Commercial brokers with a 30-year track record of success in representing tenants and buyers within the office, retail, and healthcare sectors. We have exclusively represented dental tenants and buyers for the past 17 of those years, mainly within Texas, under the name Gelfand Group Commercial Real Estate. We’ve changed our name to Dental Real Estate Experts to expand our presence in the national dental real estate marketplace.
Norman has been negotiating contracts for his entire career. He is an expert in making the dental lease a powerful asset to the practice owner, with a view toward business protection, increased profitability, and increased practice value at the time of sale.
Pamela Gelfand joined the firm in 2001 and works with Norman in all aspects of Dental Real Estate Experts. She, like her husband, is a Townie, and contributes valuable advice to the Dentaltown forum.
http://www.DentalRealEstateExperts.com
VIDEO - DUwHF #944 - Norman Gelfand
AUDIO - DUwHF #944 - Norman Gelfand
Howard: It is just a huge honor for me today to be podcast interviewing Norman Gelfand, president and founder of dentalrealestateexperts.com. Thank you so much for coming on the show today, buddy.
Norman: Thank you.
Howard: Dentists only want to learn about root canals, fillings and crowns, and the reason I brought you on the show is because so many dentists, physicians and lawyers, when they graduate from law school or med school or dental school, they think they're experts in everything and then they go sign these leases and then five years later when they find out there's a nightmare, I'm like "Well, who read this lease for you?" "Oh, I did it myself." It's like, "Dude, you were taking biochemistry, you weren't taking real estate leasing." So, who are you? You're a commercial broker with a thirty-year track record of success in representing tenants and buyers within the office retail and healthcare sectors. He has exclusively represented dental tenants and buyers for the past seventeen years, mainly within Texas, under the name Gelfand Group Commercial Real Estate. He changed their name to Dental Real Estate Experts to expand his presence in the national dental real estate marketplace. Norman has been negotiating contracts for his entire career. He is an expert in making the dental lease a powerful asset to the practice owner, with a view towards business protection, increased profitability and increased practice value at the time of sale. Pamela Gelfand joined the firm in 2001 and works with Norman in all aspects of dental real estate. She, like her husband, is a Townie and contributes valuable advice to the Dentaltown forum. The services they provide are proprietary location logistics, economic negotiations, Letter of Intent, lease review and analysis, lease negotiations to shift hidden business risk away from the dental tenant, and, Norman, again, the reason I got you in here is, you know, I'll never forget the most ... you know, my Number One best friend, mentor, role model, was my father and when I graduated from dental school - after graduation - he whispered in my ear, with my graduation cap on, he goes, "Remember, buddy, you're a Doctor of Dentistry, but you don't know sh*t about anything else." And these dentists, they go sign ten-year leases and they didn't even have a lawyer look it over. They even by dental offices without an attorney reviewing the transaction, and then the dentist is posting on Dentaltown, "Well, you know, every time this dentist's work fails, and I replace it for free, can I bill the past dentist?" It's like, "Dude, that's in your contract", and he's like, "No, it's not in the contract." "Well, who wrote the contract?" "Well, I went to my church and I asked the pastor if he could recommend a good, moral lawyer, so he recommended this buddy in my church", and it’s like the only dental transaction this guy has done. It's like, okay, he's a good guy, he sits next to you at church; but has he been exclusively doing this in dentistry for seventeen years? I mean, come on! So, what do you think these dentists ... what lessons do you think they can avoid learning the hard way?
Norman: In my experience, what most dentists do is they just look at the lease rate and the location, and they completely ignore the business aspect of the contract, and that business aspect of the contract is just loaded with pitfalls and unbelievable risk; and the business risk they take has to be mitigated, because it can affect their entire livelihood and future. I mean, there's all sorts of horror stories that I've seen and it's unbelievable. You want to hear a few?
Howard: Absolutely, man, because, you know, Socrates said we only have two emotions: greed and fear; and their greed is they don't want to pay a broker or a lawyer or they just want to do it themselves. So, show ‘em what the fear side of that is.
Norman: All right. We had a deal in Chicago. We were representing a buyer of a practice. So, I read the lease that the buyer is supposed to take over, and the lease gave the landlord the right to recapture, to take the lease back, in the event there was going to be a transfer to another dentist as a buyer. It cost to seller of that $80,000 because the landlord increased the lease rate, and that's something that was in the contract. The attorney that looked at it perhaps wasn't familiar with the nuances of recapture - and $80,000 is a big bite out of your wallet. It was legal, but bad business. We had another instance. See, according to the law in just about every State, if a building goes into foreclosure, all the leases are void. You've got to start all over again. So, we had one here in Austin, where a large company went into foreclosure. Now, I always protect my client against that possibility because, in foreclosure, sometimes the landlord will not want a dentist in as a lease, they're re-purposing the building. So, if that would have had occurred, that dentist would have had to move, find another location, try and make another loan, and his credit was impeded because he already had a big loan. Now, the least that I did for the local fellow - and all of my leases - protect against that, because, I think, that one factor - losing a lease - is the most devastating to any tenant, and that could happen. We ran into other things like leases should have protection against a latent defect or an unseen defect when you go lease it, and most all leases say that you have to take it "as is, where is". Well, we had one in Connecticut where, when we started to build it out, we found a lot of mold in back of the walls and it was from a Chinese restaurant's cooler next to the adjacent tenant. So, because we protected our tenant against latent defects in the building, the owner had to really rebuild the whole exterior of the dental practice and get rid of the mold. You know, that's just some of the things. We had one in South Dakota where, during the build-out period, it was shoddy workmanship and the dentist complained about it to the contractor. The lease said that you cannot allow any liens to take place on the part of the tenant. No liens against the tenant. You have to cure them. Well, in this case, there were a manufacturer's and contractor's lien, the tenant had to pay the lien, and then sue the contractor to re-do the work. Now, a well-negotiated lease would protect against that. And that's what I mean by business protection, and that's on and on and on. You know, there's all sorts - probably about fifty, at least fifty potential risks, some of them more critical than others, but all of them important.
Howard: I know a dentist here in town, where the roof started leaking and it was making it impossible to do business, and according to his own lease, it was his responsibility to repair the roof. The problem with repairing the roof, it was like a 10,000 square foot building and he can't just repair the roof above his 2,000 square feet. So, it went into court and it was literally tied up in court for two years, and he finally had to declare bankruptcy and move because he either had to fix the whole roof of this shopping center. I mean, just ... and again, I'm like, "Well, who was the attorney that signed this?", and he goes, "Well, I read it. I just read the lease."
Norman: Well, it's like me trying to do a root canal. I can read about it, but go try and do it, you know. See, if there's a disagreement in a lease, the landlord and the tenant and everybody run to the lease agreement to see how it can be cured, the problem can be cured, and that's why a well-negotiated business aspect of a lease is critical, and that's why we went into specializing in taking the time and the energy to negotiate that portion of the lease. Most brokers and many attorneys are not familiar with the nuances and some of the finer points of a dental lease. The dental lease is different than a regular lease. You know, a regular lease somebody take for five years. There is very little build-out and if there's a real problem in the location, you can wait it out and move someplace else. In the dental lease, you're making a significant - a significant - investment in improvements to leasehold and it's a long-term lease, and you have to really cover all of the business aspects, because so many things can be legal but bad business.
Howard: You know, I want to back up a little bit to the very beginning because, you've been doing this thirty years, my dental office just celebrated its thirty-year anniversary - September 11 - a lot of these dentists, the young ones, are confused because they're like, okay, real estate used to be a solid investment. I mean, you couldn't go wrong in real estate, index funds, bonds, but now, because of Amazon, so much of this rental space - like, you're in Austin, Texas, I'm in Phoenix; I mean, it looks like the Number One franchise in Phoenix is 'Space Available' - so, a lot of these people are wondering what's really happening to retail. I mean, is it going down and down and down? I mean, last year in the United States, we had a record number of retail stores close down because of online, you know, migrating online. So, a lot of these dentists are wondering like, "Well, what if I go in this nice center and then every six months one of these guys go bankrupt, and the next thing I know I'm the only tenant in some bankrupt center?" So, in your thirty years, where's retail at now compared to when you got into it thirty years ago, when I got into it, and where is it headed?
Norman: Well, I think you hit the nail on the head. Retail is constricting. The big box stores are getting smaller. They're really acting as a facilitator for online purchases. So much of that is squeezing down the size of the store and the tenants. Now, the Momma-and-Poppa who's a service kind of company, is going to stay in business. But it's so important that when you write a lease or when you're evaluating a lease, that you make sure that the lease can go void and you are compensated for your build-out in the event that the big anchor stores go bust. And I had that happen once. I had that happen. It was an Air Force Base, that this fellow had his practice right by the Air Force Base, and he was getting a lot of, you know, children and so forth, and the continuance of the lease was that if the base ever closed, that he could get out of his lease - and it happened. I mean, everything can happen.
Howard: Yeah, yeah.
Norman: And that's why it's important to make sure you're covering the business points, not just the legal points.
Howard: Another question the young kids have, they say, "Okay, if I'm going to go back to Parsons, Kansas, at age twenty-five and I'm going to work till I'm ...", you know, they say sixty-five, but it's going to be at least seventy; so, they're going to work for forty-five years. Is it kind of silly to lease for forty-five years as opposed to buy real estate and own? And then the flipside of that is, one of my role models growing up was Dan Carney, the founder of Pizza Hut, and it was so amazing being in Wichita, Kansas - this guy was so amazing. High school kids like me and my buddy, Jim Bell, could drive over to the headquarters and walk in his office and just talk to him for an hour. And when I was a junior in dental school, I went back, and I asked him, should I rent or should I buy, and he says, "You know how many Pizza Huts that I own the land and building for in all these small towns across America, that are just completely worthless?" So, he was of the mindset that he didn't want to own land and building. He wanted to take all of his profits, invest in the business, a lot higher return. And then there's big guys like Grant Cardone says that nobody makes money in real estate unless they own at least ten or fifteen properties, to where you've reached a critical mass of making money in real estate. So, the question is, should I lease or should I own?
Norman: Well, let me give you the answer to that. Some of that is a working capital decision. In other words, if you're going to take your working capital and put it in bricks and mortar, it's going to inhibit your ability to get other loans to expand in different ways and so forth. Now, one thing that dentists do not realize is how commercial real estate is valued. Commercial real estate is valued based upon the return you get from the lease rate. So, if a dentist is in a building that he owns, the value of that building will never go up unless the rent goes up. So, that means that at the time a disposition of the building, the real estate conditions have to be conducive to making a profit. Furthermore, and I'm not saying on owning is a bad thing, I'm saying these are the different considerations. Another thing with owning is the tax implications. You can write off your rent 100 percent, but the only thing you can write off a building you own is your depreciation, which is 3.3 percent of the selling price. So, to buy or to own is not really a slam-dunk decision. It's all a matter of what you want to do with your working capital and how you feel the market will be twenty years from now, and what will happen to the demographics twenty years from now. So, it's 'damned if you do and damned if you don't'.
Howard: So, what he meant by that 3.33 percent, if that flew over your head, is that these buildings have a thirty-year depreciation cycle.
Norman: Yeah, about that, yes.
Howard: And that's ...
Norman: That the IRS now.
Howard: Yeah, for taxes. And the point I was really trying to make, and maybe I didn't make it succinctly, is that your location should be a hundred times more determined on what is the best business decision, not a real estate decision. If you want to get into money in real estate, go out and search buying, you know, twelve, sixteen duplex apartment complexes at a time and set up a real estate business with a maintenance man and a broker and a leaser and all that stuff. But, as far as your dental office, you know, you wouldn't want to sit there and say, "Well, I'm not going to go in this rocking hot location next to a Kroger grocery store because I don't want to lease for forty years, so, I'm going to go down the street three blocks where I have no visibility, there's no parking lot traffic, because I'm not going to throw away my lease money. I'm going to own my own land and building, and that is the error. You want to go where it's the best business decision for a dental office, not the best real estate decision.
Norman: I heartily and totally agree with you. And I've seen that mistake a number of times. You're correct. In my mind, it's a business decision and most general, in fact all general dentists are in the retail business and, with few exceptions, they should be in a good retail center where they've got synergy, they've got signage, they've got the proper type of traffic, and access, and all of those things. If you are a periodontist, endodontist, then you can own your own condo someplace if you wish to, because the patient will be directed there by another dentist.
Howard: So, the general dentist is a B to C play, they're a business to consumer, they want traffic, visibility, drive-by; whereas a specialist is an end destination shopper, so, you're going to go there one time. So, if you're referred for a root canal or a colonoscopy, you'll just look it up that one time and drive there that one time. It's not a drive-by, impulsive decision, whereas I put my dental office initially in a Safeway/Walgreens/Pizza Hut/Chase Bank/dry cleaner, and, I mean, my biggest new patient lead was from actually the dry cleaner next to my office. Nobody goes to the dry cleaner and gets their clothes dry cleaned and walks around with dirty, green teeth. I mean, so many people would drop off their clothes, see the dental office and walk by there, and just go on the counter and schedule for a cleaning. That's something that doesn't happen in a medical dental professional building.
Norman: The professional buildings are destination locations, and even orthodontists, general dentists, they're all in the retail business. They should be in a good retail location, which brings us back to whether to buy or to lease. Now, to go buy a retail center that is anchored - and that's the only way you can buy, is by the whole center. You're talking millions of Dollars. To buy a condo someplace - a medical condo someplace - usually is about, if it's in shell, usually about $200 a foot, give or take. If it's built out, it's going to run you about $350 a foot, give or take, depending upon the area.
Howard: Yeah, and another thing dentists do, is they don't ... they're always trying to save money - which is great - but then when they get people to build out their dental office, again they go back to their church, ask their pastor, "Who's the name of a good, moral, ethical contractor?" He gives them the name of Bubba. Bubba goes and does it, but what you don't realize is that you lay all of this extensive plumbing and wires and vacuum tubes and then you backfill it with concrete. I mean, it's just crazy. I mean, if something goes wrong, they're in there with a jackhammer. And that's another thing, I mean, when you're going to ... you were talking about this extensive build-out, don't let anybody do your build-out who hasn't done twenty dental offices before or otherwise you'll get to close down for a week and listen to jackhammers, and dentistry, as a profession, needs to figure out a way to get all that plumbing above the concrete. I mean, it's just ... there's no reason in the world all those nitrous oxide lines and vacuum lines and all that stuff is under four inches of concrete. I want to go back to, what you do is really, I mean, on your website - I love your website, dentalrealestateexperts.com - but, you know, the first thing you talk about is location. And they always say the three words of real estate are 'location, location, location'. How ... you know, a dentist might think, "This is a really good location", but how can that dentist, how can she get more expert analysis, data, that this really is a good location?
Norman: Well, since we work nationally, we have many brokers on the ground in different States that know local locations, but the general things that make a location successful is: demographics, access, signage, synergy, and a number of other things, but those are the major ones.
Howard: So, how do you get demographics?
Norman: Well, we have all the demographics ...
Howard: You do that in-house?
Norman: ... for every part of the country. Huh?
Howard: Do you do that in-house or do you outsource it to people?
Norman: We do a two-way. We do it in-house - and there's no extra charge for that - or certain types of demographics, relating to the relationship of dentists, the ratio of dentists to population, we do with outside ... we recommend an outside company.
Howard: And what kind of ratio do you like for dentists to population?
Norman: A general dentist, three thousand to one dentist.
Howard: Oh, well, that's nice. I mean, the country, the United States of America is two thousand to one, so, yeah, three thousand to one, that's a 50 percent better play.
Norman: Well, I feel that I want to recommend three thousand to one, because it's a lot safer.
Howard: Right, right. Technically speaking, if you want to get really lawyerly, like in the Phoenix Valley, it's eighteen fifty to one. I'm just rounding it up to two thousand to one. You're in Austin. Is there still locations in Austin three thousand to one, or do you need to go rural?
Norman: There's always a location. Some are better than others. When you get on the areas that are growing quite rapidly, which is really you want a new dentist to get into a very rapidly growing location, because the people there, the residents, many of them do not have a dentist; and then the dentist can capitalize on being in a retail center, because they'll see his sign and they'll stop in to take a look at the office. So, it's a great way of getting business. The rural areas don't stay rural very long in a growing community, so, if you can get there first, you're going to prosper. Have I answered that question?
Howard: Yeah. So, well, there's urban, there's suburban and there's rural, and one of the things that I ... you know, there's this huge movement in America to do to dentistry what they did to physicians was, with physicians they got a midway between the nurse and the doctor with this physician's assistant, and now they're trying to do that with dentistry as a dental therapist. And, of course, the dentists are fighting this bad, like any trade union would, but it's based on this Pew Research demographics - which anybody can go to Pew and then look up their State - and it's just amazing research. Like, I mean, like, 11 percent of the rural towns in Kansas don't even have a dentist, and even out here in Arizona, I mean, Eloy, Blythe, I mean, there's just these major areas without a dentist and I tell these kids, "My gosh, why don't you go to one of those towns that doesn't even have a dentist?" I mean, they're going to get legislation passed in each one of these States for dental therapists just because of the maldistribution of dentists, where two-thirds of them go urban, where half of America lives, and only one third goes rural, where the other half lives. And I can't think of a greater place to raise a kid than when you can walk out your backyard and shoot a .410 and not have to worry about the neighbors across the street.
Norman: That's my kind of place.
Howard: Yeah, I know. I mean, kids love the rural and a lot of these rural towns are only an hour drive from the big city, and you know what? I'm in Phoenix, you won't believe this. I have a friend dentist in Northeast Phoenix, up in Sun City, it takes me an hour to drive northeast. I got another friend down in Queen Creek, which is southwest. It takes me an hour to drive there. We're talking Interstate - 65 miles an hour. So, Queen Creek descends to Sun City is a two-hour drive across the Phoenix metro, but then, when you say we'll just drive an hour out of town, their mind starts flipping out, you know, because, you know, they're out in the rural and it's like ... what's the difference between driving an hour and a half across L.A. or Houston versus just driving an hour and a half out of Austin to where there some town of two thousand, three thousand people without a dentist, and the draw is always times two?
Norman: One of the things about location in situations like that is to look at the road network, because in the rural areas - and we have many of them around here - in the rural areas, it's a matter of time of travel, which is just what you were speaking of. The travel times can be, you can cover fifteen miles in twenty minutes, whereas in a city, in twenty minutes you're lucky to get out of your subdivision. And the potential patient population can be quite large depending upon the drive time. So, when I get somebody that wants to be, like we have one in Bend, Oregon - that's way out there.
Howard: I've lectured there, like twice.
Norman: Really?
Howard: Yeah.
Norman: Well, in Bend, Oregon, you've got a pretty good Interstate road network. So, you're going to pick up all the people that are in that road network that travel a half an hour or so forth to see a dentist. That's no big deal. So, that's part of location logistics.
Howard: So, basically, you talk about, in your lease negotiations, that you typically save your clients 8 to 12 percent in the Letter of Intent phase. Okay, my homies don't even know what a Letter of Intent is, let alone the phase. What is a Letter of Intent?
Norman: Right, a Letter of Intent is pre-contract. What it is? It's a non-binding agreement between the landlord and the tenant that flushes out some of the large economics, for example tenant improvement allowances is one of the things, pre-rent is another. Sometimes, we'll put in that clause about foreclosure. And what it does, it sets up a matrix for the lease contract. If you can't agree on the economics, there's really no point in moving forward to negotiate a contract. So, it saves a lot of time and everybody knows where they stand pretty fast. A good Letter of Intent will also take the property off the market for some period of time while you're negotiating.
Howard: You know, I really ... tell me if I'm wrong in this, because I'm a dentist, I do dentistry. You do what you do for thirty years. You're the sensei here, you're the teacher. But it has been my observation that so many dentists make horrible decisions because someone seduces them with this 'six months free rent and we'll do your build-out', and what that means to me, for the last thirty years when I see them, that the location is so horrible, there's no visibility, that the landlord's so desperate, he's giving you six months free rent and doing your build-out. I would, and I've seen dentists who crushed it, who went to the landlord and said, "I'm not giving you any free rent and I'm not doing any of your damn build-out, because I can lease this thing out a Starbucks in five minutes. Shut up and sign the lease or go." So, young kids, when you see this big wheelbarrow of free stuff, that should ... to me, it's a huge red flag. Do you agree with that or disagree?
Norman: I disagree.
Howard: Wow.
Norman: Oh, yes. I do ... usually I get my - and I'm talking about top locations, I'm not talking about the Hinterlands or East Siberia or West Overshoot, I'm talking about top locations - many times the landlords know they have to do tenant improvement allowances and those tenant improvement allowances on first generation space will run somewhere between $30 and $50 a foot. I've seen them go $60 and I'm talking top locations. It's how you negotiate the deal.
Howard: Is that a more recent thing because of online shopping and Amazon? Was this the case ten years ago too?
Norman: Yes.
Howard: Really.
Norman: Yes. Free rent. I'll give you a typical deal, okay, typical deal. Now, I don't know what kind of deals other people do, but, look, I'm no one in a million genius, but these are deals that are available if you know how to go after them. A typical deal. It takes four months to build-out a dental office. Can you do it in three? Maybe. We always write it up so that the dentist has four months ... the sooner of four months or when he opens for business, free rent, build-out, no triple net, no costs at all. After that, I try and get six months free rent and the tenant will pay the operating costs, the triple net costs. In fact, in Virginia I recently got seven months free rent. So, it's available and any time you put somebody in a bad location, it just reflects upon you, because everybody has friends in the business and in order to have a good, solid business, you've got to make sure you take damn good care of your client. And that goes in any business.
Howard: Okay, you're using terms that my homies don't know. You said, 'no triple net'. They don't know what 'triple net' is. What's 'triple net'?
Norman: Right, the 'triple net' is the taxes, the insurance and the maintenance. So, those things are always passed through to the tenant. The lease consists of two aspects: one of ‘em is a base lease, which is what the landlord gets, and the other is the pass-through, or the 'triple net', so, taxes, insurance and maintenance. Those costs go directly to whatever aspect it is, whether it's the city or it's maintenance or it's the insurance broker. So, that's what 'triple net' is, and most all retail businesses separate the triple net from the base lease.
Howard: What percent of people have to sign a triple net lease?
Norman: In a retail center, all of them, ‘coz retail is always designed with a triple net on it, because they're single units within the shopping center. When you get into multi-unit buildings, like an office building, those are called 'gross leases with a base year'. What that means is, the landlord will supply all the operating things: the heat, the air conditioning, the water, pay for the taxes and so forth; and they do that because they can't break down the utilities. There's a single air conditioning unit serving the whole building. So, they give it as a gross lease, but with what they call an expense stop. They'll tell you what the operating costs were, and that's part of the gross lease.
Howard: So, you're covering all fifty States right now?
Norman: Yes.
Howard: What about Canada?
Norman: No.
Howard: Okay. What if someone's listening to you right now and has a question about specifics, a detail, a lease, how do they contact you?
Norman: Just call me on the phone or send me an e-mail.
Howard: And what are those, what are those contacts? What's your phone and email?
Norman: My email is dental ...
Pamela: [00:34:24] [OFF CAMERA - INDISTINCT]. [0.3]
Norman: Oh, I'm sorry. My wife's listening to this.
Howard: Thank you, Pamela.
Norman: That's Pamela.
Pamela: You're welcome, Howard.
Howard: Well, come over by the camera, at least wave and say Hi!
Norman: Come on over here.
Pamela: Hello.
Howard: Hi, Pamela, how are you doing?
Norman: Come on, you've got to get in front of the camera.
Pamela: I'm good. How are you?
Norman: Get in front.
Howard: Are you going to join us?
Pamela: Not this time, but maybe another time, if we're lucky.
Howard: Well, if you ever want to come back on the show, come on back on the show.
Pamela: I would love it. Absolutely love it, Howard. This is a great thing for us.
Howard: All right, well, let my son, Ryan, know when you want to come back on the show.
Pamela: Thank you.
Howard: So, the email is ngelfand@dentalrxp.com?
Norman: Yes, sir.
Howard: And your phone number is 512 833 5300?
Norman: Yes, sir.
Howard: So, it's ngelfand@dentalrxp.com and phone number is 512 833 5300. With what you do, there’s no better statement than 'the devil is in the details'.
Norman: Boy, you're not kidding! And there's no such thing as a standard lease. The dentists have to understand that. Everything is negotiable in a lease, so there's no such thing. And in commercial brokerage ...
Howard: And now the trend is for these Millennials to just get these boilerplate contracts out of LegalZoom, and now there's people that you just buy ... I'm selling my house, you're buying my house, we do it online, boilerplate deals, and they're just going to stick their tongue in a light socket.
Pamela: The landlord offers the lease.
Norman: Well, we want the landlord to offer the lease, and there's a reason for that. And I'm not an attorney, but I know enough about, and talked to enough attorneys ... you see, if you offer a lease, if there's any ambiguity in the lease and you go to court, whoever offered the lease will lose the ambiguity. So, that if you're a landlord, you give me a lease, and there's an ambiguity in the thing, and I go to court because of something the ambiguity states, I will win, because the landlord offered to lease. Isn't that interesting?
Howard: It's very interesting, because my understanding - I'm not a lawyer either - but, you know, like a dentist will say that, you know, his associate, if they leave or he's terminated or whatever, cannot contact the patients. Okay, and then the associate, when he leaves, he downloads all the files, has all the contact information, and starts contacting them, and they go to court, and the judge says, "Look, I can't write the contract. I can only enforce it. You said the dentist, the associate, can't take the patient list. Okay, well, he did. But you didn't say ... he didn't agree to what would happen if he did."
Norman: Well, that's a bad contract.
Howard: Yeah, I mean, you know, if you said, "If you do this, you have to cut me a check for fifty grand. I would enforce that. But you just said he couldn't do it, and he did it, and I'm the judge. I don't know what you want me to do. I mean, I either ..." And what they say is, judges say this, "All we can do is enforce what's legal and throw out what's illegal. If two people agree to something in a contract, as long as they're not agreeing to anything illegal, like me selling you my organs or something, as long as you are agreeing to something that's not illegal, that's the contract. We just enforce it."
Norman: That's exactly why I focus on negotiating the leases, because it's all in the business end of it, and that's where the profitability of the practices is - it's in the business end of the deal. Now, the attorneys, of course, want to make sure it's enforceable and legal, and that's what they focus on.
Howard: Okay, well, I want to ... this is Dentistry Uncensored, so, I like to talk about things that make you uncomfortable. So, how do you make money on this deal? How do you get paid?
Norman: We are paid by the landlord's broker. The landlord contracts with a broker to market his property. That broker gets a percentage, and if the landlord, pardon me, if the dentist does not have a broker, he keeps the entire amount. If the dentist has a broker, then they split it, much like buying a house, the two sides. Now, what we enter into, to protect the dentist from conflicts of interest, is we enter into a fiduciary agreement - and since we're licensed brokers - so that everything we do has to do be for the benefit of the client and anything the client says to us has to be kept privy, and in that way there's no conflict of interest to our client, because they are our client; and we can be paid through sharing the landlord's construction fee that he's given to his broker. That's his compensation.
Howard: And, so, she graduated from dental school three years ago. She's been out there doing her basics, you know, getting up her speed, you know, just fillings, crowns, simple endo; and she's got her eye on this location and it says, you know, 'Space Available. Call this number’. Should she be the first person to call that number, or do you think she should get someone? I mean, because if she calls that number, is she going to call and give away too many of her cards in a poker match, or should she call you first and you call that number? What's your thought on the who makes the first call?
Norman: Well, it's always best to have someone that represents you contact the other side. It's a good way to start, and it protects you from some nefarious kind of broker.
Howard: And what percentage of the brokers do you think are nefarious?
Norman: The brokers that I do business with are all straight up guys. I haven't found dishonesty within the brokerage community. Now, I'm sure there is, but I think if you're straight on with somebody and you talk straight business and you give them the proper courtesies, you'll get it back.
Howard: Here's another disaster. I want to shift gears completely. I mean, I want to go from, you know, she's been out of school three, four, five years. She wants to go sign a space. Now, she's going to buy a practice, but this practice comes with real estate and so, you know, when you buy a practice, you know, it's confusing because, say I'm going to buy a practice from Dr. Norman Gelfand, and I want to buy his practice, but then I'm sitting there thinking, "Well, he's offering to sell me the land and building too. Should I buy that too? And what is the pros and cons of buying a practice and not buying the land a building, and now this dentist that owns land and building, knows I've got to stay there." I mean, so, talk about going from leasing in a retail center to now I'm buying a dental practice where the dentist owns the land and building. Rant about that.
Norman: Well, I think it's to reiterate some of the things that I've said. If you're buying a practice and you're not buying the property, you're inheriting the lease. And we run into a lot of that and we renegotiate those leases all the time, because many times there are landlord leases. Now, to buy the land and to buy the practice, once again it takes a lot of money and most of the new dentists can get a loan for up to a half a million Dollars. That doesn't cover a lot of land and property. I've seen, most of the time, at least from my end anyway, that the dentist that's selling the practice wants to keep the land and the building and lease it back to the tenant that's buying the practice, and it's more revenue for him over the period of time and it's more affordable for the dentist that's buying the practice.
Howard: You know, I've been in my center, the Safeway Shopping Center, for thirty years. And what I think is amazing about that, about the only thing that stayed there the whole thirty years was me and Safeway. The Valley National Bank got bought by Bank One and then it got bought by Chase. The Pizza Hut, as soon as it's ten-year lease expired, they didn't want the B to C anymore. They just wanted the online delivery to the house business. They were telling me their restaurants weren't even making 8 percent, but their delivery business was more like 18 percent. And, my gosh, I mean, everything's just come and go. I mean, right now, it's a third empty. So, I've been there thirty years. How long should you sign a lease? Should it be five years, ten years? Because, truth of matter is, if you've got a great repeat business, if your customers are coming back every six months to get their teeth cleaned, you're going to be there for thirty, forty, forty-five, fifty years. My next-door neighbor, Kenny Anderson, when I celebrated my thirtieth anniversary, he celebrated his fiftieth anniversary.
Norman: Really!
Howard: He's been there half a century, and he has no thoughts of slowing down or retiring because, you know, it's his love, it's his passion, his hobby. So, if you're going to be there forever, how long should these leases be? Should they be five years, ten years? You know, what ...?
Norman: The typical dental lease that we do is a ten-year primary lease, and two five-year options. Now, ten years will help in the financing from Bank of America or Wells Fargo or somebody, and also it helps the dentist get more concessions from the landlord, because it gives the landlord more time to amortize the tenant improvement allowances and the free rent. So, they'll usually get a better deal like that. On the two five-year options, that is a single-edged sword. And why I say that is, the options that we negotiate all have fixed prices connected with them. It's all a fixed price of renewal. So, like I was just doing one, and the rates went down, they went down significantly because when the first ten years was, there was a bubble, so, instead of taking the option, we renegotiated the price of the lease, because the landlord wants to lease it and we're saying that we wouldn't stay there for the higher rent. So, if you can get the options at fixed prices, you have a single-edged sword directed at the landlord. If they go up, you're going to get a lower rate ... pardon me, if the rates go down, then you're going to get a better rate; if the rates go up, then you're protected from increases.
Howard: I just want to say one thing about my podcast. None of these are commercials. No-one pays me to come on the show. I called you, Norman. Norman did not call me. I called him, because I know he's got good information, but I want to tell you that, you know, not all commercial brokers are the same, and look at it as healthcare. In 1900, healthcare was only 1 percent of the U.S. GDP and there were no specialties. By the end of the century, 2000, healthcare was 14 percent of the GDP and the M.Ds had fifty-eight specialties, the dentists had nine; and now we're at 2017 and healthcare is 17 percent of the specialty. I wouldn't even want a dermatologist to check my eyes even though he went to eight years of college, and you've been doing dentistry exclusively for seventeen years, and you've been doing this for thirty years, and young kids always get burnt. I say they get burned the most- I know this sounds horrible. You're never supposed to talk about religion, sex, politics or violence, but the majority of them get burned by their own church. They go to the ward, they say, "Well, here's a great LDS guy. He's a real estate broker", so, they know he's just a great guy, great family man, great everything, but he doesn't know that ... he hasn't been doing this exclusively for ten, twenty years. Don't pick your broker at the ward or at the temple or at the Catholic Mass. Pick them based on expertise. There's a reason why medicine has fifty-eight specialties and dentistry has nine. I mean, you guys know. Another thing you're talking about which is, you've got to remember podcasters are young. Old guys like me and you still read real books and read real magazines. These kids, you know, these Millennials - I just read a deal yesterday, Millennials are spending two hundred minutes a day on their iPhone!
Norman: Really?!
Howard: Two hundred minutes a day! So, if it's not on the iPhone, it doesn't exist. But, so, they're younger. You talk about 'business risk shifting'. They've never even heard that term. What is 'business risk shifting' away from the dental tenant? What is it and why is it important?
Norman: Well, it goes back to the passion I have. The passion of working with people and seeing them grow, seeing them develop practices that are enviable. When I say that the lease is a document of rights and privileges, and the privileges are those that you get from the landlord by negotiation. So, what I feel is that, it's so important to negotiate a lease properly, so that you don't have a risk of foreclosure, so you don't have building things that you'd have to make repairs on, you know, all of those things. Did I wander, or did I answer your question?
Howard: No, you answered right. What I want to end on is - I can't believe we've only been talking for fifty-five minutes - but the thing I want to focus on is, again, to me the most important thing is your ... and what's going to make you all your money and pay off your student loans and make you retire wealthy and live a great lifestyle, is your dental business. Not that you own the real estate. You're not ... you didn't go to school for eight to ten years to be a real estate agent. And you make so many bad decisions and what I want to focus on more now is like [00:50:32] [UNCLEAR]. [0.2] It's like, a dentist goes on and he gets a medical dental building and then he realizes that, when everybody's coming home at five o'clock, especially in the winter, it's already dark, and not maybe not down there where you are in Austin and I am in Phoenix, but you start to get to Kansas, Nebraska, the Dakotas and Iowa, Minnesota, everybody's coming home from work at five o'clock and it's dark, and they're driving past that medical dental building and you can't even see it. So, they'll go in there and they'll say, "Well, I'm going to go out and put a lit sign on the outside of my medical dental billing", and then the landlord says, "Well, you can't do that." So, one dentist put the sign inside his window, and the landlord made him take it down legally.
Norman: Right.
Howard: And, so, what I want ... you know, it's so funny if you read literature, because if you go back to Dodge City a hundred years ago, a business guy wrote, "If you can't see it your business from a horse, it don't exist." And now it's, "If you can't see your business through an automobile windshield, you don't exist." And now you're going to be relying on spending all this money on advertising and Google AdWords and Facebook ads, and you're doing all this stuff because you don't have visibility. So, talk about signage. I wouldn't go in any place unless it was very visible to a lot of traffic, whether it's on a street or a parking lot. If I was signing, I'd want to know how much lit sign I can have, can I put signs in my windows, you know. Talk about that. Talk about signage, visibility.
Norman: Okay, signage is controlled by two things. One of them is the building code. Most building codes will say that, when it comes to signage, you can only have - and follow this - 70 percent of the lineal frontage of your building in square foot of signage. So, let's assume someone has a hundred foot frontage, they can have seventy square foot of sign. That sign can be thirty-five foot long and two foot high, or it can be seventy foot long and one foot high. But you're bound with the building codes, in that local area, of signage. Now, many times, the landlord will have a restriction in the lease that you cannot put signs in the window, and in many ways that's good because if you had all the tenants doing that, you'd have a real raggedy-looking shopping center from the outside. What we like to do is, we like to say that the landlord must provide the tenant the right to have signs on all the perimeters of the leased premises and those signs must comply with local building ordinances. That's really the signage. Now, drive-by signage is usually on pylons or monuments, and if there's traffic and it's a fast street ...
Howard: I'm sorry to interrupt. What's a pylon? I know what a monument sign is. That's just kind of a brick monument sign out by the road. What's a pylon?
Norman: A pylon is one of these high signs with legs.
Howard: Oh, okay.
Norman: That's a pylon sign. And the building codes ... pardon me, the site plan and building codes will determine what the developer can do. Whether you can put a pylon up or a monument up, and the placement of it.
Howard: Okay.
Norman: But, you know, in terms of the signage, I like to see that the tenant can have banner signs on the building for sixty to ninety days prior to opening and things of that nature.
Howard: Nice. I was always a huge guerilla marketer - and a guerilla marketer is not gorilla like the monkey, but guerilla-like the ... I guess these are military guerillas, right. It's G-U-E-R-I-L-L-A. But, you know, one of the things I've done in my strip center for thirty years is, you know, a lot of dentists complain that when they have downtime or cancellations, their staff goes back and sits in the break room and doesn't do anything. What I always did is, I always had a stack of flyers for my dental office and if you don't have anything to do, here's stack of flyers, go out in the parking lot and put one under every windshield wiper in that whole deal. And then I've also been able to realize that there is a lot of these big chains - big, big chains - that aren't very tight on their rules. Like, I would go - I don't want to mention any names or they're going to be in trouble - let's just say that I am next to a Safeway and I go to the store manager and say, "I'll fix up your mouth if you put a stack of these flyers at each checkout stand, and when they're bagging the groceries, they put in one flyer in one of the bags of groceries." In fact, the funniest story I ever had was a dentist across the street, he called me up - he was a great guy. His name's Mark Woodland - and he calls me up, he says, "Oh, I have your flyer on my kitchen table and I'm just curious. Nobody can figure out where it came from. It wasn't mailed. It wasn't at the door. No-one in my house can figures it out", so, I told him what I was doing, and he goes, "Oh, that makes sense. Okay, I was just curious. I was just wondering how the hell you got this flyer on my kitchen table." And guerilla marketing is great, signage is great. And another thing with a sign is, so, it comes down to clarity. Like, if you put the sign 'DENTISTRY' - D-E-N-T-I-S-T-R-Y - nine letters, those letters are all going to be smaller and shorter, but if you go with 'DENTIST', they're are bigger and more clear. I think one of the worst things I see about these signs is they've got great signage, but they'll put, you know, Land of Lakes Family Dentistry. Hell, you can't even read it until you're parked in their parking lot. You know, you need to be able to go to the intersection across the street and look and can tell there is a dentist there. They know what a dentist is. You don't need to put Land of Lakes Family Dentistry, because no-one can read it.
Norman: Hear, hear! I put a dentist in between a Mexican restaurant and a barbecue restaurant. Dynamite location. Dynamite. They put a sign up it says "Wellness for All Dental". You couldn't ... and the letters were very artistic, but you couldn't really read them.
Howard: Yeah.
Norman: It was a waste of signage - and signs cost money. You know, a decent sign will cost $5,000.
Howard: Right. Yeah, I agree. I want clarity. I want visibility. I think 'dentist' is fine. I'd rather have 'DENTIST' and you can read it three football fields away, than anything artsy-fartsy. I mean, you know, communication, it doesn't matter if you say 'ain't', or it doesn't matter what the wordage is; what matters is, did you communicate? I mean, I've got a friend who uses a double negative every single time. "I ain't never doing that again." Well, I know she's ... you know, I know the double negative doesn't mean 'she is doing again'. I'm not an idiot. When she says, "I ain't never doing that again", I know she doesn't ever want to do it again. Just communicate. Just, you know, I don't care how you do it, but if you do it and say it in the signage ... to me signage is everything, I mean.
Norman: You know, I've got a tip for a young dentist in a shopping center that have a spot, that I don't know if they ever thought of. Talk to the manager of the - not the shopping center - the manager of the Safeway or whatever it is and see, sometimes they'll allow you to put a table in there, and say something about dentistry, 'Dentist Week' or 'Important'. They'll let you use the inside of their grocery store to promote dentistry, dental health, and you're there and you're a dentist in the shopping center.
Howard: All right, well, man, our format is an hour and that's because their average commute is an hour. Norman, this show is only a success because I'm able to get rocking hot, amazing guests like you to come on the show and inform my homies. If you have a question, his phone number is 512 833 5300, his email is ngelfand@dentalrxp.com, his website's dentalrealestateexperts.com. Gelfand, I'm trying to think of a mnemonic device. Norman Gelfand. You said it's Russian. Is there any ... does Gelfand mean anything in Russian?
Norman: Yes, it means a good-looking guy with a great sense of humor.
Howard: Right on! Right on! Howard actually ... my last name, Farran, means Irish drunk. You know why I don't like Russians? Because in America only 14 percent are alcoholics. In Ireland it's 38 percent. And we're only beat by one country, them damn Russians who are 40 percent. If 3 percent of the Russians would quit drinking, us Irish would be Number One.
Norman: Well, I think sometime maybe the two of us should have a drink.
Howard: Well, okay. Will it be Irish whiskey or Russian vodka?
Norman: One of each!
Howard: We'll have a Jameson and a Grey Goose. But, seriously, thank you so much for coming on the show and remember my parting words are: you're a Doctor of Dental Surgery. You don't know sh*t about real estate leases. Don't sign a real estate lease unless an expert who is a specialist, who is exclusive on this for seventeen years - don't pick some guy ‘coz you go to the same ward with him. Norman, thank you so much for coming on the show today and talking to my homies.
Norman: Thank you. It's been an honor and a privilege to speak with you.