Transactional Dual Agency Problem Reaches the Supreme Court

In what could become a precedent-setting case, the California Supreme Court has now heard the oral arguments that will scrutinize the long standing practice of dual agency by real estate firms. The case, Horiike vs. Coldwell Banker Residential Brokerage Company began on September 7th.

The original case was based on a dispute regarding the square footage of a property purchased by the plaintiff, Hiroshi Horiike. Horiike was represented by the same company marketing the property for sale, Coldwell Banker. But, the case has now morphed into an examination by the court of the practice of dual agency. The question of whether any one brokerage firm can really represent two different parties – buyer and seller or tenant and landlord – and provide “conflict free” representation to each side within the same real estate transaction will be examined by the court.

Dual agency has been a common practice in both residential and commercial brokerage firms where the parties to a real estate transaction are represented by an agent (or agents) from the same brokerage company. “This court case proves the point that tenant representation firms have been making for years, that lines can easily blur when an agency represents both sides of a transaction,” said William Strong, an ITRA Global corporate real estate advisor from San Diego. “It’s very clear to us that you can only advocate for one party in a lease or purchase, and so ITRA Global advisors choose to only work for corporate space users. This ensures our client’s interests are our top priority without question.”

Many of the world’s largest real estate companies both practice and encourage dual agency. CBRE, JLL, and DTZ/Cushman & Wakefield all represent property owners and sellers which are their primary clients and source of income. But, these same firms also represent corporate tenants and buyers in lease and sale transactions. In many cases, these dual agents are actually members of the same in house leasing team that represents the landlords or sellers, so the opportunity for conflicts of interest is very high. Yet, these firms have long insisted that they have internal policies which mitigate potential conflicts of interest. “When traditional commercial real estate brokerage firms engage in dual agency, representing the owner or seller of property, while also representing the tenant or buyer in the same transaction, conflict of interest is inevitable. It’s simply impossible for one firm to act with absolute neutrality while representing the interests of two opposing parties with disparate interests” said Chris Carmen, President of Carmen Commercial Real Estate Services in Indianapolis. Carmen, whose firm only represents space occupiers added “The large traditional brokerage firms that practice dual agency will always reap the greatest compensation from on-going relationships with property owners as opposed to the one-time fee generated through representing a tenant. The broker or brokerage firm’s bias will always be in favor of the landlord or property owner, where they can glean the greatest benefit.”

With respect to a dual agent providing the same services as a designated tenant rep firm when representing a space user or tenant, Debra Stracke Anderson with the ITRA Global office in Washington D.C. added “When dual agency exists, it is far more likely that a tenant will be steered to a building that is managed or leased by the dual agent’s company for one of their landlord clients. The listing agent's fiduciary responsibility is solely to the landlord, so the dual agent's incentive to aggressively negotiate on behalf of the tenant rather than the landlord is significantly diminished for fear of losing the listing and the lucrative business of the landlord client entirely. The dual agents keep the entire commission in-house, while providing a new tenant for their landlord client, viewing this as a win-win. However, we see it as a huge conflict of interest and certainly detrimental to the best interests of the tenant."

Ultimately the court’s decision may impact both the disclosure practices and the bottom line of large commercial firms that practice dual agency. “Regardless of the outcome of the case, the mere fact that it is before the California Supreme Court shows that there are serious issues with these legacy real estate companies representing both sides of a real transaction. That is why corporate space users should be using a “tenant rep” only company, to ensure their interests are always the top priority of their broker,” noted Strong.

Written by Wayne Teig (ITRA Global Minneapolis) & William Strong (ITRA Global San Diego)

ITRA Global is an organization of real estate professionals specializing in representing commercial tenants and buyers in the leasing, acquisition and disposition of office, industrial and retail facilities. With coverage in major markets around the world, ITRA Global is one of the largest organizations dedicated to representing tenants and occupiers of commercial real estate. Clients benefit by having an experienced professional as their trusted advisor, providing conflict-free representation with total objectivity. To learn more about conflict-free representation and ITRA Global locations, please visit the ITRA Global web site.

Medical Office Building Trends

Medical Office Building Trends
By William Strong, Riviera Real Estate, Inc.

A study done by the Urban Land Institute predicts that the United States medical community will have a 19% increase in patients by 2019. The increase in patient load will be due to two factors:

1.       More patients will have access to care due to the Affordable Care Act passed in 2010.

2.       As baby boomers age, they will require more health care visits. On average, people over the age of 65 have 36% more visits to the doctor.

With 19% increase in patients over the next few years, the need for medical office space is increasing.

Medical practices are facing financial uncertainty related to decreasing insurance reimbursements and increased legal compliance costs. Small medical practices are opting for shorter lease extensions than they have in previous environments, anywhere from 12- to 24 months. Some physicians are opting to go on staff for large hospital organizations, choosing a salary rather than the administrative challenges of running a business.

With the uptick in patient visits and downward pressure on profits, big medical organizations are looking for ways to reduce overhead. Therefore, large medical organizations affiliated with hospitals are moving away from treating patients in hospitals in lieu of more affordable outpatient facilities.  In fact, hospitals are even beginning to open off-site emergency departments in order to ensure better service to their communities. The locations of the satellite facilities are important, and tend to be determined either by geography or population density to avoid strain on individual facilities.

Advances in technology have changed the physical requirements of medical office space. In an optimal situation, a medical office space will have the infrastructure to support electronic record keeping. Buildings need to have Cat 5 or Cat 6 cabling and reliable, fast wireless connectivity with multiple connection points to ensure efficient office operations. Conversely, medical offices no longer need large areas dedicated to storing paper files. Medical practices are looking to fill any extra space with areas that are subdivided to support physician assistants, other sub-specialties, and separate waiting areas.

In this uncertain environment, it is imperative that medical practices work with a specialized commercial realtor who has a deep understanding of the changing landscape of healthcare. Some commercial realtors specialize further in tenant representation services to avoid a conflict of interest between landlords and tenants. William Strong, a San Diego commercial real estate Broker (#1802223), provides tenant representation services for businesses that need medical office space. Mr. Strong's practice is two-fold:

1.       Finding new medical office space at a fair market rate.

2.       Negotiating with a tenant's current landlord for lease reductions that are in line with current market conditions.

Call William Strong at 760-777-2880 for a complimentary consult today.    Or visit www.RivieraREG.com

Physician Shortage Epidemic

The United States is facing a crisis that is invisible to most people; however you can be certain that every physician is very aware.  We are on the verge of experiencing a serious shortage of practicing physicians.  In some rural regions of the U. S., there has long been a shortage of local doctors, but we will soon experience this painful deficiency in most regions of this great county.  This is a scary issue to deal with and there are numerous factors involved.

The enormous baby-boomer generation (those born between 1946 - 1964) actually creates a two-fold issue.  As this generation ages, over a hundred-thousand maturing doctors are expected to retire over the next several years.  Additionally, as baby-boomers turn 65 years of age, they qualify for Medicare, which occurs at a staggering rate of between 8,000 – 10,000 individuals each and every day.

Another influencing factor is the Obama Care Health Care Reform.  By 2014 some thirty million additional Americans will be covered by health insurance.  Although many consider this to be a good thing, it creates a serious problem for medical doctors.  Locating a physician who is taking new patients could become very difficult at that time.

The Association of American Medical Colleges (AAMC) has estimated that the country will have more than 62,000 fewer doctors than are needed by 2015, and that number will double by 2025.  This shortfall is predicted in spite of a push by teaching hospitals and medical schools to boost the number of U.S. physicians.  The AAMC has increased its lobbying effort with Congress to end the freeze on Medicare funding for residency training.  Unknown to many, this freeze has been in effect since 1997 and the results are becoming a serious concern.  The AAMC says that even a modest 15% increase in funding would help prepare 4,000 additional doctors each year.

A shortfall of physicians is not the only issue at hand.  Physician compensation is another issue.  Although more students are applying for medical school, the number of Primary Health Care physicians has fallen dramatically.  This is largely due to the fact that family practitioners average salary is approximately half that of specialists.  Additionally, the insurance reimbursement cuts are making it harder to physicians to earn what they did only a few years ago.

With most people in the U.S. today still able to get a doctor’s appointment in a timely manner, Americans tend to be complacent about this issue. The shortage of doctors is already a crisis. If we fail to act now, only the wealthy will be able to see a doctor before their illness or injury becomes life threatening, and many won’t see one even then.  Without proper care, many will die from diseases and illnesses that are easily treatable. We need more measures in place to ensure that qualified students who are interested in the medical profession have a spot available in our medical schools, and will also have a spot for residency training.  It is important that we stay aware of what is happening in the medical profession, and what the powers-that-be will do to forestall this doctor shortage.

for more information, please visit www.RivieraREG.com

Why you need Tenant Representation

If you are not using a tenant representative broker, you are vulnerable to many aspects of lease negotiation.  Your landlord negotiates leases every day, and if you don’t, you lack the experience to get the most of this type of transaction.  By leaving all the power in the landlords hands you are quite possibly paying more in rent than you should and could also be unaware of other available benefits.  Landlords use leasing agents to maximize their profit and capitalize on your lack of market knowledge and resources.  Landlords already have a leasing team in place, and it’s time for you to have one as well.

To achieve an advantageous solution to a specific real estate need, you must have access to: current and accurate market information, negotiation skills, and transaction expertise equal or superior to that of the landlord who has professional representation.  Landlords negotiate leases on a daily basis, which gives them an advantage over someone who performs a lease transaction every 3-10 years.  Utilizing an experienced real estate tenant representative Broker will help you get the most out of any commercial real estate transaction.   

Market Knowledge – A real estate Broker is the most knowledgeable person in his or her particular field and market area.  They spend years learning about every building, company, project, rate change, development, and nuance in a specific market place.  Real estate professionals also have access to many real estate networks and programs that others may not even know about.  This only increases their market knowledge and ability to direct a business owner in the right direction.  

Training/Experience – A real estate Broker deals with real estate transactions on a daily basis.  This includes: lease negotiation, market analysis, transaction completion, business consulting, marketing and many other aspects of commercial real estate.  To some, real estate is only a job, but to be successful it must also be a passion.  This passion leads to an unwavering desire to be the best along with a career-long commitment and devotion to their clients and market.  Someone who knows what is under every stone in a specific market will be able to give you an advantage when negotiating with a landlord of any size.

Value of Time – Unless you are a seasoned real estate professional, spending countless hours researching your next location or reviewing the legal terms of a lease will be a confusing and frustrating waste of time.  Your valuable time should be spent operating your business and taking care of your clients.  Allow a tenant representative Broker to handle all of your real estate needs in a confidential, professional, and honest manner.  An experienced real estate professional can typically foresee problematic real estate issues before they become a large problem.  If you are not utilizing a tenant representative broker, you are wasting your time and could also be missing out on other unknown benefits.  

For over 10 years I have learned from being involved in both sides of the real estate transaction. Now I am strictly specializing in no-conflict, tenant-only representation, where I will always look out for the tenants best interest, at no cost to them.  Allow a seasoned real estate veteran to negotiate new and renewed leases, expand or consolidate your office, find your next location, keep you well informed about the local market, and make sure your tenant rights are preserved. 

Stop trying to negotiate with powerful landlords while your time is better spent elsewhere.  Let an experienced real estate professional deal with the extensive lease negotiation at absolutely zero cost to you. 

Learn more at www.RivieraREG.com
  

Parking at Medical Offices

High parking ratios are typically aligned with high parking problems.  With standard medical office parking ratios currently at (or above) 5 parking stalls per every 1,000 square feet of gross leasable area, you really don’t think parking will ever be an issue.  This is rarely the case.  Parking tends to be a concern at medical office campuses across the country, and is often one of the most important issues to a patient.  Further, the availability of open and convenient parking spaces is usually below the patient’s tolerance threshold.   

Parking ratios are dependent on the average frequency and density of customers at any given property type.  Restaurants have the highest parking need and ratio, with medical office being second on the list.  When compared to standard office parking, which typically has requirements of 3 – 4 spaces per 1,000 Sq Ft, medical space demands a higher count of parking stalls.  The dense office environment of medical suites creates a need for a higher parking ratio.  

When visiting their doctor, one does not want to walk across a large lot, and can get upset if it takes more than a few minutes to reach the office lobby.  As with any building, the handicapped parking spaces are adjacent to the front doors, with the rest of the stalls further away.  The above average congestion in medical offices parking lots creates parking lot frustration across the country.  People don’t typically allot enough time to find available parking spaces when they visit the doctor, and when in a hurry, this can cause serious frustration.  

As higher parking ratios are needed, building subterranean or above ground parking structures causes the development costs to skyrocket.  To keep development expenses down, parking is usually allocated at the bare minimum requirement.  Until we start building more parking stalls than the required bare minimum, we will always be placing ourselves below the future need. 

Interesting points taken from the InterFace Medical Office Conference

In the future it will take 3 doctors to replace 2 that we have today.

Only about 25% of proposed new MOB development space has been pre-leased.

National sale price average of $225/Sq Ft, with a cap rate of 7.2.

National cap rates fluctuate between 6 – 9%.

Lowest vacancy rates are in San Francisco and Boston (sub 6%).

In 2012, 1 out of every 3 Hospitals in this country will have financial problems.

A rebirth of primary care is needed.

There will be a fight for the outpatient market.

Timeshare spaces and entrepreneurial physician models will start to appear.

The rent savings of moving off campus needs to be 25% to really be effective.

The ACO concept is widely misunderstood.

Market dominance will be the ability to have the lowest rental rate.