Wednesday, September 12, 2018

Medical Office Buildings: Shortage Solutions and Retail Space

Meg Bryant's recent brief provided some key information for the growing healthcare real estate sector.
  1. The number of Americans 65 and over is growing year after year, helping to drive the need for more space.
  2. Increasing demand for healthcare services could potentially drive a shortage of medical office space.
  3. The anticipated growth in healthcare workers over the next two years will be driving a subsequent need for more space.
Three possible solutions for the increasing needs of the healthcare industry include:
  1. Leasing space in conventional office buildings. 
  2. Virtual care, digital health, and shared services.
As a specialist in retail space, if you are experiencing the pressures mentioned above; would like to talk further about how retail space could fit into your expansion plans; or just need an overview of current market conditions, I welcome the opportunity to meet and talk.  

Healthcare Dive Article

Wednesday, August 29, 2018

Aging population, consolidation drives $10B in medical property investment

Real Estate Weekly

August 8, 2018 | Kyle Campbell 

Large hospital networks have been on a buying spree in recent years, scooping up doctors, practices and new office space at a rapid pace.

The medical field is going through a period of consolidation, but investment in healthcare real estate has only expanded, with REITs and private funds joining the industry’s efforts to decentralize.

“It’s a growing sector, around $10 billion in transactions for 2017 and my guess is 2018 is going to be a similar size,” said Steve Leathers, managing director of Jones Lang LaSalle’s Healthcare Capital Markets team.  “It was $5 billion five or 10 years ago, so it’s doubled in size in a pretty short amount of time.”

From 2012 to 2016, the share of doctors employed by hospitals has increased from 26 percent to 42 percent, according to data from JLL, while close to 30 percent of practices are affiliated with a hospital, twice the rate of four years ago. Industry-wide spending is up 33 percent since 2000, with much of that going toward designated medical office buildings.

New York leads the country with 3.7 million s/f of medical office in the pipeline, with the next closest market being Atlanta at 1.3 million s/f.

Costs, technology and the Affordable Care Act have all driven the industry’s ongoing reorganization, according to Ross Yustein, a partner and healthcare real estate specialist at the law firm Kleinberg, Kaplan, Wolff & Cohen, P.C.

“Electronic filings requirements have gone up,” Yustein said. “It’s hard to transfer medical practices to independent service providers and a lot of doctors just want security. At the same time, hospitals and healthcare networks are waking up and realizing that if they want market share, they need to go where the customers are.”

To accomplish this, the industry has favored satellite locations over more costly hospital campuses. This year, close to three-quarters of new doctors’ offices will be built away from an affiliated medical center compared to between 55 and 65 percent in recent years, according to Revista, a research firm.

Recent years have seen outpatient facilities claim a higher share of patient visits and industry revenues, according to the American Hospital Association and Moody’s Investor Services. As a result, cap rates for medical office buildings have been on a steady decline in recent years, falling to 6.2, per Revista, almost even with the 5.9 rate enjoyed by hospital-based projects.

In total, standalone medical offices account for 39 percent of the U.S. medical real estate market, which JLL values at $1 trillion. Hospitals, meanwhile, make up about 31 percent.

Leathers said these trends have not gone unnoticed by the real estate industry’s biggest investors.

“It’s a growing sector for public REITs, pension funds and private equity,” he said. “Global capital is starting to look at it more, too.”

Service providers still hold 70 percent of medical office real estate in the country, compared to 19 percent by private investors and 11 percent by REITs, according to Revista. However, there are signs that this might change. In 2014, REITs accounted for 60 percent of medical real estate transactions compared to 16 percent by hospitals.

Because health care services are a necessity, medical offices tend to be recession-proof, generating consistent, albeit modest, profits. Even during the peak of the Great Recession, medical office occupancy remained above 90 percent while average rents held steady at more than $200 a month. While a medical office building might not fetch the same rents as a class A office tower that leases to banks, law firms and multinational companies, Yustein said, it will be fortified against economic fluctuation, especially as Baby Boomers continue advancing into retirement age.

“[Medical office] is currently viewed as a fairly safe bet,” he said, “not sexy like hotels or resorts, which are seen as having more risk-reward upside [but] medical is seen as a safe choice, especially if it’s related to a healthy hospital system because it’s seen as having a fairly steady customer base and revenues.”

Along with the pivot toward medical offices comes a shift in approach, Yustein said, emphasizing comfort and convenience not normally offered in a traditional hospital setting.

However, that is not to say hospitals have been neglected in the industry’s real estate renaissance. In 2018, there is nearly 38 million s/f of hospital construction underway, with 75 percent of that focused on upgrading or replacing old facilities.

Demand for the new and improved facilities will only grow in the coming decades, as roughly 10,000 Americans will become health care eligible every day for the next 20 years. With this coming surge in demand, Yustein said it only makes sense that health care providers would ramp up their office supply.

Although technological advancements, such as video appointments and at-home evaluation equipment could disrupt this trend, Yustein said he doesn’t see anything changing in the near future.

“There will still be some time before we’re culturally ready for that and the technology is not quite there yet, but at some point, it will become more common and the technology will allow you to do even more remotely,” he said. “Just like traditional retail is going through a change, eventually medical will experience some version of that, as well.”

New Jersey Hospital Seeks to Buy Fort Monmouth Site

Competition for Top Doctors Spurring Space Race Among Medical Service Providers

CoStar News

June 26, 2018 | Linda Moss

Mountainside Medical Center Starts Construction on Medical-Office Site Designed to Lure Physicians

Designed by NK Architects, the Hampshire Cos.' new Bay Avenue medical-office building has been preleased by Mountainside Medical Center.

Mountainside Medical Center officials say their planned medical-office building, replacing a former nursing school, is designed to help draw top physicians to practice at the facility’s campus on the border of Montclair and Glen Ridge in New Jersey.

At a groundbreaking ceremony against a backdrop of piles of brick from the start of the nursing school’s demolition, executives from the hospital’s ownership and the project’s developer, Hampshire Cos. of Morristown, New Jersey, portrayed the construction of the three-story, 45,735-square-foot medical-office building as a crucial part of the future of Mountainside. 

The redevelopment reflects the changing face of healthcare, with hospitals competing to attract the best talent and struggling to cut costs by providing more outpatient care. 

"So why all this fuss about another office building?" Mountainside Chief Executive John Fromhold told a crowd of several dozen people at the event. "Because this one is directly linked to Mountainside’s vitality and our ability to hold a 127-year tradition to providing high-quality health care that keeps pace with changing local needs. There have been a lot of changes in the healthcare industry since Mountainside opened its doors in 1891."

The new Bay Avenue medical-office building, which is expected to accommodate about 45 physicians and 17 physician assistants, gives the hospital a convenient location to offer more outpatient treatment, according to Fromhold. 

"The caliber of care we provide is driven by the caliber of the physicians we attract," Fromhold said. "It’s a very competitive market for the best doctors, and they want first-class, state-of-the-art office space in convenient proximity to the hospital for themselves and their patients."

The new building will allow Mountainside Medical to "attract and retain leading primary care physicians and specialists," he added, while enabling it to optimize space by replacing an antiquated building.

Mountainside’s now-closed nursing school trained more than 4,000 registered nurses during its 120-year run, he said. The new Class A medical-office building is fully pre-leased to Mountainside, which is owned by hospital chains Hackensack Meridian Health and Ardent Health Services. Construction is expected to be completed in the first quarter of 2020, according to officials. 

Designed by NK Architects, it will "include highly flexible and adaptable medical office units to provide physicians and specialists with spaces that can be conformed to their exact needs," according to a hospital press release.

Jon F. Hanson, Hampshire’s founder and chairman, told the crowd that about 25 year ago he first became involved in medical-office building development as volunteer chairman of the real estate committee of Hackensack Medical Center, which is now part of Hackensack Meridian Health. Now Hampshire owns or has investments in about 50 medical-office buildings around the country, according to Hanson.

The medical-office building that sprung up around Hackensack Medical Center’s "jumpstarted" the development of the hospital’s campus in the city of Hackensack, and Mountainside’s new building will do the same in Montclair and Glen Ridge, Hanson said.

There are currently 2,146 medical buildings in Northern New Jersey, totaling 31.9 million square feet, according to a 2018 first-quarter report on the sector by NAI James E. Hanson, a Hackensack, NJ, real estate firm. 

Circle Squared Alternative Investments is the investment adviser on the Mountainside project. The company finds alternative market investments, primarily private equity real estate deals, for high-net worth investors. 

In addition to help draw and retain top physicians, the new medical offices will also be a venue for Mountainside Medical Center to provide more outpatient care, which is far less costly than hospitalization, officials said. 

"We all know ... that more and more health care is being delivered outside of the four walls of a hospital," said Robert Garrett, co-chief executive of Hackensack Meridian Health. "So we’re going to need -- as part of a growing healthcare network -- more ambulatory care centers, more medical office buildings that are very convenient, very accessible for patients and their families, but also ones that make healthcare more affordable because ultimately, that’s a very big issue in health care today."

The nation’s population is getting older, needing more medical care, and the drive to lower healthcare costs -- trends that show no signs of abating -- are driving the demand for this commercial real estate sector, according to a recent CBRE report.

"The medical-office market has performed well in recent years, registering a lower peak vacancy rate than traditional office properties during the 2008 recession and showing a steady decline in vacancy since that time," the CBRE report said. "Net absorption has outpaced new supply in 24 of the past 29 quarters, with particularly large imbalances since 2015."

Overall, CBRE forecast that the demand for medical-office buildings will continue to grow, "fueled by continued health care job growth, the aging population, tight market conditions and the relative recession-resistance of these properties." 

Sloan Kettering Opens $185M Montvale Satellite Facility

CoStar News

June 26, 2018 | Linda Moss

Leading Cancer Hospital Completes Repurposing of Office Building

Continuing its expansion into New Jersey, Memorial Sloan Kettering on Monday unveiled its $185 million outpatient cancer treatment center in Montvale, NJ, a facility created by the redevelopment of a former corporate office campus.
MSK Bergen, located at 225 Summit Ave., is the third owned-and-operated satellite location that New York City-based Memorial Sloan Kettering has in New Jersey, with its others in Somerset and Monmouth counties. 
The hospital’s new center, totaling more than 110,000 square feet, is on the site of an office building and land that the hospital acquired for $37 million three years ago from Chambers Street Properties.
Most of the ground floor and part of the second floor of the original office building was renovated and has space for MSK Bergen to expand into, according to a hospital spokeswoman. The building’s prior tenants have included Toys R Us and Teva Pharmaceuticals USA Inc.
MSK Bergen will have 190 clinical and administrative staff members, more than 35 doctors dedicated to cancer treatment, 28 exam rooms, 18 infusion bays, three treatment rooms for outpatient procedures and two linear accelerators to provide radiation therapy. The two-story center also has a 500-space parking lot, with valet service available. 
MSK Bergen will offer services dealing with nearly every kind of cancer care, including chemotherapy and medical oncology, radiation therapy, radiology and imaging services, surgical consultations and pre-surgery testing, neurology, screening services, personalized medicine, access to clinical trials, genetic testing, support counseling and follow-up care.
The center's design and layout was meant to accommodate patients undergoing radiation therapy and chemotherapy, which require multiple visits, according to the hospital. Among those are seating for caregivers and guests, "chair-side technology" allowing patients to control the room’s temperature and lighting, as well as access the internet, cable television and videos for meditation and breathing.

Hines Creates New Partnership Aimed at Senior Housing Investment

CoStar News

June 28, 2018 | Kyle Hagerty

Hines and Sentio Investments' New Partnership Will Target a Growing Part of Health Care Real Estate

A 15-story senior living facility under development with Welltower at 139 East 56th Street in Manhattan.

Hines has created a new partnership aimed at assembling an investment portfolio specializing in senior living and other healthcare real estate related assets. 

Sentio Investments, an Orlando-based investment group with an emphasis on private pay senior living, medical office and post-acute properties, will partner with Hines on the endeavor. 

Sentio has more than $5 billion in experience operating, acquiring and developing healthcare real estate across the country over the past 20 years. When combined with Hines' decades worth of experience and $111 billion in assets, the two firms will begin their partnership as one of the industry's largest players in a fast growing sector of real estate. 

"We feel the macroeconomic and demographic trends provide a compelling opportunity to invest in healthcare assets," said Sherri Schugart, chief executive officer of the Core Fund, REIT & BDC Group, and president and CEO of Hines Real Estate Investment Trust.

The U.S. Census Bureau expects the population growth of individuals aged 80 years old and older to accelerate in the near term, with significant growth through the year 2050. This demand, coupled with the aging of existing senior living inventory, presents an opportunity to invest in high-quality senior living and healthcare real estate. 

"This partnership with Hines allows us to actively pursue a wide range of investment opportunities with our industry relationships," chief executive officer of Sentio Investments John Mark Ramsey said. 

Robert A. Stanger & Co., Inc., assisted with the Hines-Sentio partnership formation.

Construction on One of Charleston's Tallest Multitenant Office Buildings Begins

CoStar News

July 26, 2018 | Clarice King

Eight-Story 22 WestEdge to Attract Top Medical Tenants, Anchor 60-Acre Master-Planned Development Adjacent to City’s Medical District

Construction on what will be one of Charleston’s tallest multitenant office buildings in the metropolitan area commenced within WestEdge, a 60-acre, master-planned development adjacent to the city’s Medical District.

A joint venture that includes Atlanta-based Gateway Development and investor ELV Associates broke ground on 22 WestEdge, an eight-story office complex that will anchor the mixed-use development.

The office building will add vital medical office, research and lab components to the master-planned community that sits next to the Medical University of South Carolina, according to Michael Maher, chief executive of The WestEdge Foundation, Inc., the nonprofit sponsor of the overall development.

David Cole, president of the Medical University of South Carolina, noted that 22 WestEdge will allow the university to collaborate with private industry to create new healthcare solutions, new companies and recruit existing global medical-related companies to Charleston.

To help attract such tenants, the South Carolina Research Authority has already preleased the top two floors of the eight-story tower “to create a world-class facility, including laboratories, which will serve as a catalyst for the attraction of leading life science companies,” said the South Carolina Research Authority’s executive director, Bob Quinn, in a press release.

22 WestEdge is close to 50 percent preleased, with approximately 72,000 square feet of office space, along with 10,000 square feet of street-level retail space, remaining available for lease. Once completed, the office building will total roughly 156,000 square feet.

Some properties within the master-planned WestEdge have already delivered, including the 237-unit The Caroline apartment complex and the 350-unit 10 WestEdge apartment complex, which will include a 45,000-square-foot Publix grocery store on the ground floor. In total, WestEdge will encompass more than 3 million square feet of commercial and residential space.

Lee & Associates currently handles 22 West Edge’s marketing and leasing efforts. Perkins & Will is the project architect, while Trident Construction is project’s general contractor, and Thomas and Hutton is the development’s civil engineer. BB&T provided financing for the development.