Healthcare Real Estate Developers Are Adapting To A Changing Landscape

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Anyone who has kept an eye on the healthcare real estate sector over the past several years is aware of the property type’s reliability amidst increasing economic uncertainty, which has resulted in growing interest among investors.

However, for what has become one of the hottest investment sectors in recent years, transformations underway within the healthcare industry will bring changes to the asset class over the next decade.

The market fundamentals are easy to understand. According to a recent report from Real Capital Analytics, United States-based healthcare real estate assets account for over $1 trillion in market value. Physician visits by baby boomers are expected to nearly double in the next decade; it is also projected that by 2060, one in four people will be over 65 years old. These factors make it clear that this already large market is positioned for continued growth.

However, in crowded regional healthcare markets like Philadelphia, which features several large competing healthcare systems and a variety of growing specialty networks, that growth will not just be more of the same.

Changes in Delivery

Traditionally, the American healthcare delivery model centered on hospitals, which meant that medical office buildings tended to be clustered near hospitals and other large inpatient medical facilities. These facilities were easy for doctors to access and provided enhanced services close to individuals’ primary points of care.

In recent years, the healthcare delivery model has undergone a dramatic shift, with outpatient and ambulatory facilities becoming primary points of care. This trend has unfolded almost simultaneously with the wave of consolidations and mergers that has swept through the industry in the last decade.

Working in tandem, these two trends have created a healthcare industry that is dominated by large healthcare systems searching for enhanced geographical footprints to better and more conveniently meet the health and wellness needs of the populations and communities they serve.

Key User Demands

Real estate plays a key role in a healthcare system’s ability to make quality care more accessible. As such, the demand for well-located, quality space continues to rise, attracting a greater number of investors than in prior years

Although location still plays a vital role in healthcare real estate investment, the criteria behind what makes a location desirable has shifted. Since medical buildings no longer need to be immediately proximate to hospitals, today’s best locations are those where people already are living, shopping and working. Whether this comes in the form of a purpose-built medical office building in the heart of a growing community or a retail location next to popular cafés and shopping destinations, today’s healthcare consumers prioritize convenience above all else.

Visibility is also playing a larger role in site selection for new healthcare projects. Expanding networks want their names out in the market, and they want people to be aware of their presence in the local community. This “retailization” of healthcare is highlighted by many medical office tenants’ requirements for signage and high visibility in their search for space.

Flexibility is also a main factor in today’s marketplace. Physician groups and healthcare systems require spaces that can accommodate the shifts in how care is delivered while also provide the flexibility to cater to telemedicine and other technologies that are transforming how people access care.

Project Example

Just outside of Philadelphia in Washington Township, New Jersey, the 35-acre Washington Square Town Center development addresses all of the factors discussed above.. With an increasingly cross-generational population and changing delivery model, medical space was a key component to the mixed-use project.

Working closely with Rothman Orthopaedic Institute, one of the region’s largest independent orthopaedic practices, a 40,000-square-foot, state-of-the-art medical office building was created at the gateway to the community that includes multifamily housing and retail options.

The healthcare trend has even been extended to the project’s residential component, with a 110-bed assisted living facility currently under construction to join the 330 residential apartments and 100 townhomes on the property. Today, the Rothman Medical Building stands fully occupied, and the retail component has seen tremendous interest from both medical and traditional retail tenants.

Not only do projects like the Washington Square Town Center allow the community to enjoy increased access to diverse medical services in a variety of settings, they also provide growing regional networks with a highly visible footprint in new communities to foster their continued growth.

Looking to the next decade, the healthcare real estate industry is positioned for tremendous growth. Leading this growth will be the developers and investors who truly understand the needs of an increasingly consolidated healthcare industry and can creatively imagine projects to meet both its short- and long-term needs.

 

Source: REBusiness Online

New Loans Lined Up For Texas Medical Office Buildings

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The owners of two recently built medical office buildings in Sugar Land and the Museum District have refinanced the properties.

American Commercial Contractors obtained a $16.1 million loan to refinance Sugar Land Physicians Center, a 56,063-square-foot medical office building at 7616 Branford Place in Sugar Land.

1of2American Commercial Contractors obtained a $16.1 million bridge loan to refinance Sugar Land Physicians Center, a 56,063-square-foot medical office building at 7616 Branford Place in Sugar Land. CBRE arranged the loan. (PHOTO CREDIT: CBRE)

Dana Summers, Bruce Francis, Bob Ybarra, Shaun Moothart, Doug Birrell and Jim Korinek of CBRE arranged the three-year loan from Money360. The three-story building was built in 2014 near several hospitals, including CHI/St. Luke’s, Methodist and Memorial Hermann.

“The borrower needed to refinance a bridge loan that was coming due, but the property was not in a position for a permanent loan,” Dana Summers of CBRE said in an announcement. “Although occupancy history and stabilization of the property were in flux, our team was able to secure an interim capital solution that would bridge the borrower for a short-term period until permanent financing is placed.”

2of2Houston-based Balcor Commercial obtained a 30-year loan from Principal Real Estate Investors to refinance the 50,000-square-foot Parc Binz building at 1800 Binz St. Berkadia arranged the loan.(PHOTO CREDIT: Berkadia)

In the Museum District near Hermann Park and the Texas Medical Center, Balcor Commercial secured a 30-year loan to refinance the 50,000-square-foot Parc Binz building at 1800 Binz St. Balcor is a Houston-based commercial real estate services provider.

Cutt Ableson of Berkadia secured the 30-year, fixed rate loan through Principal Real Estate Investors. Terms were not disclosed.

“With Houston’s medical office market continuously expanding beyond the boundaries of the Texas Medical Center, well-located assets similar to Parc Binz are primed for additional occupancy while maximizing returns,” Ableson said in an announcement. “Consistent demand, coupled with a long-term life insurance company debt package from Principal provide a compelling hold period for this asset.”

 

Source: Houston Chronicle

Texas A&M To Build $546M Complex In The Texas Medical Center

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The Texas A&M University system just announced that it will spend more than half a billion dollars to build a new complex in the Texas Medical Center.

The $546M price tag will include the construction of two new towers, as well as the purchase and renovation of a third building. Texas A&M has already acquired 1020 Holcombe Blvd., an 18-story building that is undergoing renovations. The building will be used for the university’s two-degree Engineering Medicine program, which will allow students to earn a master’s degree in engineering from Texas A&M, as well as a medical degree from the university’s Health Science Center.

The purchase and renovations are expected to cost $145M, and the overall project is expected to be completed by the summer. In addition, Texas A&M will build two new towers: a student housing project, and a mixed-use development for medical offices and retail. The mixed-use building is an integrated medical plaza. The 30-story, 587K SF building will contain 72K SF of retail space and 8,700 SF of green space, and will also include a 13-story parking garage and a grocer.

“We’re looking for a grocer for this because we’re trying to support our EnMed students and our Prairie View students. This is the catalyst, and have them a nice, safe place to live,” Texas A&M Vice Chancellor of Business Affairs Phillip Ray said at a press conference.

The medical plaza is expected to break ground in the fall of 2021, and completion is slated for June 2023. The student housing project will be a 19-story, 365K SF building with 572 units and 704 beds. It will include a 1.2M SF parking garage with 3,444 spaces. The project is expected to break ground in October, and is slated for completion in June 2022. Both projects will be constructed through public-private partnerships. The combined price tag of the two new projects is $401M.

Texas A&M Chancellor John Sharp told attendees at the press conference that the new complex would help bring the assets of the Texas Medical Center to the rest of the state.

“What we want to do is take the future of medicine, which is embodied in the Engineering Medicine program, where really smart kids are going to become the developers of the medical care technology of the future,” Sharp said.

“We’ve done a little over $2B in P3, privately funded projects during Chancellor John Sharp’s tenure, and this will be the largest one,” Ray said.

Sharp has been chancellor since 2011. The developer of the P3 projects is Medistar Corp. American Triple I Partners, founded by Texas A&M alumni Henry Cisneros, is part of the financing team. EYP led the design of the renovated building, while Kirksey Architecture designed the two new towers. Linbeck Group will construct the two new buildings, while Vaughn Construction is the contractor for 1020 Holcombe Blvd.

 

Source: Bisnow