How Venture Capital Funding Could Give Office A Much-Needed Boost: Healthcare/Life Science Sectors Gained 20% Of Global VC Investment

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Hiring data across hundreds of firms that received venture capital-backed funding may provide a clue into how those cash infusions will impact CRE, according to a new report from Newmark.

The 500 US firms Newmark analyzed and cross-referenced against LinkedIn data raised a total of $44.9 billion and posted 22,582 job openings since April 2021, translating to about 3.4 million square feet of CRE demand. That’s about 7,500 square feet of demand for every $100 million raised, if you assume 150 square feet per worker. If you assume 200 square feet per worker, that equates to 10,000 square feet of demand per $100 million raised. But Newmark analysts say these numbers are likely “considerably lower than the reality.”

Here’s why: according to LinkedIn, about 85% of jobs are filled by networking, and not every company uses the platform to find candidates. And what’s more, the survey occurred in early July, meaning some of the companies funded since April have already filled open jobs.

“Total employment growth from the sample set is likely anywhere from 30.0% to 50.0% higher than what the job postings data suggests,” the report notes. “This means that even using a ratio of 10,000 square feet of demand for every $100 million raised is likely far below the reality, possibly by half. Anecdotal evidence shows the ratio is likely something closer to 25,000 square feet of demand for every $100 million raised, but a number that is easily and logically defensible is a minimum of 15,000 square feet per $100 million raised.”

So far this year, $315.3 billion in new VC money was raised globally, with $166.4 billion raised in Q2. Prior to the pandemic, annual VC investment had averaged around $164.1 billion annually. The B2C and healthcare/life science sectors have gained the most market share and account for about 20% of global VC investment each.

The US is the dominant market for new VC investment, according to Newmark, and accounts for more than half of all funds raised, followed by China. Since the first half of the year, VC funding in the US has been focused mainly on artificial intelligence, fintech, TMT, SaaS, and big data.

“Under normal circumstances, these numbers would suggest a commercial real estate boom in the making, at least within markets where there is a heavy tech focus,” the report states. “They still do, though it will be tempered by the pandemic.”

 

Source: GlobeSt.

Trends And Challenges To Watch In Post-Pandemic Health-Care Construction

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A year ago, predictions indicated a spike in health-care construction planning and development across the country.

However, the post-COVID-19 shift is trending away from the traditional model to an emphasis on outpatient care to offload pressure from hospitals’ main campuses, according to Richard Simone, CEO & president of Central Consulting & Contracting, a construction management and general contracting company that specializes in health-care facilities.

In an interview with Commercial Property Executive, Simone explains why health-care construction is trending toward smaller outpatient care facilities and clinics and discusses challenges within the sector.

CPE: How has the initial health-care construction model changed since the onset of the pandemic? 

Richard Simone: The factors causing changes in health-care construction are largely due to labor shortages, limited or slow-to-get resources and new operational requirements. Since the start of the pandemic, we continue to do more tracking of workers and data logs on construction sites. For example, we’ve implemented contact tracing logs of when workers enter and exit work sites, temperature checks, cleaning logs, social distancing, no gathering for breaks etc., some of which affects the length of time now needed to complete certain projects.

Also, supply chain issues with closed factories due to COVID-19 have affected completion times and many of the issues persist as manufacturing struggles to keep up with demand, and attract and retain the workers required.

During the height of the pandemic, we saw the need for rapid deployment of resources to build emergency bed units on very short notice, which required a total integrated project delivery approach. Because of the speed in which it was done and the necessary collaboration, we are starting to see more property owners and project decision makers who want to explore this delivery method on their regular projects, not just emergency.

CPE: What is fueling change in health-care construction?

Richard Simone: Projects that were on hold during the pandemic now need to get online as quickly as possible. As such, clients are considering ways to speed up the process via design assist, design build and/or off-site manufacturing. While these options have been around for a fairly long time, adoption has accelerated due to their proven efficacy during the pandemic.

In terms of COVID-19-influenced design, where possible, hospitals are considering the creation of a mass casualty incident entrance at the emergency department. Basically, adding a third entrance to the ED, in addition to the regular walk-in and ambulance entrances, would allow patients to be quickly triaged and separated, moving infected patients into the MCI/COVID-19 unit.

Also, the redesign of waiting areas has increased to allow for social distancing, more room between chairs, low-height walls with glass separation panels, more compartmentalization and minimal wait times. There are also design changes happening in ways most lay people can’t see, such as catering to the need to add more ability or flexibility to change air flows to decrease the spread of future viruses. Many health-care systems now require larger, more robust, high-efficiency particulate air filtration systems, with MERV 16-level protection which captures more than 95 percent of particles within a specified range.

CPE: What types of health-care facilities are we starting to see more often and why? 

Richard Simone: We are starting to see much more activity for behavioral health facilities. Before the pandemic, there was a great need and after the pandemic there will be an even greater need. Substance abuse has been on the rise since the pandemic, as COVID-19 and post-COVID-19 anxieties are all real issues many people are dealing with. Treating patients with behavioral and mental health needs requires a long-term solution that incorporates brick-and-mortar and telehealth-equipped facilities.

Micro-hospitals—whereby health-care systems are bringing health care closer to its more remote patients in, for example, rural areas—is a rising trend as well.

CPE: Are these impacting main campus hospitals in any way? 

Richard Simone: The rise in micro-hospitals and specialty centers is not impacting main campuses negatively, but rather, they are filling a very important need by supplementing main campus care and reach by providing the support and specialty care that patients need.

CPE: What about telemedicine-influenced spaces? Will these be integrated into construction? 

Richard Simone: We are not seeing a significant increase in telehealth spaces yet, as many facilities are using existing spaces for this purpose. I think specific spaces will need to be designed and built in the future, especially given the fact the 2022 guidelines for design and construction will incorporate specific acoustical treatment requirements for noise reduction, interior noise and speech privacy for telehealth spaces. I believe future design will have to consider telehealth-specific spaces, disbursed throughout the facility, with easy access for doctors and staff.

CPE: What are the infrastructure and operational considerations developers should take into account when building health-care facilities in a post-COVID-19 world?

Richard Simone: Considerations should focus on flexibility, including the ability to quickly change HVAC systems from positive to negative and vice-versa. Developers should also efficiently design in possible surge capacities, which would require the ability to quickly change private patient rooms to semi-private and the option to add more patient beds in urgent cares, ICUs and ED settings.

CPE: What can you tell us about the challenges arising in health-care construction?

Richard Simone: Many health-care systems and facilities suffered a tremendous financial impact over the past 15 months, and as a result, several projects are still on hold. The challenge is getting the systems back to feeling financially stable to get back to planning and building.

CPE: How do you see the sector going forward? 

Richard Simone: We still believe the health-care sector is the strongest market, with the greatest short-term and long-term growth potential. It appears to be rebounding quicker than other sectors. Although not as quick as we hoped, it shows signs of coming back stronger than before.

I believe the government—federal and state—has realized how fragile and out-of-date some of our health-care infrastructures are, and they will make the dollars available for hospitals to expand, upgrade and, in some cases, build replacement hospitals.

CPE: Are there any other trends we should keep an eye on? 

Richard Simone: Not a positive trend, but certainly impactful, is the challenge regarding the shrinking availability of skilled labor, as a large bulk of the workforce is aging and there is a lack of a new generation interested in learning the trade.

 

Source: CPE

Office, Retail Owners Look To Fill Vacancy With Healthcare: It Often Doesn’t Work

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Children’s National Hospital is one of several D.C.-area health systems looking to expand its footprint into more neighborhoods across the region, and it is taking advantage of record office vacancy to find new locations.

“Children’s National used this strategy to lease two floors at the Wonder Bread Factory office building, a Douglas Development-owned property in Shaw that became vacant after WeWork and other tenants moved out,” said Children’s Executive Vice President and Chief Strategy Officer Michelle McGuire at Bisnow’s Mid-Atlantic Healthcare Summit in D.C.

Douglas Development principal Norman Jemal confirmed to Bisnow that Children’s National leased the first two floors of the building, which total around 50K SF and were previously occupied by a nonprofit.

McGuire said the deal is part of Children’s National’s efforts to expand from its main D.C. campus into neighborhoods across the region to give more people convenient access to healthcare.

“The health system also leased 140K SF in the former Discovery Communications headquarters in Silver Spring, and it is opening facilities in Friendship Heights, Columbia Heights, Anacostia, Takoma Park and Prince George’s County,” McGuire said. “We’ve been thinking about needing to be in communities to address gaps in care and access to care and access to specialty care, so that drives the need to have a broader footprint.”

For some health systems, the coronavirus pandemic highlighted the importance of having locations in the community. Howard University College of Medicine Associate Dean for Strategy Outreach and Innovation Michael Crawford said he saw the most successful Covid testing and vaccination sites were ones within neighborhoods, rather than at large healthcare campuses.

“Folks are craving that intimacy between their providers and that’s helping inform how we look at an ambulatory strategy,” Crawford said. “Is that co-location? Yes, co-location is an attractive proposition when you think about how you can array services to meet the needs of the customer. Is that looking at commercial spaces? Yes, you have to take that into consideration.”

Johns Hopkins University & Health Systems Vice President of Economic Development Alicia Wilson said her organization is also looking at commercial spaces as a way to be closer to patients.

“We’re thinking about our growth and thinking about our utilization of leased spaces within commercial buildings, and how we have our patient care be closer to our patients and repurposing our facilities at traditional hospital centers for those things that must be done at the hospital site,” Wilson said.

The prospect of leasing to health systems is especially attractive to office and retail owners that experienced rising vacancy during the pandemic. Cushman & Wakefield Managing Director Matthew Sullivan said medical users have increasingly heard from these owners looking to lease space to them.

“A lot of asset classes, office and retail in particular, have had a tough go the last 18 months,” Sullivan said. “The ownership of those asset classes calls the healthcare crowd all the time and says, ‘Can we get medtail, put medical into retail?’ or, ‘Hey, I’ve a got commodity [Class-]B office, and 20% is a couple physicians, can we convert it?'”

While the landlords are expressing more interest, Sullivan said it is often difficult to convert office and retail space into medical use. He said the cost can be so high that the landlord would need to land a large user with a long-term commitment. He cited one example of this, MedStar Health’s 112K SF lease with Beacon Capital at D.C.’s Lafayette Centre in 2015, but he said those deals are few and far between.

“Overall, it’s unlikely those are successful without dramatic changes,” Sullivan said. “All the infrastructure things have to be created, and that becomes really expensive. On the surface it sounds easy: ‘Let’s get medical folks and stick them here, and there’s good parking in this shopping mall.’ But medical is not going to take down a 200K SF old Macy’s. There are a few cases across the country, but overall it’s more challenging.”

“Landlords that try to put medical users in the same building as traditional office tenants often find the two are difficult to mix,” Anchor Health Properties Vice President of Investments Elliott Sellers said. “We made the conversion bet selectively across the country, but you need to go into it assuming that your commercial tenants are likely going to leave,” Sellers said. “Those two uses don’t really coexist all that well when you have a law firm in one floor and you have sick patients sitting in the lobby. In all four of those cases, we’ve had almost all of our commercial tenants leave.”

Sellers said office landlords are better off bringing in medical real estate experts and trying to market the full building to healthcare users, but he said the conversion projects aren’t easy to execute.

“You layer in the complexities of design and mechanical systems and layout, and I think there’s probably more losers than winners when it comes to conversion, not just in D.C., but broadly,” Sellers said.

Douglas Development, which leased the first two floors of its Wonder Bread Factory building to Children’s National, is planning to fill the top two floors of the building with coworking office users.  The landlord is rolling out its new in-house coworking concept, The Mark, on the former WeWork floors of that building and two other D.C. buildings WeWork vacated in October, the Washington Business Journal reported. Jemal confirmed the plans to Bisnow and said he thinks Children’s National and the coworking space will fit well together in the building.

“We were able to secure Children’s Hospital, which is a great tenant, it fits in great for the neighborhood, and it serves the community,” Jemal said. “The days of everybody wearing a suit and tie in an office building are the days of yesteryear. Everybody needs to see a doctor at some point — that’s just the reality of life — and where better for it to be than in the community?”

Health systems are also looking to locate within mixed-use developments that have apartments, retail and other uses. Whitman-Walker just broke ground on its new healthcare facility on the St. Elizabeths East campus in Congress Heights. Whitman-Walker CEO Don Blanchon, speaking at the event, said his team has focused on how to integrate the facility with the rest of the development to make it a space that feels like part of the community.

“At St. Elizabeths, we’re going to do a bunch of workaround healthcare, there’s going to be a bunch of services there,” Blanchon said. “The real issue is: What’s going to bring the community in? How do we think about that space, what do we do for activation on the ground floor? What do we do for engagement? What do we do on the outside of the space? In dealing with our partner Redbrick, there’s been a lot more thought about this sense of community ownership and activation. Ten years ago, we just didn’t spend as much time on that.”

 

Source: Bisnow