Large dental tenant demanding 90 days abatement
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesOriginally posted by @Joe Villeneuve:
Don't sign it. Give then their 90 days, but in addition to the 90 day lease extension, add a ??% penalty late payment for the 90 days, with an additional line that states a daily late fee for any days past the first 90 late days.
Joe this is happening nation wide to virtually every dental practice.. this landlord would be absolutly nuts to move against that strong of a tenant and create a vacancy cost way more in lost revenue than 3 months of rent.. I mean who is going to replace them.. this is stepping over dollars to chase pennies.. it really is.. Landlords can be their own worst enemy..
37 Replies
- 6yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Don't sign it. Give then their 90 days, but in addition to the 90 day lease extension, add a ??% penalty late payment for the 90 days, with an additional line that states a daily late fee for any days past the first 90 late days.
- Rental Property Investor · Gilbert, AZ · Member since 2015 · 49 posts · 56 votes6y
As part of being a landlord you with sometimes encounter repairs that require the use of a skilled trades person, such as extensive electrical or plumbing repair. In this case you need to hire a local attorney who specializes in landlord tenant law and evictions.
You may want to work with the tenant, if they are generally a good tenant and the vacancy they create may take more than a few months to fill, but the legal contract for this should be drafted by your attorney, not the tenant.
- 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Well that is ballsy of them. I wouldn't sign, but tell them you are willing to talk to them about options.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Theresa Harris:
Well that is ballsy of them. I wouldn't sign, but tell them you are willing to talk to them about options.
this is happening all over the country to virtually every dental practice.. I had this conversation with my banker 3 weeks ago they bank a ton of dentist and they have already planned for work outs on their LOCs a landlord would be crazy to move against a strong dental practice I mean look at the cost and who is going to replace them..
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Villeneuve:
Don't sign it. Give then their 90 days, but in addition to the 90 day lease extension, add a ??% penalty late payment for the 90 days, with an additional line that states a daily late fee for any days past the first 90 late days.
Joe this is happening nation wide to virtually every dental practice.. this landlord would be absolutly nuts to move against that strong of a tenant and create a vacancy cost way more in lost revenue than 3 months of rent.. I mean who is going to replace them.. this is stepping over dollars to chase pennies.. it really is.. Landlords can be their own worst enemy..
- 6yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Don't sign it. Give then their 90 days, but in addition to the 90 day lease extension, add a ??% penalty late payment for the 90 days, with an additional line that states a daily late fee for any days past the first 90 late days.
Joe this is happening nation wide to virtually every dental practice.. this landlord would be absolutly nuts to move against that strong of a tenant and create a vacancy cost way more in lost revenue than 3 months of rent.. I mean who is going to replace them.. this is stepping over dollars to chase pennies.. it really is.. Landlords can be their own worst enemy..
Good point Jay. Medical NNN's are my favorite for many reasons. I just had my dentist call me to reschedule an appointment I had coming up. Not looking to piss them off, and if you really want to look at this, the fact that they are already extending the lease for him says a lot.
Funny thing, after I wrote that, I thought about it more and wanted to see what other reactions would be.
The trouble is, I have a hard time establishing lines in the sand, that appear to be moveable...in the wrong direction.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes6y
@Carl A. welcome to dealing with credit tenants. They are trying to throw their weight around and know that they have you over the proverbial barrel as @Jay Hinrichs said.
Lets call a spade a spade, you aren't going to kick them out. If you did it would take a long time to find another dentist or you'd have to white box the space, which is $$$.
They care about slowing their burn rate to the bare minimum right now, so you know what they want. Work off of that.
See if you can re-do the lease; you give them six months of no rent and in exchange you get a longer lease, more generous rent bumps, lower TIA, higher CAM fees, better extension options.
Get creative. This is where you can extract a premium for having the liquidity that they don't.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Bill F.:
@Carl A. welcome to dealing with credit tenants. They are trying to throw their weight around and know that they have you over the proverbial barrel as @Jay Hinrichs said.
Lets call a spade a spade, you aren't going to kick them out. If you did it would take a long time to find another dentist or you'd have to white box the space, which is $$$.
They care about slowing their burn rate to the bare minimum right now, so you know what they want. Work off of that.
See if you can re-do the lease; you give them six months of no rent and in exchange you get a longer lease, more generous rent bumps, lower TIA, higher CAM fees, better extension options.
Get creative. This is where you can extract a premium for having the liquidity that they don't.
U don't want them going into chapter 11 and doing cram downs etc.. this will pass people NEED dentists those are strong tenants in a normal market.. its just not normal now.. so we all have to be creative and work with business's they are under a ton of stress think about it.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes6y
@Jay Hinrichs great point about cramdowns, I didn't even think about that.
An entirely different (and potentially painful for the landlord) outcome that doesn't get talked about a lot since this is a residential focused site.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Bill F.:
@Jay Hinrichs great point about cramdowns, I didn't even think about that.
An entirely different (and potentially painful for the landlord) outcome that doesn't get talked about a lot since this is a residential focused site.
YUP could you imagine being a landlord and involved in a 200 practice BK all over 3 missed rental payments.. Not making light of it.. however one needs to really think these through and probably not ask for advice on BP.. Since there is a HUGE slant here of those that are NO pay no stay no matter what type attitude. Not all but you know what I mean..
On a side note had a nice chat with one of the goldman sachs commercial paper work out folks.. its coming.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes6y
Originally posted by @Jay Hinrichs:
Originally posted by @Bill F.:
@Jay Hinrichs great point about cramdowns, I didn't even think about that.
An entirely different (and potentially painful for the landlord) outcome that doesn't get talked about a lot since this is a residential focused site.
YUP could you imagine being a landlord and involved in a 200 practice BK all over 3 missed rental payments.. Not making light of it.. however one needs to really think these through and probably not ask for advice on BP.. Since there is a HUGE slant here of those that are NO pay no stay no matter what type attitude. Not all but you know what I mean..
On a side note had a nice chat with one of the goldman sachs commercial paper work out folks.. its coming.
A part of me hopes that those who own CRE investments on the whole are a bit more measured about how they run their properties, but after reading the strong feelings around no pay no stay reactions here the past few weeks, that hope waned a bit.
We see all the time how not understanding your client base gets landlords in trouble ( good ol' Clayton and his story about Doctors and Nurses rent D class homes). From my perspective, if you want to rent to a dentist, you have to have at least a cursory understating of their business model and basics of business, like profit vs cash flow, revenue streams, their cash cycle. If a landlord doesn't get the basics, then every action that's out of the norm throws up red flags.
Are you taking about the added funds from the fed to the commercial paper market or how the work outs are winding their way through the process?
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Bill F.:
Originally posted by @Jay Hinrichs:
Originally posted by @Bill F.:
@Jay Hinrichs great point about cramdowns, I didn't even think about that.
An entirely different (and potentially painful for the landlord) outcome that doesn't get talked about a lot since this is a residential focused site.
YUP could you imagine being a landlord and involved in a 200 practice BK all over 3 missed rental payments.. Not making light of it.. however one needs to really think these through and probably not ask for advice on BP.. Since there is a HUGE slant here of those that are NO pay no stay no matter what type attitude. Not all but you know what I mean..
On a side note had a nice chat with one of the goldman sachs commercial paper work out folks.. its coming.
A part of me hopes that those who own CRE investments on the whole are a bit more measured about how they run their properties, but after reading the strong feelings around no pay no stay reactions here the past few weeks, that hope waned a bit.
We see all the time how not understanding your client base gets landlords in trouble ( good ol' Clayton and his story about Doctors and Nurses rent D class homes). From my perspective, if you want to rent to a dentist, you have to have at least a cursory understating of their business model and basics of business, like profit vs cash flow, revenue streams, their cash cycle. If a landlord doesn't get the basics, then every action that's out of the norm throws up red flags.
Are you taking about the added funds from the fed to the commercial paper market or how the work outs are winding their way through the process?
One of my early jobs and only for a few months was trying to sell dental equipment delivery systems chairs drills etc.. you soon figure out that Dentist really watch their dollars.
Also since my personal banker in Oregon has MANY dentist as clients I have a pretty good understanding of the industry.
A new dentist coming out of school will have hundreds of thousands in debt then needs another 500k to build out his / her practice or to buy an existing practice so it takes them some years to get over the hump as it were. Of course the older well established are in good shape.
And since the invention of sit down dentistry in the 70s dentist are much more healthy than they used to be.. Lots of back issues :)
- Investor · Belmont, MI · Member since 2015 · 53 posts · 20 votes6y
@Carl A.
Carl
As a practicing dentist and RE investor my spin is they are taking advantage of your situation and putting you in an undesirable position. You are left with either sending a notice to vacate or agreeing to giving them 3months of free rent. I doubt they would forego all the leasehold improvements they did to your space for 90 days of rent. And if you agree to their terms what is preventing them from asking for an additional 90 days? Most likely your tenant is a DSO and has Wall Street money behind them. That being said they could very well be feeling the down market and trying to salvage some liquidity. Their underlying business model is based on growth not earnings and that has come home to create problems. Would have to know more to fully understand your tenant but I would call their bluff and manage the situation from there. BTW I have dentist tenants as well and they are all paying their rent as promised. On a side note dentists can apply for the PPP loan (SBA 7a) and can receive forgiveness of the loan if they use it for payroll (75%) and rent, utilities,phone etc. (25%). So they have options. Good luck Carl and know this is just my opinion based on the little information I have regarding your tenant.
- Lititz, PA · Member since 2013 · 595 posts · 272 votes6y
Originally posted by @Jay Hinrichs:
Originally posted by @Bill F.:
@Carl A. welcome to dealing with credit tenants. They are trying to throw their weight around and know that they have you over the proverbial barrel as @Jay Hinrichs said.
Lets call a spade a spade, you aren't going to kick them out. If you did it would take a long time to find another dentist or you'd have to white box the space, which is $$$.
They care about slowing their burn rate to the bare minimum right now, so you know what they want. Work off of that.
See if you can re-do the lease; you give them six months of no rent and in exchange you get a longer lease, more generous rent bumps, lower TIA, higher CAM fees, better extension options.
Get creative. This is where you can extract a premium for having the liquidity that they don't.
U don't want them going into chapter 11 and doing cram downs etc.. this will pass people NEED dentists those are strong tenants in a normal market.. its just not normal now.. so we all have to be creative and work with business's they are under a ton of stress think about it.
@Jay Hinrichs , excellent points on this subject, but what is a "cramdown"??
- Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes6y
Hi Carl,
Seems like a lot of good thoughts and responses here so far!
So I'm not going to weigh in with any thoughts on this other than my thoughts on the decision making process.
Do we really know that in 90 days things will be back to normal (???).
I sure hope so....
If not this could turn into "Death by a thousand cuts" (for a lot of people).
Right now to me the end date for this seems uncertain, meaning the traditional method of decision-making based on considering the facts, data and all the information to make a rational, logical decision might not be available.
That's because it seems like (right now) we don't have all of the information yet. Primarily, when will this end, and when will things start back up again.
Which seems to call for decision-making in the face uncertainty (because there seems to be a gamble element to it), like happens in war on the battlefield sometimes.
Except your not really at war with the tenant. The tenant seems to just be trying to keep his head above water and survive (also in the face of uncertainty).
His analysis of your situation, though blunt, at least it seems to be a heads up of his (current) plans--taking some of the uncertainty out of the situation.
Here's an article from a military perspective about decision making in the face of uncertainty that might help you with the the situation as time goes on: https://www.forbes.com/sites/jeffboss/2016/12/14/slap-uncertainty-in-the-face-4-strategies-for-making-difficult-decisions-amidst-the-unknown/
Good Luck!
- Real Estate Broker · New York, NY · Member since 2013 · 125 posts · 63 votes6y
@Carl A. when does their lease expire?
- NJ · Member since 2016 · 13 posts · 8 votes6y
Do you have a loan on this property? I would call your lender as soon as possible and see what is feasible. I imagine many banks are willing to work with their borrowers in these unprecedented times. They most underwrote this property (since its commercial) with certain assumptions and imagine they made you make a emergency fund for times like this. I would try to see if you can avoid using this for the emergency, but see what they are willing to do.
I'm also not sure if it makes sense to work with local government on property taxes delays as well as insurance companies on premiums. All-State is refunding for non-use of cars by a percentage for their customers.
- Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes6y
@Carl A. Seriously? There's nothing to consider. Listen to @Jay Hinrichs
Nobody has a clue what might be coming, hang on to whatever you can.
- Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes6y
Originally posted by @Skip Reath:
@Carl A.
Carl
As a practicing dentist and RE investor my spin is they are taking advantage of your situation and putting you in an undesirable position. You are left with either sending a notice to vacate or agreeing to giving them 3months of free rent. I doubt they would forego all the leasehold improvements they did to your space for 90 days of rent. And if you agree to their terms what is preventing them from asking for an additional 90 days? Most likely your tenant is a DSO and has Wall Street money behind them. That being said they could very well be feeling the down market and trying to salvage some liquidity. Their underlying business model is based on growth not earnings and that has come home to create problems. Would have to know more to fully understand your tenant but I would call their bluff and manage the situation from there. BTW I have dentist tenants as well and they are all paying their rent as promised. On a side note dentists can apply for the PPP loan (SBA 7a) and can receive forgiveness of the loan if they use it for payroll (75%) and rent, utilities,phone etc. (25%). So they have options. Good luck Carl and know this is just my opinion based on the little information I have regarding your tenant.
The chickens have come home to roost, as they say ;)
- Real Estate Broker · DFW · Member since 2015 · 350 posts · 270 votes6y
@Skip Reath
This is a very solid post.
- Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes6y
It might be worth trying some negotiating. Ask them to pay the prorated insurance and taxes you pay (if you pay it), maybe the interest part of your loan payment at least for that 90 day time period. They likely are not totally shut down. They can do 'emergency' 'it hurts bad' dental work, so they should be getting partial income.
And small firms have lots of possibilities to survive in the recent financial packages that were signed into law.
- Flipper/Rehabber · La Jolla, CA · Member since 2012 · 43 posts · 8 votes6y
@Carl A.
Have you asked to see a copy of his financials in order to determine the state of his company? If your location is one of the highest producing locations he has and he’s making a lot of money, he will not lose it.
I agree with some of the other post that he’s taking advantage of the situation. I’ve had a fair amount of tenants in that industry and a lot of them are not drastically affected by changes in the economy.
No business man will walk from a cash cow if that is what your location is for him. Depending on your personal financial situation, I would call his bluff. I would be willing to bet money that if you did not reply that he would pay his rent.
He is a business person and so are you.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
I have been saying for a month that this will be a commercial real estate crash like nobody has seen. It is hitting on multiple fronts. Many retailers are closed and some will never reopen. That will create an excess of retail space and it will force rents down everywhere. Even tenants in leases will come back to renegotiate prices down. Same risk exists for office space. Companies have all their employees working remotely. How long will it take for executives to realize they can leave a good portion of employees remote and reduce office space?
Cheesecake factory announced they are not paying rent at any location for April. Countless other national chains are doing the same thing. I know of fortune 200 companies that are calling to negotiate reduce rent on empty office buildings.
Here is the good news in your case Carl. Dentist are a necessary business. They will be busy when they reopen. Moving a dentist office is extremely expensive. Way more expensive than three months rent! I would not accept their offer. My guess is they are trying to negotiate. My bigger fear would be the precedent you are setting. If this lasts 6 months, you can be guaranteed they will come back in 3 months asking for 3 more months free.
I would consider some other options:
1. Skip two months and split those two months payments over the next six months.
2. Reduce rent by 50% (or whatever) for three months and explain you need money to cover expenses so you cannot accept nothing.
3. Tell them you do not accept their offer. There are loans available to sustain their business. Ask them to keep paying.
As I mentioned, the cost of moving a dentist office is extremely high. They couldn't move it today if they wanted to and if they hope to be operational when this is over, moving will put them out of business for more months. If they breach lease, you will be able to pursue them for unpaid rents, so even if they do move, it will saddle them with massive debt.
This is a negotiation and your ability to negotiate will determine the outcome. There is no law requiring you to accept their agreement. Contact your bank immediately and ask what your forbearance options are. That plays into your decision process.
Many companies are asking for concessions, but that doesn't mean they are getting them. I would ask if I was the dentist too, but it is a business and if the landlord said no, I would figure out plan B. That probably means dipping into their savings.
- 6yChad HalePro MemberProperty Manager / Investor · San Jose, CA · Member since 2013 · 779 posts · 301 votes
Lots of good advice above. I would consider their letter an initial position. See what you can work out with them. Deferred payments amortized over a period of time, reduced rent, have them at least pay the CAMs/NNNs, have them share a portion of gross income for a period of time in consideration of abated rents. Lots of options before giving them everything.
- Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes6y
@Carl A. Whether you sign or don't sign it, I don't see why you'd want to sign it now. Like @Scott Mac said, no one knows where the end of this thing is. What if you agree to abate 90 days of rent now, and in 90 days they come back to you and say "Guess what...we're not paying the next 90 days either." Now maybe you were okay with the first 90 day abatement, but you're not okay with the second. You will have already given up some of your leverage and negotiating power by abating the first 90 days.
Personally, I wouldn't sign anything yet. If they don't pay, then they don't pay. But there's no advantage to you right now to hurry up and sign this agreement to abate the rent. All you're doing is giving up your right to recover it.
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