South Florida Is Changing, And So Is Healthcare Construction

As people flock to South Florida, demand is rising for new construction in housing, transportation and healthcare.

But in the face of supply chain challenges, escalating prices and a tight labor market, experts in the field believe the success of new projects hinges more than ever on timely decisions and collaboration.

“There’s been a 180-degree shift over the past few years,” says Operations Manager Johnathan Peavy at Robins & Morton’s Miami office. “In the early days of the pandemic, supplies, material and even labor were readily available. We anticipated some supply chain issues due to the pandemic, but no one anticipated the ‘Texas Freeze,‘ which compounded the supply chain woes. Along with secondary shutdowns to heavy manufacturing markets, these have created a title wave of supply chain issues.”

Staggered factory shutdowns have left lingering backlogs of construction supplies, from electrical components to building materials. The problems are compounded by the ongoing supply chain issues and a very tight construction labor market, with cost escalations increasing budget volatility.

At Robins & Morton, supporting clients in a changing market is a top priority – and that process starts on day one with a commitment to transparency and collaboration.

“We want to be available to help every step of the way; not only in building, but in budgeting, scheduling, procurement and approval,” says Peavy. “Making smart choices about which materials to use and when to order them. Or helping the client plan for volatility in the market – for example, carrying over a percentage of the budget each month to be ready for inflation or price hikes.”

The firm’s collaborative approach serves as an essential strategy when the company faces uniquely challenging projects – such as rebuilding Baptist Health Fishermen’s Community Hospital in Marathon. That same strong communication is key to overcoming market challenges at Robins & Morton’s projects across South Florida, including Jupiter Medical Center’s Surgical Institute Expansion, BHSF Boca Raton Regional Hospital and University of Miami Health System.

“There’s no one-size-fits-all solution,” adds Senior Project Manager Edwige Clark. “It’s about looking at the data you have and trying to spot risks and potential pitfalls before they happen – but the more you can communicate, the more effective all parties can be. We’re navigating this together.”

Those close partnerships help futureproof healthcare facilities. Often, that starts with designs that can significantly reduce the environmental footprint and utility costs. For tropical and coastal environments like South Florida, structures need to withstand humid environments, heavy winds, and potential flooding, and hospitals must remain operational to serve patients during hurricanes or other natural disasters.

“At the end of the day, we’re doing more than meeting parameters. We’re building for people: for healthcare workers, for expecting parents, for folks recovering from illness or injury,” says Clark. “When the construction is finished; it’s in the choices we made that will impact those people for a long time.”

As flexibility in work and transportation allows people to move “where they want to live” and not only “where they need to live,” South Florida is a key destination. An influx of new residents will fuel growth and new developments, which will include healthcare facilities to serve the growing population.

“If so, South Florida will be ready,” says Peavy. “Over the next three to five years, it’s likely the region will continue to grow – and with it, the cycle of new construction. But we’re rising to meet that demand with strong partnerships, new talent and strategies that will help our clients adapt in the years ahead.”

 

Source: South Florida Hospital News

MOBs’ Transaction Volume Slows In Q2 2022 But It’s Hardly a Hindrance

A slight slip in medical office transactions in Q2 2022 compared to Q2 2021 levels is not indicative of the continued interest and investment in medical office real estate.

In 2022, according to Q2 Medical Office Market Update from Brown Gibbons Lang & Company (BGL), medical office buildings and ambulatory surgical centers will continue to emerge as the “most attractive assets” within the industry.

“Demand for outpatient clinics continues to increase due to advancements in medical technologies, patient preferences, and financial incentives,” according to BGL’s report. “In search of a stable investment option, we predict more institutional and retail investors will direct capital toward the medical office market for the remainder of 2022.”

Christopher Cumella, co-founder, Cypress West Partners, tells GlobeSt.com that capital markets have paused with the uncertainty in the market, particularly in terms of debt.

“As long as that remains uncertain transactions will be slower,” Cumella said. “Especially when coming off records years it will feel even slower. The Fed’s monetary policy is creating a bid-ask spread between buyers and sellers, which might need some time to close that gap.”

A ‘Red-Hot’ Past Decade

Michael Dettling, Principal, Healthcare Real Estate Services, Avison Young, tells GlobeSt.com that the medical office market has been red-hot for both institutional and private investors for the past decade. Investors are drawn to the steady performance of medical offices with low vacancy, strong tenant credit, long lease terms and low tenant turnover resulting in high property valuations.

“Medical office sales slowed a bit in Q2 2022 with the rise in interest rates and following a torrid end of 2021 which likely pulled some sales forward resulting in a weakened first half of 2022,” said Dettling.

Dettling said another factor for the strong sales late in 2021 was the pent-up demand for deployment of capital following the weak COVID-period sales.

“With medical office values remaining high and cap rates compressed, sales will moderate for the next 12 months as investors monitor the economy and rate movement,” Dettling said.

Medical Office ‘Proven’ Resilient

Mitch Creem, Principal at GreenRock, tells GlobeSt.com that investors have always seen medical office buildings as a haven during uncertain financial times, primarily due to their historically proven resiliency during market downturns.

“There are many medical office buildings today still owned by physician groups or syndications looking for capital partners to help finance property upgrades and modernization,” Creem said. “In many cases, physicians are eager to monetize their real estate equity holdings to provide dividends to those groups or provide funds for succession planning and retirements. Similarly, many U.S. hospitals own medical office buildings on or near their campuses, but those assets are in need of major improvements to attract and retain physicians and patients. Partnering with real estate investment trusts and funds to obtain capital for those updates is crucial today given declining hospital profits and cash flows.”

Creem said, additionally, these MOBs will remain desirable investments in light of the continuing growing aged population and a shift of medical care toward lower-cost outpatient settings.

Average Price Per Square Foot Increased

BGL reported that medical office properties accounted for 22.8% of Q2 2022 office transactions—down 3.1% from the same quarter last year.

Year-over-year transaction volume dropped to $2.94 billion from $3.28 billion, a 10.4% decrease. There was a 20% increase in the average price per square foot ($356) from a year ago.

Real Estate Investment Trust (REITs), private equity, and institutional investors continue to raise and deploy sizable capital into the commercial healthcare real estate industry space.

Residents Seek Services ‘Closer to Home’

CommercialEdge’s manager Doug Ressler tells GlobeSt.com, that according to Yardi’s most recent data, more than 16 million square feet of properties that include some types of medical offices are currently under construction.

“Furthermore, as the U.S. population is aging, demand for MOBs is poised to grow in the coming years, especially in suburban centers, where residents will seek services closer to home,” Ressler said. “We are getting more calls from investors in other segments of real estate looking to pivot into medical office due to trends we are seeing in the general office. We are wondering if more competitive bid environments could keep pricing steady,” Thomas Allen, founder and CEO of Practice Real Estate Group, tells GlobeSt.com,

 

Source: GlobeSt.