Top 3 Tips for Emerging Franchises

For emerging healthcare and fitness franchisors and franchisees, navigating the complex world of real estate can be daunting. Given that real estate often represents the second highest expense for franchisees, it’s crucial to manage this aspect effectively. To ensure success and protect your franchisees, here are the Top 3 areas to focus on in real estate management.

Tenant-Only Brokerages: Avoiding Dual Agency

One of the most important steps for healthcare and fitness franchises is to engage tenant-only brokerages. This approach offers several significant benefits:

• Protection from Conflicts of Interest: Tenant-only brokerages exclusively advocate for tenants, eliminating conflicts of interest inherent in dual-agency scenarios. In dual-agency situations, where a broker represents both the landlord and tenant, there is a risk that the broker may prioritize the landlord's interests and their own financial gain over those of the franchisee.

• Enhanced Market Knowledge: Brokerages focusing solely on tenants often develop a deeper understanding of market trends, rates, and concessions specific to healthcare and fitness industries. This comprehensive market knowledge allows them to identify optimal locations and negotiate more effectively on behalf of franchisees.

• Stronger Negotiating Power: Tenant-only brokers are incentivized to secure the best possible terms for their clients. They can leverage their market knowledge and negotiation skills to obtain more favorable lease terms, potentially including lower rent, better buildout allowances, and more flexible lease structures.

Lease Administration: Streamlining Operations

Engaging a lease administration company is another crucial step for emerging healthcare and fitness franchises. Here's why it's so important:

• Centralized Lease Management: Lease administration companies provide a centralized platform for managing all aspects of a franchises lease portfolio. This includes tracking critical dates, managing payments, and ensuring compliance with lease terms.

  
  

• Cost Control and Optimization: Effective lease administration can help identify cost-saving opportunities, such as catching billing errors or identifying potential expense reductions. It also enables better budget forecasting and financial planning.

  
  

• Compliance and Regulations: Lease administration is crucial for compliance with ASC 842 and IFRS 16 by ensuring accurate tracking and reporting of lease data. It helps manage right-of-use assets and liabilities, which is vital for meeting financial reporting standards and avoiding errors. Centralized lease administration also aids in adhering to regulatory requirements, such as CPOM laws, by maintaining proper documentation and lease structures. This streamlined approach enhances transparency, simplifies audits, and supports financial and operational compliance.

  
  

• Strategic Decision-Making: With comprehensive lease data at your fingertips, franchisors can make more informed decisions about their real estate portfolio. This includes identifying underperforming locations, planning for expansions, and optimizing their overall real estate strategy.

Specialized Healthcare and Fitness Brokerages

Choosing brokerages specializing in healthcare and fitness is the third crucial area of focus. Here's why it matters:

• Industry-Specific Knowledge: Brokers specializing in healthcare and fitness understand the unique challenges and opportunities in these verticals. They're familiar with industry trends, regulatory requirements, and specific space needs.

  
  

• Network and Relationships: Specialized brokers often have established relationships with landlords and property managers who cater to healthcare and fitness businesses. This can lead to better property options and smoother negotiations.

  
  

• Customized Solutions: Healthcare and fitness businesses often require specialized buildouts or equipment installations. Brokers with industry expertise can help navigate these requirements by negotiating appropriate tenant improvement allowances and recommend industry-specific vendors.

  
  

• Future-Proofing: Experienced brokers can help franchises plan for future growth and changes in the industry. They can advise on lease terms that allow for flexibility as your business evolves. 

By focusing on these three key areas – tenant-only brokerages, lease administration, and specialized industry expertise – emerging healthcare and fitness franchises can set themselves up for real estate success. This approach not only protects franchisees but also creates a solid foundation for growth and profitability in a competitive market.