Glossary & FAQ.

The "Loss Factor" (also known as the Load Factor or Common Area Factor) represents the percentage of a building's square footage that is non-leasable, such as lobbies, hallways, and shared restrooms. For tenants, this is the difference between the "Rentable Square Footage" you pay for and the "Usable Square Footage" you actually occupy. In California medical properties, understanding this ratio is critical to calculating your true cost per usable foot.

Usable Square Footage (USF) is the actual space within your suite's walls that you can occupy and use for your practice. Rentable Square Footage (RSF) includes your usable space plus your pro-rata share of the building's common areas (lobbies, hallways, restrooms). Tenants pay rent based on the Rentable footage, not the Usable. In California medical buildings, the loss factor typically ranges from 10-20%.

A Triple Net (NNN) lease is a standard commercial real estate agreement where the tenant is responsible for paying three distinct categories of property expenses in addition to their base rent: real estate taxes, building insurance, and common area maintenance (CAM) costs. This structure provides transparency regarding operating costs but shifts the risk of rising tax or utility rates to the tenant. NNN leases are common in California medical office buildings.

In a Triple Net (NNN) lease, the tenant pays base rent plus all property expenses, including real estate taxes, insurance, and maintenance. This is common in medical office buildings. In a Gross lease (also called Full-Service), the landlord pays these expenses out of the rent collected. A Modified Gross lease falls in between, with some expenses included and others passed through to the tenant.

CAM charges are fees paid by tenants to cover the landlord's costs for operating and maintaining the shared areas of a property. In medical office buildings, this typically includes the cleaning and upkeep of lobbies, public restrooms, elevators, parking lots, landscaping, and shared mechanical systems. CAM charges are usually calculated per square foot and may be subject to annual caps or reconciliation.

A Tenant Improvement Allowance (TIA) consists of funds provided by the landlord to help a tenant customize or upgrade a leased space. For medical practices, negotiating a robust TIA is essential to offset the high costs of clinical build-outs, such as installing sinks in exam rooms, upgrading electrical systems for medical equipment, or adding lead-lined walls for imaging. TIAs are typically expressed as dollars per square foot and may range from $30-$100+ PSF depending on market conditions and lease term.

PSF stands for "Per Square Foot" and is the standard unit of measurement for pricing in commercial real estate. Rent is typically quoted as an annual rate PSF (e.g., $48 PSF NNN means $48 per square foot per year, plus NNN expenses). For a 2,000 SF suite at $48 PSF, the annual base rent would be $96,000, or $8,000 per month before NNN charges.

A lease escalation clause specifies how rent will increase over the term of the lease. Common structures include fixed annual increases (e.g., 3% per year), CPI-based adjustments tied to the Consumer Price Index, or periodic bumps at set intervals. Understanding escalation terms is critical for long-term financial planning, especially for medical practices signing 5-10 year leases.

Unlike general office space, medical facilities often require specialized infrastructure, including: Enhanced HVAC for temperature and humidity control in sterile environments; Medical Gas Systems with plumbing for oxygen and nitrous oxide; Electrical Capacity with backup power systems for critical equipment and high-amperage circuits for imaging machines; Lead Shielding with lead-lined walls for X-ray and CT scan rooms; Reinforced flooring for heavy equipment; and Specialized plumbing for multiple sinks and sterilization equipment.

Dental offices have unique plumbing needs including: wet columns or stub-outs at each operatory for dental chairs; vacuum lines for suction systems; compressed air lines; nitrous oxide delivery systems; and amalgam separators to comply with EPA regulations. The number and location of plumbing connections directly impacts your floor plan design and build-out costs.

Medical offices typically require 200-400 amp electrical service, compared to 100-200 amps for standard offices. Imaging equipment like X-ray machines, CT scanners, and MRI units require dedicated high-amperage circuits. Many medical tenants also need backup power systems (generators or UPS) for life-safety equipment and to protect against data loss during outages.

OSHPD (Office of Statewide Health Planning and Development), now part of the Department of Health Care Access and Information (HCAI), regulates the design and construction of healthcare facilities in California. OSHPD-3 clinics (outpatient settings) face specific seismic, accessibility, and life-safety requirements that can significantly increase build-out timelines and costs. Understanding whether your space requires OSHPD compliance is critical before signing a lease.

ADA compliance is a federal mandate requiring facilities to be accessible to individuals with disabilities. For medical tenants, this means ensuring that not only your private suite (exam rooms, reception counters, doorways, restrooms) but also the building's common areas (entrances, elevators, parking) meet strict accessibility standards. Failure to verify ADA compliance before signing a lease can lead to costly retrofits or legal liability.

Title 24 is California's Building Energy Efficiency Standards, which mandate energy-efficient design and construction. Medical build-outs must comply with Title 24 requirements for lighting, HVAC, and building envelope. These requirements can affect equipment choices, lighting design, and overall construction costs but result in lower operating expenses over time.

Converting standard office space into medical use often triggers "Impact Fees" from local municipalities. Common examples include Traffic Impact Fees (due to higher patient volume generating more vehicle trips) and Sanitary Sewer Impact Fees (common for dental practices due to higher water usage). Additionally, medical tenants may face higher utility costs due to the energy demands of specialized equipment and extended HVAC operation for temperature-sensitive environments.

A Medical Office Building (MOB) is a commercial property specifically designed or adapted for healthcare tenants. MOBs typically feature medical-grade HVAC systems, reinforced floors for heavy equipment, enhanced electrical capacity, and plumbing infrastructure to support clinical operations. They may be single-tenant or multi-tenant, and can be located on or off hospital campuses.

An Ambulatory Surgery Center (ASC) is an outpatient facility where surgical procedures are performed that do not require overnight hospitalization. ASCs have stringent requirements including specialized HVAC with positive/negative pressure rooms, medical gas systems, backup power, and must meet state licensing and Medicare certification standards. Build-out costs for ASCs typically range from $300-$500+ per square foot.

On-campus medical buildings are located on hospital property and often benefit from proximity to emergency services, shared parking, and patient referral networks. Off-campus buildings offer more flexibility in operations and hours but may require more independent marketing efforts. Medicare reimbursement rates can also differ between on-campus and off-campus facilities for certain procedures.

Adaptive reuse refers to converting existing buildings (retail, office, industrial) into medical facilities. This approach can offer cost savings and faster occupancy compared to ground-up construction, but requires careful evaluation of the existing structure's suitability for medical use, including ceiling heights, floor load capacity, utility infrastructure, and zoning compliance.

Shell condition (also called "cold shell" or "vanilla shell") refers to unfinished space with basic building systems in place but no interior improvements. The tenant is responsible for all build-out including walls, flooring, ceilings, and MEP (mechanical, electrical, plumbing) systems within the suite. Shell spaces require larger TI allowances and longer build-out timelines but offer maximum customization flexibility.

Second-generation (2nd gen) medical space is a suite previously occupied by a medical tenant that retains clinical infrastructure like plumbing, electrical, and possibly exam room layouts. Leasing 2nd gen space can significantly reduce build-out costs and timelines compared to shell condition, though modifications may still be needed to suit your specific practice requirements.

A Use Clause defines how the tenant is permitted to use the leased space. For medical tenants, it's critical to ensure the use clause is broad enough to accommodate your practice and potential future services. A restrictive use clause could prevent you from adding new specialties or services without landlord approval or lease amendments.

An Exclusivity Clause grants a tenant the exclusive right to operate a specific type of medical practice within a building or shopping center, preventing the landlord from leasing space to a direct competitor. This is highly valuable for specialists like orthodontists, dermatologists, or imaging centers who want to protect their local market share within a property.

A Right of First Refusal gives a tenant the right to match any offer the landlord receives from a third party for adjacent or additional space in the building. This is valuable for growing medical practices that anticipate needing expansion space. A related concept is a "Right of First Offer" (ROFO), which requires the landlord to offer available space to the existing tenant before marketing it to others.

A personal guarantee makes the individual signing (typically the practice owner or physician) personally liable for the lease obligations if the business entity defaults. For new practices without established credit, landlords often require personal guarantees. These can sometimes be negotiated to "burn off" after a period of on-time payments or limited to a certain number of months' rent.

A "Good Guy" guarantee is a modified personal guarantee where the guarantor's liability ends if the tenant provides proper notice, vacates the premises in good condition, and pays all rent through the vacate date. This structure provides the landlord with protection while limiting the guarantor's long-term personal exposure.

Renewal options give tenants the right to extend their lease at predetermined terms. Key considerations include: the renewal notice period (typically 6-12 months before expiration), how renewal rent is determined (fixed increase, fair market value, or capped FMV), and whether the option is personal to the original tenant or transferable. Medical practices with significant build-out investments should negotiate favorable renewal terms.

An assignment clause governs whether and how a tenant can transfer their lease to another party. This is critical for medical practices considering eventual sale, as buyers typically want to assume the existing lease. Restrictive assignment clauses can complicate practice sales, so negotiating reasonable assignment rights upfront is important for exit planning.

Timeline varies significantly based on project complexity. For straightforward second-generation space, expect 2-4 months for lease negotiation plus 3-6 months for build-out—plan 9-12 months ahead. However, larger or more complex projects can take considerably longer. Ambulatory surgery centers, imaging facilities, and large outpatient centers often require 2-3+ years from initial engagement to first patient.

Key site selection factors include: proximity to referral sources and hospitals; patient demographics and population density; visibility and accessibility (parking ratios, ADA compliance); competitor proximity; zoning and permitted uses; co-tenancy with complementary healthcare providers; and ease of access for patients including public transit options in urban markets.

Medical offices typically require higher parking ratios than general office space due to patient turnover throughout the day. A common standard is 5-6 spaces per 1,000 square feet, compared to 3-4 for general office. High-volume practices like urgent care or imaging centers may need even more. Verify the property's parking allocation before signing a lease.

Not all commercially-zoned properties permit medical uses. Some municipalities have specific "medical overlay" zones, while others restrict medical uses due to traffic concerns. Certain procedures (like ambulatory surgery) may require conditional use permits. Always verify zoning compliance and any required permits before committing to a location.

Medical corridors or healthcare districts are geographic areas with high concentrations of healthcare facilities, often anchored by hospitals. Locating within these areas can provide benefits including patient convenience, referral network proximity, shared parking arrangements, and established wayfinding. The Bay Area has several prominent medical corridors in cities like Palo Alto, San Jose, and San Francisco.

Hospital proximity offers advantages including referral relationships, shared patient populations, and perceived prestige. However, hospital-adjacent properties often command premium rents. Consider whether your specialty benefits from hospital proximity (surgeons, specialists) or whether a community location might better serve your patient base (primary care, pediatrics, dentistry).

Capitalization rate (cap rate) is the ratio of a property's net operating income (NOI) to its purchase price, expressed as a percentage. For example, a property generating $200,000 NOI purchased for $4 million has a 5% cap rate. Cap rates vary based on location, tenant credit quality, lease terms, and market conditions. Lower cap rates indicate lower perceived risk and higher prices.

A sale-leaseback occurs when a medical practice sells its owned real estate to an investor and simultaneously leases it back as a tenant. This strategy allows practices to unlock equity tied up in real estate, improve balance sheet liquidity, and potentially achieve tax benefits, while maintaining operational control through a long-term lease.

The own vs. lease decision depends on factors including: available capital and financing terms, practice growth plans, local real estate market conditions, desire for equity building, and risk tolerance. Ownership offers equity appreciation and control but requires capital and management attention. Leasing preserves capital for practice investment and provides flexibility.

A 1031 exchange (named after IRS Code Section 1031) allows investors to defer capital gains taxes when selling one investment property and reinvesting the proceeds into a "like-kind" property. Medical real estate investors commonly use 1031 exchanges to upgrade properties, diversify holdings, or relocate investments. Strict timelines and rules apply, so professional guidance is essential.

Medical real estate is considered a defensive asset class with attractive characteristics including: stable, creditworthy tenants (healthcare providers); longer lease terms (often 7-15 years); higher tenant retention due to build-out costs; recession-resistant demand for healthcare services; and demographic tailwinds from an aging population requiring more healthcare services.

Tenant representation is when a commercial real estate broker advocates exclusively for the tenant's interests in a lease transaction. For medical practices, a tenant rep broker provides market knowledge, identifies suitable properties, negotiates lease terms, and helps avoid costly mistakes. Unlike listing brokers who represent landlords, tenant reps have a fiduciary duty to the tenant.

Healthcare real estate brokers are typically paid through commissions split from the landlord's side of the transaction, meaning there's typically no direct cost to the tenant for representation. The commission is usually calculated as a percentage of total lease value. This structure allows medical practices to benefit from professional representation without out-of-pocket expense.

Key qualities include: specific experience with medical and dental tenants; knowledge of local healthcare real estate markets; understanding of medical build-out requirements and costs; relationships with healthcare-friendly landlords; and a track record of negotiating favorable terms for medical tenants. Ask for references from similar practices and verify their transaction history.

Engage a healthcare real estate broker as early as possible. For standard medical and dental practices, plan 12-18 months before your desired move-in date. For complex facilities such as large outpatient centers, imaging facilities, and ambulatory surgery centers, start 18-24+ months ahead due to specialized site requirements, longer build-out timelines, and regulatory approvals.