale: Oftentimes in the medical buildings it can be half the rent, in an office type medical setting. So it depends on -- if you're going to go into a race car location.
Howard: What's that?
Dale: You have to be open -- well, a premium plaza, $50 per square foot; if you're going to go in there, you can't go in there and only practice dentistry three and a half days a week. If you go into a race car location you've got to be prepared to race, and that might mean having an associate and being open six days a week. That's how you're going to pay your rent and pay your bills. So, if a dentist comes to us and he says, "Well, I want to slow down." We don't want to put him in a race car location. Right? He's got all the patients he wants. So it depends what stage of their career they're at that they come to us and they're thinking of moving. But I would rather err on the side of having a better location at a higher rent than a poor location. Because you spend hundreds of thousands of dollars building that practice out. Dentists tend to leave a lot on the table, and I want to address this for a minute. When a dentist is negotiating a lease they will make the mistake of asking for what they want. All right? Case in point: tenant hires The Lease Coach, he says, "Find me a location." He says, "Don't show me any location where I can't get at least three months of free rent." So we go out and do our site selection, we find locations, we come back. We say, "This is the deal you should do. But we did not get you three months of free rent." And he says, "I don't even want to look at it." And we say, "No, we got you 12 months of free rent." 12 months of free rent, and Howard, if that person had been negotiating their own lease they would have asked for three, because that's what they wanted. And they would have gotten two or one. So negotiating and asking for more than you want is a really big part of what we do. Dentists don't want to look greedy, they don't want to embarrass themselves, but we can we can stretch the limit.
Howard: So this is dentistry uncensored. When you called that leasing agent, you told them you don't want to split their commission. So everybody listening to you right now wants to know: well how do you make money? How do you get paid?
Dale: We work on a project fee. We have a rate sheet. It's like a menu of our services, and we have three main project packages. We have a coaching package, where the dentist does his own lease negotiating and we coach them through the process and review their documents. We have a negotiating package, where Jeff and I take charge and the dentist picks the location but turns the negotiation over to us, and we do all the lease reviews and document negotiation. And we have a site selection package as well, where we will fly to your city and help you pick a location and put your deal together. Everything is project price, because it might take two months, it might take 12 months. We're not charging you by billable hours. We know approximately how much time we're going to have to invest. So you're looking at a range from about $3000 up to $9000, depending on how big the package is.
Howard: Now your -- What is your handle on Twitter? What is your Twitter?
Jeff: Yeah @theleasecoach
Howard: Okay, so a lot of my homies, to find you, they follow me -- I got 21,000 Twitter followers. Thank you so much for following me on Twitter. So it's @theleasecoach?
Jeff: Theleasecoach, yes.
Howard: OK there it is, the least coach. And so I'm going to retweet @theleasecoach. It says, "Take some time with your commercial lease. Read more on our guest blog for business solutions." So I'm going to retweet that. So if you're driving to work right now all you got to do is go to: @howardfarran, and then you'll see my last tweet was @theleasecoach. And if you go to the Web site, 'The Lease Coach' -- by the way, you don't have your Twitter link on your website, and you really should because the reason -- if the current president could teach you anything, he got to be the president because he had 50 million followers on Twitter. And, you know, the big evening news stations -- like CNN only has like a million people watching, Fox News only has like 3 million, half of Americans don't vote. And he got that, he went directly to them. So when you put yourself on Facebook and make a post, you have to boost your post and give them money and since you have to give them money, that's why their stock is doing incredible. But Twitter's stock has gone from 40 down to 20 because if you make a post on Twitter it goes to all your followers for no money. And Snapchat is trading at half. I think it went public for 27, now it's down to like 14. Same thing, I mean, when you use these social media sites and you never give them any money, how do they make money? I wouldn't buy stock in a company you never give money. But you should put you're @theleasecoach Twitter on your website, because that is the fastest way to reach all your followers without giving them money. So on The Lease Coach, are those three packages home services? Would it be under services or products?
Jeff: Services.
Howard: That would be under services? Okay, so I'm going to that.
Dale: And what we want to remind the listener, Howard.
Howard: So on theleasecoach.com, he spells out: package one, the coaching and consulting package; package two, the negotiating package; and package three, the site selection and negotiating package. What did you want to add?
Dale: Well I want the listeners to realize that there's a couple of pre-steps they should take before they jump into a negotiation or even start looking. You know, this is our baby; this book, "Negotiating Commercial Leases and Renewals for Dummies." It's available in Barnes and Noble for about $22. We'd be happy to send a complimentary autographed copy to any dentist listening to this podcast who simply e-mails us, okay? We'd love to send it to you. There it is.
Howard: It's a great book.
Dale: Once you get this book, 330 pages, okay? Now Howard, this is going to give the dental tenant knowledge, but it's not going to give them experience, okay? That's so critical. Jeff and I are good at what we do because we literally do this nine hours, ten hours a day, every day of the week. You can't get good at something doing it once every 10 years. So it makes sense to go to a professional. But start by getting the book. This will make sense to you, and have a free consultation with us and, you know, explore what we can do for you.
Howard: Yeah, it's an amazing book. So when you did 'Negotiating Commercial Lease and Renewals for Dummies,' isn't Dummies a trademark name? Did you have to get permission to call a book 'for Dummies?'
Dale: John Wiley and Sons is the publisher. They own, or they have the 'For Dummies' trademark. And so this is a book that was professionally published by Wiley and Sons. So that's why it's in Barnes and Noble. It's not a knock off, Howard, it's the real thing. It is a 'For Dummies' book; part of the 'For Dummies' franchise.
Howard: Yeah, I don't know if I am a dummy. My friends all call me a dumb ass. Is that close enough to dummies?
Dale: I think everybody really loves you Howard. That's what we've been hearing.
Howard: I could send you e-mails to the contrary, but I love it. I love it. You know, when I piss these dentists off, because I keep telling them, "I'm trying to take your mind out for a run." And then I've pissed off a gazillion endodontists because I tell these kids: of course you have to refer all your second molars, because you've never done one. Do a hundred. And your second hundred will have a better success rate than your first hundred. But the endodontists, did they ever not do their first root canal? How come the endodontists got to do their first hundred root canals, but now you're a young dentist and you're not allowed to do your first hundred? It's kind of like, I fly a lot, like I'm flying to your country Thursday to lecture in Toronto. And whenever I see someone going crazy about some baby crying, I always get in their face. I always say, "How old were you when you were born? I mean, I'm pretty sure you were a crying, screaming asshole when you were born. And the babies learning how to pop their ears and all this." So, I love my homies and I love to tell them what I honestly think, and so many people are not telling them what they truly think, they're telling them what they want to hear. And I think if you really love someone you'll tell them what you think, whether it's right or wrong, and I encourage discussion.
But, you know, this book reminds me of when I bought my first house. You'll not believe the story of when I bought my first house. I got out of school in 87. I wanted to buy a house close to my office and I found this house, called a realtor, and the realtor showed me this house that was really close to my office and I really liked it. It was a nice little starter home. And he asked me all these questions. Like, it's drained 2.200 basis points over the Fed rate and this and that and this and that. And I would just stand there thinking, "Oh my god, I'm an idiot." I didn't know one damn thing he just said. And I went home feeling so stupid, I signed up for the Scottsdale School of Real Estate, which had class from 6 to 10, Monday Wednesday, Friday, for six weeks and I actually got my Arizona real estate license. And halfway through that course I realized: I don't need to do this. I just should have found a damn broker that could realize how the hell does a 25 year old kid know what all these terminologies are for? And I always applied it to dentistry, because dentists are always saying, "Well you have an inner proximal lesion and you'll need an MOD filling on tooth number 35 and we need to do that because if we don't it might cause irreversible pulpitis, then you'll need endodontic therapy." And they say, "What are you even saying? I mean, I don't know one damn word you just said." And then these people have all these alphabet soup stuff behind their name. You know, you get all these mailers about real estate people, and behind their name it's A B C D E F G H I J K L -- I don't know what any of that crap means. So I apply that on my deal. I just go by Howard Farran. I don't put the GDS, MBA, MAGD, DICL, all that. Nobody knows what that stuff means. So my question is: can you dumb it down when these twenty five year old dentists call you and don't know any of these terminologies? If you say, "Well, do you want to write a letter of intent?" Well how the hell is she supposed to know what a letter of intent is? That's not covered in biochemistry.
Dale: No, no. It's really important to clarify that if a dentist comes to The Lease Coach, we're going to help you make the right decisions. We're not going to be asking you what you want to do. We're going to be overtly opinionated. We're going to tell you these are the best courses of action for you. And because the dentist is paying us, and we have no other master but the dentist, they can rely on that advice and that guidance and that experience and that knowledge. So, it doesn't work that way. We want to find out what they're thinking, but we are going to take charge and take them through the process.
Howard: Well you say you have no other master, so I assume you're both single then?
Dale: Oh no. Thirty two years, Howard. Thirty two years.
Howard: Oh, then you have another master, trust me. Well, you know, these millennials are different. Did you make this in a audio book?
Dale: We have not yet, but we'll probably be doing the second edition pretty soon..
Howard: Let me tell you something. Jeff Bezos, who was the richest man in the world for a couple of days last month, until Microsoft stock went back up and then it was back to Bill Gates. But he said something that audio books have taken over. So, I have my book 'Uncomplicate Business. You only manage three things: people, time and money.' I had the book, the sales are doing great and I had like 55 reviews, but everybody kept saying, "I want a audio book." Millennials don't want to sit down and read a book. They want to listen to a book while they're driving to work, while they're on a treadmill. So I sat down like this on Skype, Ryan made me do it, and I took down my book and I just read my book start to finish: five and a half hours from start to finish. Put up the audio book on Amazon. Holy moly. That just blows away the print. And the other thing you might consider doing is: my generation always went to bricks and mortar conventions to hear you speak. We started an online [00:52:23] CEE, [0.5] where we put up 450 one hour courses. They're coming up on 1 million views. And most of those 1 million views are people -- they just would rather sit at home in their lazy boy. So you ought to sit down, read this book, make it an audio book on Amazon, and then you ought to sit there and create a one hour online dental course on Dentaltown called 'Negotiating Commercial Leases and Renewals for Dummies.' Because those millennials have a lot of different behaviors than me who's a grandpa. I sit in a chair and read a stupid book. Then they probably look at me think I'm a boring idiot. They want to listen to a book. Like I have people that say they listen to four podcasts of mine a week and they enjoy having a selection of different subjects. And they say that they work Monday through Friday but Saturday morning is when they got to do all their house stuff. They got to clean, vacuum, laundry. You know, do all this stuff and it takes about four hours and they listen to four podcasts or four online courses while they're cleaning the house, the garage, the car. They're just doing their routine. So that's food for thought.
My other thing is this: how do you -- when I'm in an airplane, I always turn to the person next to me and I say, "I want to ask you a question. How would you describe a professional? Not a physician, not a lawyer, but like a dentist. Like if you had to describe a dentist with three words, what would you do?" Man, they never say "down to earth" you know, "nice." And they never say, "humble, down to earth, really hustles." "Arrogant, know it all" is usually way up there. How do you get -- this dentist, she knows what she knows, and she knows she's always been the smartest kid in the class. How do you get her to realize that she doesn't know crap about negotiations? How did you get know it all dentists to be humble about -- there's actually people out there that know more shit about you. If you think about the human condition, 99 percent of all the specialties and trades of knowledge, you know nothing about. Like everybody uses an iPhone. How many people could even program one part of it? How many people would even know one chip? I mean we use stuff, like a lightbulb. What percent of Americans couldn't even build a lightbulb? So we spend our life going around the society, not understanding 99.9 percent of it. But some people, especially the dentists, the physicians, the lawyers, really believe they know almost everything about everything. You see it the most with lawyers; look at them when they go to government.
Howard: I mean, they they go into Congress, they go into the Senate, they go in the White House and instantly they know more about everything else than all the people that spent their whole lifetime doing it. How do you get them to be humble, to say, "Trust me, you need expert advice.
Dale: I think we go we send them a complimentary copy of our book, Howard. And, you know, this is the book their landlord doesn't want them to read. And once they get about an hour of reading in that book they realize what they don't know. So that's a big part of it. Go ahead Jeff.
Jeff: But I think the other part in that too is that's why we're so open to speaking with dentists on a daily basis, and spending 20, 30 minutes on the phone with them talking about their situation and letting them ask questions and hearing about our experience. I think they realize pretty quickly, there's so much they don't know. They start looking at that and realizing what they don't know, by having a short conversation. So I think, like Dale said, they go through the book and realize there's a lot more to it, and they get on the phone with us and realize there's a lot more to it and realize that's just the tip of the iceberg; what's in that book and what we talk about in a call, there's so much more beyond that.
Howard: Yeah I can always call out the successful 25 year old dentist I know who's gonna crush it. Number one, they're humble, they listen. They listen to their elders. You know, a lot of people on Dentaltown, a 25 year old will post something and then a 45 year old will disagree with them, and they get all emotionally hurt. And then they'll email me and say this guy -- or they'll hit the 'report abuse' button and it goes to a bunch of older dentists: Howard Goldstein, myself, all these older people, and we're just like, "Oh my god, I mean, you went 25 years without anybody calling you on your shit that there's something you don't know.?" You got to be humble, you got to listen to your staff, your patients. Why the hell would you sign a real estate lease without getting expert opinion? These dentist go get a job at corporate dentistry and they sign an associate's contract with a corporate chain that has 500 dental offices, and they don't even get a lawyer to read the contract. And then they're coming to me telling me how they screwed them and now they can't go set up and they can't -- and I'm like, "Well, what does your attorney say?" And they say, "Well, I didn't use an attorney." I mean, are you out of your freakin mind? I mean, how do you get to a point where you think your dental school curriculum covered signing associate contracts, signing leases.
So you've got to be humble, and then hungry, and then hustle. And man, when they come out of school and they're humble and they listen to everybody who's been around the block 50 times; when they're hungry, which means they'll work through lunch, they'll stay after 5:00, and they'll get out and hustle. They crush in dentistry. I mean, hell, dentistry is so noncompetitive that Bank of America says that they only have a 99.6 percent success rate with their loans for dentists. They only have a .4 percent default rate and all of those. .4 percent, they're all because you had your license taken away because you're doing drugs or too many DUIs -- something that made you get your license taken away which basically says: if you don't get your license taken away, dentistry is so noncompetitive that you're not ever going to go bankrupt. And a lot of dentists are whining that the average dentist only makes $175,000 a year, and I always tell them, "Well, you know, I think you'll shred your dental license, because I bet if you shred your dental license and walked out into society you couldn't find a job to make $75,000 a year, and you're bitching about $175,000 a year? How many Canadians do you know in Edmonton that would love to make $175,000 a year?
Jeff: And the big component of the population don't .
Howard: Oh my god, in Phoenix, Arizona, the average combined household income is $48,500. So let's round that to 50, that means the average dentist: three houses of everybody working in the house throwing their paycheck in a pot would be only $150,000. So they're making what the average three and a half houses make, of everyone working throwing their paycheck in a pot. They average what three and a half households make and they still complain. So stay humble my friend, stay hungry. Hustle. And go to his website: The Lease Coach, they'll send you a free book, 'Negotiating Commercial Leases and Renewals for Dummies.' Great book. I just want to tell you guys, I know you guys are busy, busy, busy.
Howard: It was an honor that you came on the show and talked to someone who lives in the town that stole your Phoenix Coyotes from Winnipeg. So I know deep down inside you hate me. But thanks so much for coming on the show and and telling everybody what's going on.
Jeff: Thank you doctor Farran.
Howard: And I got to tell you one more thing on the Phoenix Coyotes, did you hear all the scuttlebutt about them? They did -- Sunday they actually played with my mind. So they're over in Glendale, by the Arizona Cardinals football team, which is about a 45 minute drive from my house. So, that was in Glendale. They told a city on the other side, Tempe, which where Arizona State University is, which I'm only two minutes from, that they wanted to build a stadium there. So Tempe brought out all the bells and whistles, planned everything. And it turns out that was all a negotiating contract so that the city of Glendale would give them a sweet deal to renew their lease. And Tempe is pissed, but I was pissed because I thought the Phoenix Coyotes were going to go from being 45 minutes from my house to 10 minutes from my house in this new killer stadium in downtown Tempe. Turns out it was all just a negotiation tactic. Isn't that interesting? But not surprising though is it?
Jeff: Not at all.
Howard: I mean, how do you negotiate to renew your lease with the city of Glendale if the city of Glendale smells that you have no other options? It was only them seeing the city of Tempe getting all massively excited that Glendale started thinking ind fear. Like, we don't want to lose you guys, we want you to stay here. And then they gave em a sweet deal. And that's what you said earlier about the dentist: when that landlord thinks the only place you're going to go is here, or you been practicing here 10 years and you tell them, "I don't want to ever move. I want to stay here." How do you negotiate with that? All right guys, thank you so much for coming on the show. I hope you guys have a rocking hot day.