Building a Dental office to rent out

[Brian Kraby]

HI,

I am considering constructing a 2200 sf dental office. Due to the specialization of the plumbing and electrical, etc, I will have an above average outlay in cash compare to office/retail space. Estimates from architect/contractor are coming in around 285/sf. The practice will furnish their own chairs, wall fixtures...basically providing the vanilla shell. Dentist is willing to sign a 10 yr lease and is credit worthy. NNN lease.

 I already own the land its going on free and clear.  I plan on getting 10 year loan on the building of a rate around 5-5.25%.  So some questions to ask:

1.  How do I set the rent?  Is it based on my mortgage plus profit for taking the risk?

2. Will the CAM fees assessed on top of the rent to the office have some operations profit for administering the arrangement?

3. How do I set the cam fees?  Since there is no historical value to start from, do I set a number right away or have a contingency to reset   on the next year since it is a de novo building?

4. Do I need a broker or can I pay an attorney to set up everything, or myself?

Thanks

[Joel Owens]

Hi Brian,

Are you looking to sell this when built out or hold long term?

If this is a dentist office there is generally one NNN lease. With that you do nothing and there is no CAM.

CAM is more for when you have multiple tenants in a building and management in place.

On the 10 year primary term lease try to push it to 15 years as that can make it more valuable. Is this dentist a single unit operator or multiple? Is this a national chain instead? If it is local make sure all locations they have are guaranteeing the lease. Make sure they have to give updated business and personal financials once  a quarter or at least semi-annually to annually. Have a clause in the lease if owner sells that you can request updated financials for business and personal even if they are not due on the regular schedule yet. Have rental increases of at least 2% go up annually each year.

If you are building from the ground up and are not experienced have a fee developer help out but they can cost 100k or so per project.

You could also not even construct the building but have the tenant do a ground lease instead. With the ground lease you are not usually getting any tax depreciation like with a NNN building where most allocate 75% value to building and 25% to land.

Many other factors. A broker would help more with the sale of the property. You should have a commercial attorney that specializes in retail,medical office, etc. do the lease and other components. I am an investor, developer, commercial broker.

I do not offer tenant placement doing leases like tenant rep brokers, developer fee services, or property management. I transact nationally with clients and then I also have passive investors invest with me so my focus is those 2 buckets.