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The Life Cycle of a Tenancy – Part 1: Site Selection

Recently our firm encountered a lease written and executed in 1893 with a term of 999 years expiring in 2892. Our client is a sub-sub tenant under this lease. This lease will affect tenancies for a very long period of time. More typically, the life span of a lease is 20 to 30 years. This life span consists of a number of steps, each no less critical than any other. The life cycle of a tenancy begins with a site selection, and progresses through an offer to lease, to a lease, through periodic lease renewals, often to assignment, and eventually to end. This article presents the first in a series of articles that will explore the various stages in the life cycle of a tenancy.

The first stage in any tenancy is site selection. You only have one chance to get it right. A mistake at this stage may lead to years of frustration and disappointment. 

Site selection is the process used to choose the most suitable site for a new practice. The practitioner must select the general geographic area they wish to practice in based on where they want to live, who they want to treat, and whether there are enough candidate patients in the area to provide for a viable practice. Do you want a high volume modest treatment practice, or a low volume big treatment practice?

The first step in a site selection is to look at how the people in a "trade area" live and move around. A "trade area" is defined based on socio-economic and geographic boundaries. Typically, these boundaries are not related to political boundaries. To understand the potential patient population, demographic data such as age, income, cultural background, and population growth must be evaluated based on the trade area. It can then be used in conjunction with the location of competition and other factors such as new housing starts, potential annexation and anticipated changes to mass transit to identify your ideal trade area. 

Transportation routes are also relevant. How do you expect your patients to access your clinic? Are there major auto routes, subway stops, bus lines or commuter train stations nearby? You must consider not just where your potential patient candidates move, but how and why. For example, bedroom communities may present great demographics but because at least one adult is away during the day, a clinic in this location may not perform as well as a clinic in an area where the bedroom community members are travelling to. Similarly, a location that is highly visible from a major commuter highway may get noticed but this alone does not ensure success. Most of the people who see it will not be from the area or interested in treatment at the time.

It is best to consider several different areas for comparison, especially against a known or “proven” trade area. If the demographics in a proven area support a certain ration of clinics per capita, the same should apply to an under-serviced area.

Once a trade areas is defined, potential sites for your new clinic must be identified. 

The next step is to define what type of property you want to practice in. Do you want to be in office space, enclosed strip mall, anchored plaza, free standing or owned premises? How big and what shape should your space be? How many parking spaces and what signage do you need? What other amenities do you want?

After the trade area, prime locations and property type are defined, a thorough search should be conducted to identify and inventory all possibilities complying with the criterion established above.  This inventory must be completed “on-line”, in the field, and by contacting landlords who do not typically list with brokers or even advertise space for lease. In some cases, a visit to a municipal office to examine planning maps will provide the contact information for developers building new space. These locations need to be assembled with basic information and plotted on a base map in order to rank the properties and identify the most likely opportunities.

Typically, the top two or three properties are given more consideration by looking closely at the rent, cost to build, lease details, proximity to parking etc. Again, comparing potential locations gives the opportunity to choose. An offer to lease is prepared, presented and negotiated for the top choice property and in some cases the second choice concurrently to ensure a solid "plan B" is available.

There are so many variables to consider in site selection that the guidance of a seasoned and very experienced professional can be a tremendous asset to sort through and clarify priorities.

Written by
Ian D. Toms and Jennifer J. Miles

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