Outpatient Health Care Services Driving CRE Income

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Nationally it appears that there is insufficient square footage available to accommodate the significant growth seen in the healthcare real estate sector, with the rate of absorption outpacing new product deliveries, according to Northmarq.

“This has put national occupancy rates for medical office at a historic high,” Colin Cornell, Northmarq vice president, healthcare investment sales, tells GlobeSt.com. “We anticipate a steady stream of opportunities for investors in 2023, including newly developed facilities, new long-term leases on historically vacant MOBs, and retrofits of what were historically retail-oriented buildings.”

Cornell said that like most sectors, healthcare has been in the price discovery stage since interest rate increases began, but values seem to be settling somewhere between 2019 and 2021 levels.

“The investor demand is there, and the question is will owners be willing to meet that demand at the new return buyers requires,” Cornell said.

These investors are best to focus on outpatient services, according to JLL’s most recent Healthcare and Medical Office Perspective, which shows that outpatient sites dominate healthcare services delivery compared to hospital admissions.

Additionally, according to Kaufman Hall National Hospital Flash Report, outpatient revenue rose 8% in 2022, while inpatient revenue was flat when compared to 2021.

JLL’s report said that up to a third of hospital revenue is activity shifting to ambulatory surgery centers, office-based labs, and other ambulatory sites.

“More sophisticated procedures can be done in outpatient settings than possible a decade ago.” Amber Schiada, head of Americas work dynamics and industry research, JLL, said in prepared remarks. “Innovation in care combined with reimbursement pressures are driving a sustained shift to outpatient facilities, and consumer preferences for outpatient care have increased as well, as outpatient facilities are often more accessible or conveniently located. Furthermore, experience shows that outpatient locations are less expensive to build and operate, produce better-quality medical outcomes, and yield higher rates of patient satisfaction.”

Medical Office Space and Health Care Real Estate Producing Income

Allan Swaringen, President & CEO of JLL Income Property Trust, tells GlobeSt.com that medical office space, and healthcare-oriented real estate more generally, will continue to be a key piece of an income-producing, core fund such as JLL Income Property Trust.

“The extremely positive demographic trends driving tenant demand for this sector, combined with the often-long-term leases of tenants who look to serve their local population and often invest heavily in building improvements, create a scenario where owners can generate long-term, stable cashflow,” Swaringen said. “That’s why we have continued to construct a geographically diversified healthcare-oriented portfolio that today is valued at nearly $635 million and totals approximately 1.4 million square feet.”

The Continuum Of Care

Andrew Salmon, chief future officer at SALMON Health & Retirement, tells GlobeSt.com that given the aging demographics, it’s no surprise that we are seeing an explosion in need for outpatient facilities.

“What’s pivotal is the consideration for the continuum of care, as the 80+ population is forecasted to balloon nearly 50% in the next 10 years, and they will require both inpatient and outpatient opportunities as they age,” said Salmon. “Our goal is to establish the continuum of care across the aging population, to ensure that independent and assisted living opportunities exist with convenient, local access to major medical providers, allowing our residents to maximize the outpatient system while maintaining independence.”

Outpatient Services Leads To Higher Satisfaction

Doug King, national healthcare sector lead for Project Management Advisors, tells GlobeSt.com that healthcare providers have been actively positioning outpatient services closer to where their patients reside for at least a generation.

Outpatient facilities typically result in higher patient satisfaction, King said, and the challenges to outpatient facilities presented by telehealth and home healthcare are minimal as many clinical limitations and regulatory challenges exist for these two off-site methods.

“Decentralized ‘brick-and-mortar’ outpatient facilities will continue to grow,” according to King. “A vast majority of care will be occurring in outpatient settings, including urgent care centers, free-standing emergency departments, medical office/doctor offices, and ambulatory care facilities – outfitted to accommodate same-day surgical activities. In healthcare, we say, ‘follow the money’ and The Center for Medicare and Medicaid services are reviewing how reimbursement strategies can promote this model. An example is the growth of OBL (office-based labs) to house sophisticated surgical and imaging services performed on an outpatient basis.”

Developing, Rehabbing, Modernizing Facilities

Mitch Creem, principal of GreenRock Capital, tells GlobeSt.com that investors have always viewed medical office buildings as safe investments during uncertain financial times, primarily due to their historically proven resiliency during market downturns.

“But now, 75 years after the Boomer generation was born, we are expecting a ‘gray tsunami,’ fueling the need for additional healthcare services and many more sites of care,” Creem said. “Physicians, hospitals, real estate investment funds, and individual investors are all keen on developing new sites or rehabbing and modernizing existing buildings to provide state-of-the-art care and attract new patients.”

Deliver Care In Outpatient Settings More Economical

Brian Edgerton, senior vice president, healthcare services team – NAI Hiffman, tells GlobeSt.com that after historic growth in 2021-2022, the sector is not without headwinds.

“It saw rising cap rates and fewer starts and deliveries at the end of 2022,” Edgerton said. “In 2022, healthcare real estate developers kept busy delivering modern medical office buildings to accommodate health systems and large multi-specialty practices, including those seeking to consolidate multiple specialties under one roof in highly visible, patient-proximate locations. At the same time, developers are feeling the squeeze of construction cost increases, supply chain delays, and interest rate hikes, all of which are reflected in the higher rental rates that must be charged to make these deals pencil out. Yet, even if they’re paying more today than they would have a year ago, it is still more economical and efficient for providers to deliver care in outpatient settings, many of which are located in close proximity to where their patients live and work.”

Edgerton said that like retail, healthcare increasingly follows rooftops, so services are moving closer to the patient thanks to technological advancements that can more easily be implemented in newly developed and repurposed buildings, rather than the medical office building of 30 years ago.

When Choosing Project Sites, Demographics Matter

Craig Gambardella, vice president at TSCG MD, tells GlobeSt.com that clients understand that their property, and a potential fit for an outpatient healthcare facility within that particular property, is crucial in their decision-making.

“You must look at demographic, psychographic and prevalence of diseases in certain trade areas, and 5- to 10-year projected growth of not only disease prevalence, but how that translates to outpatient demands to help health systems forecast potential growth,” Gambardella said. “For example, the owner of a large mall that is looking to repurpose a portion of it into medical must accurately forecast the demand in that area for an outpatient facility, what types of clinical services may be needed, based on disease prevalence and 5- to 10-year projected growth.”

A Continued Extension Of Outpatient Services

Rich Steimel, senior vice president and principal in charge, healthcare, New York, at Lendlease said that throughout the industry, more procedures are taking place away from the main clinical facilities as there is a continued extension of outpatient services across metro areas and into the suburbs.

“This shift allows hospital campus operations a greater opportunity to expand and connect with a growing base of patients who require critical care but desire the convenience of off-campus facilities,” said Steimel.

 

Source: GlobeSt.

Children’s Health And UT Southwestern Plan New $2.5 Billion Dallas Pediatric Medical Campus

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Children’s Health and UT Southwestern Medical Center are in the planning stages of a new pediatric campus in Dallas.

The two entities estimated a $1.6 billion construction budget and a total project cost of $2.5 billion, according to original solicitation documents obtained by D CEO Magazine. (The project was first reported last year by the website Strategic Partnerships Inc., which follows large procurement projects across the country.)

The hospitals released the solicitation documents seeking contractors in January 2022 and had a goal of completing the project by 2028, according to the original solicitation.

“The University of Texas Southwestern Medical Center and Children’s Health System of Texas, on behalf of the Joint Pediatric Enterprise, are soliciting statements of qualifications for selection of an Architect/Engineer firm for the New Pediatric Campus,” the executive summary reads.

The documents describe a new pediatric hospital with 532 beds, an emergency department with 90 bays, more than 90 newborn intensive care unit beds, and services to support a new labor and delivery program with approximately 30 beds. Neither health system responded to an email requesting confirmation of those specifics. Because the project is in its early stages, the specs are likely to change. The existing Dallas main campus has 490 beds.

In an internal email to UT Southwestern staff last fall, President Dr. Daniel Podolsky mentioned the new campus among other developments in the works at UTSW.

Dr. Podolsky wrote: “The planning for the new pediatric campus will accelerate as our joint pediatric experience enables our two organizations to work together to provide care to children and support their families. The new hospital and expanded ambulatory services will advance our pediatric care strategic plans and strengthen our longstanding partnership with Children’s.”

An agreement with a vendor was supposed to have been executed last May, and an 18-month planning and design process was set to commence last June. According to the UT Southwestern supplier bid portal, that RFQ has been awarded. A UT Southwestern spokesman did not respond to an email requesting comment on “design and other related services for a new children’s hospital in Dallas” on Monday.

Children’s Health and UTSW released a joint statemen that read: “Our joint pediatric enterprise is always pursuing opportunities to bolster capacity to provide care in response to record population growth and demand for pediatric specialty services in North Texas. To meet these needs, we are exploring a possible new pediatric campus. Specific details on a project of this magnitude are not final, or approved, and may not be for some time. We look forward to sharing accurate, finalized, information with the community if it is approved by both our institutions and associated boards.”

According to the original timeline in the documents, “schematic design documents” were supposed to be presented to the Board of Regents for approval next month. Final “design development documents” were to be submitted to the regents in August, and construction was originally planned to begin next year. A new timeline for the project was not immediately available.

The original solicitation documents also say that the new facility is set to replace all the services offered in the current hospital and bring services from other facilities to the new campus. The project description included plans for a new master plan for the campus, an administrative building for clinical and support staff, an ambulatory care facility with 250 exam rooms, a utility plant to support the campus, at least one parking garage with 6,500 spaces, and other infrastructure elements. Whether these details make it into the final plans is yet to be determined.

Children’s Health was founded in 1913, growing and expanding into its location in 1967 with 130 beds. In 2008, Children’s approved the construction of a campus in Plano, which now has 72 beds. In 2014, the organization rebranded to Children’s Health. It currently serves 800,000 visits annually.

The hospital is unlikely to be built in the exact location of the existing campus to avoid any interruptions in service, but the joint venture with UTSW makes the new site likely to be located somewhere in the Medical District. The area has several open spaces, especially north of the current campus near Inwood Boulevard and Harry Hines Boulevard. Final design plans have not yet been approved.

The Medical District has been bustling with construction projects. In December, the state broke ground on a new psychiatric hospital across the street from the Children’s Health Dallas. The project received $282.5 million from the state, and Children’s Health donated $200 million to support a pediatric psychiatric wing. It will have 296 beds, with 96 reserved for children. That state hospital is set to finish construction in 2025.

A Texas Public Information Act request to review documents related to the new pediatric hospital submitted has yet to be fulfilled by UT Southwestern.

 

Source: D CEO Magazine

The St. Joe Company, Tallahassee Memorial Health Care And Florida State University Break Ground On New HealthCare Campus

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The St. Joe Company, Florida State University and Tallahassee Memorial HealthCare celebrated the construction kickoff Tuesday, January 17, 2023 of a health care campus in Panama City Beach that will bring together clinicians, researchers and students to better serve the medical needs of the Florida Panhandle.

The FSU Health-Tallahassee Memorial HealthCare Medical Campus will be located on an 87-acre parcel of land just minutes from the Latitude Margaritaville Watersound community, St. Joe’s 55-plus community that recently sold its 1,000th home.

“Today’s celebration represents a very important step forward for our community,” says Jorge Gonzalez, President and CEO of The St. Joe Company. “This medical campus, backed by the expertise of Tallahassee Memorial HealthCare and Florida State University, is a crucial element for supporting the health and well-being of residents and visitors in every stage of life. It also has the potential to create synergistic opportunities between research, education, and clinical delivery, to enhance quality of life throughout the region and beyond.”

Development plans include an 80,000-square-foot medical office building scheduled to be complete in 2024. This medical office building is planned to ultimately house TMH Physician Partners – Primary Care, Tallahassee Memorial Urgent Care Center, an ambulatory surgery center, as well as cardiology and orthopedic services. Plans include a 100-bed hospital with an emergency center and other inpatient services, including surgery, cardiology procedures and imaging, expected to be completed in 2027.

The project will also include opportunities for FSU researchers focused on aging and digital health, as well as residency programs and educational rotations for FSU medical students.

“Today’s construction kickoff comes at a pivotal time for TMH as we celebrate our 75th anniversary this year,” said Mark O’Bryant, President & CEO of TMH, which serves a 21-county area in North Florida, Georgia and Alabama. “We have grown from a small, city-owned hospital into a comprehensive healthcare system. As the population in our region increases, TMH has identified a substantial need to expand healthcare services. Over the past seven and a half decades, we’ve built a reputation for excellent, compassionate and local care, and we are proud to now offer our services to the Panama City Beach communities.”

Over the past several years, Florida State University has been growing its health research portfolio while also pursuing partnerships with major health care systems such as TMH and others. It’s also increased opportunities for students through its College of Medicine, opening a physician’s assistant training program, and is welcoming the first cohort of its new doctoral program in nursing at the College of Nursing this fall.

“FSU has long enjoyed being a part of this community through our Panama City Campus,” said FSU President Richard McCullough. “Now, we’re looking forward to expanding our presence and continuing to serve the residents here through this health care initiative. Research universities can play an important role in a vibrant health care delivery system, and FSU looks forward to playing that role right here in Bay County. This area is experiencing an incredible boom in population and the possibilities — and needs — have never been greater. There are tremendous opportunities for collaboration on research, education, and clinical health care across the region — and I’m excited that it begins right here with this medical campus.”

The university also plans to break ground on the FSU Health Tallahassee Center on the TMH campus later this year with the support of a $125 million appropriation from the Florida Legislature. Gonzalez, O’Bryant and McCullough were joined at the groundbreaking by U.S. Rep. Neal Dunn, R-FL, and Panama City Beach Mayor Mark Sheldon as well as TMH Vice President and Chief Health Operations Officer Andrew Starr and other local officials from the Bay County area.

The project has generated considerable interest in the Florida Panhandle and throughout the state. Estimates show that Florida will have a shortfall of 4,700 primary care physicians by 2030 and 60,000 nurses by 2035. At the same time, the state is growing. Florida was the fastest growing state last year, with a population growth of 1.9%.

“Because we are a nonprofit, community-based healthcare system, we recognize that TMH is a community asset that drives the health of our region’s residents,” Starr said. “As we grow, we remain dedicated to the sacred trust given to us by our patients to care for them when they need it most. This is why we are developing strategic partnerships throughout the region and investing in the most advanced lifesaving technology. We are building the best-in-class healthcare system our region deserves.”

View photos from the Construction Celebration here.
View a video of the Construction Celebration here.

 

Source: BusinessWire