Commercial Investment Real Estate May/June 2016

INVESTMENT ANALYSIS Retail MOBS Mall medical ofﬁ ces challenge leasing conventions. h Hospital systems and other medical providers are aggressively opening locations in suburban shopping centers to make health services more convenient for their patients. At ﬁ rst glance, this is a mutually beneﬁ cial development. The costs to lease retail facilities are often advantageous for healthcare providers, while retail owners reap the beneﬁ ts of this new demand for their space. However, medical use tenants and retail landlords must navigate certain obstacles during lease negotiations for a successful lease term. Here are three fundamental chal- lenges for retail-medical leasing. Permitted Use A medical provider will want to perform all of its anticipated activities within its premises. While medical tenants will try to broadly def ne their permitted use and obtain exclusives covering their primary practice area, landlords limit these provi- sions to preserve opportunities for leasing to future medical tenants. Both parties to the lease should be aware of the medical and quasi-medical uses of the shopping center’s existing and prospective tenants.  May | June | 2016 For example, the landlord might insist on adding language to the lease that specif cally allows leasing space to a pharmacy with an in-store outpatient clinic. Before signing the lease, both landlord and tenant should verify that the medical tenant’s permitted use will not conf ict with any existing tenant’s exclu- sive use clauses. Before leasing space in a shopping mall, the healthcare tenant should carefully scru- tinize the applicable zoning code. If the zoning designation for the shopping center does not allow for the tenant’s anticipated use, the tenant and landlord should coor- dinate ef orts to obtain zoning relief from the appropriate authorities and discuss the impact that the zoning process might have on overall project timing. Cooperation between landlord and tenant is especially critical in situations where the build-out of the tenant’s space begins before the zoning process ends. In these instances, the lease should delineate the rights and obligations of both parties if the desired zoning relief is not obtained. T e tenant should also ensure that the intended use will not violate any declarations or other encumbrances recorded against the property. To accomplish this, the tenant should order a title search or request repre- sentations from the landlord. Particularly, environmental restrictive covenants asso- ciated with certain brownf elds programs might prohibit medical use of the property. If the tenant’s medical use requires redundant energy supply (e.g., operating rooms), the lease should specify the loca- tion and capacity of the tenant’s dedicated generator, with a clear breakdown of the parties’ related cost and maintenance responsibilities. HIPAA Restrictions Retail landlords may be unfamiliar with Commercial Investment Real Estate Thinkstock by Andrew Maguire

Commercial Investment Real Estate May/June 2016 | Page 18