2021 Health Care Real Estate Year In Review

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This was another dynamic year for the health care industry and for health care real estate, which is demonstrating remarkable resiliency and innovative success in the face of unprecedented challenges.

Below is a summary of a number of key 2021 takeaways and trends that were discussed during our 2021 Health Care Real Estate Year in Review webinar, now available on our podcast channel by clicking here.

Academic Medical Centers

Academic medical centers (“AMCs”) (or health systems affiliated with an AMC) continued to lead large-scale “destination” medical center development projects in 2021. Several multi-billion-dollar projects anchored by AMCs were either announced or broke ground this year in regions across the country. The projects include a range of uses, including new outpatient clinics, ambulatory surgery centers, inpatient hospital expansions and, in some cases, non-medical uses such as housing and fitness facilities. The health care campus of the future is here!

Ambulatory Surgery Centers

Ambulatory surgery centers (“ASCs”) have come into their own with many of the major health systems looking to acquire or form partnerships with ASC owners and operators. This is driven, in part, by payors and patients demanding that more surgical services be provided in lower acuity settings. In 2021, over 200 new ASCs were opened or announced according to Becker’s ASC Review. Florida, Arizona, New York, Texas, Pennsylvania and Michigan topped the list with the most new announcements. In other ASC news, the trend towards convergence of payor, provider and operator continues. A number of for-profit payors and providers have gone on ASC buying sprees this year.

Supply Chain And Labor Shortages

Supply chain disruptions and labor shortages are tempering the pace of health care construction. The staffing, supply and hospital-bed shortages that health care providers and real estate developers hoped were temporary now appear to be longer-term challenges that will reshape hospital real estate and development projects well into 2022. The construction industry is not immune to labor disruptions triggered by ongoing COVID-19 challenges, which is resulting in delays for new hospital and development projects as contractors work to find qualified workers. By one estimate, contractors will need to hire 430,000 more employees in 2022 and 1 million more in the next two years to keep up with the increased project demand. If contractors do not meet those metrics, health systems should expect and plan for delays to their upcoming projects.

Construction industry supply chain challenges, like labor shortages, will continue to impact hospital projects heading into next year. Although demand for new projects continues to be strong, supply chain issues are causing health systems and developers to approach delivery timelines and project cost estimates with an added level of caution. Some of the major general contractors are shifting the risk of delays and cost overruns for supply chain issues to owners and developers. In response to ongoing supply chain challenges, some health systems have begun evaluating the use of a centralized service model using a Consolidated Service Center (“CSC”) to manage certain supply chain needs. Although typically evaluated in the context of operational supply chain needs, the CSC model could be evaluated in the context of facilities planning, as well.

Certificate Of Need Programs

In the wake of the COVID-19 pandemic, with many hospitals at or nearing capacity, many states have either relaxed or suspended certificate of need (“CON”) requirements, triggering significant new facility announcements. In Florida, for example, over $1 billion of new facilities have been announced in the last quarter of this year.

Telehealth

At the height of the pandemic, some experts claimed the physician office visit would be a thing of the past. Now, over a year later, we see telehealth stabilized nearly four times higher than pre-COVID, but not replacing the office visit. Telehealth visits appear to have stabilized at a range of 13% to 17% of visits across all specialties. The specialties experiencing the highest growth in telehealth usage include psychiatry and substance-use treatment. Consumer demand for virtual care solutions, however, continues to be strong. According to an AHA report, between 40% and 60% of consumers want more virtual care solutions, such as a “digital front door” or lower-cost virtual health plans. That said, the regulatory and reimbursement environment for telehealth remains uncertain, giving reason to temper growth predictions for the immediate future.

Hospital-Based Property Tax Exemptions And Government Intervention

Local government is continuing to take aim at nonprofit hospitals and health systems with respect to property tax exemptions and other real estate-related issues. In a widely watched case, a trial court decision in Pennsylvania ruled that three nonprofit hospitals were not tax‑exempt charities entitled to property tax exemption. The ruling has triggered local governments and school districts around the state to reconsider health care- and hospital-based property tax exemptions. In another closely watched governmental action, the State of New Jersey has proposed legislation that would require state approval for the termination of a hospital lease. The legislation, although aimed at one particular hospital, raises interesting issues of governmental authority, and legislation of this type could have far-reaching impacts.

Regulatory Matters

Qui Tam Lawsuits – Litigation under the False Claims Act has been on an uptick under the Biden Administration. The year 2020 saw the largest number of new matters initiated in a single year; and, although year-end numbers have not been released yet for fiscal year 2021, we expect to see that trend continue upwards. OIG self-disclosure settlement data indicates that remuneration and fair market value, together, represent nearly 70% of all cases. Settlement figures continue to be significant, ranging in recent years from $4 million for office leases not complying with the Stark Law up to $93.5 million for a hospital offering free office space to a physician group.

CMS Vaccine Mandate – On November 4, 2021, CMS released its Interim Final Rule (“IFR”) requiring COVID-19 vaccinations for individuals working in Medicare and Medicaid participating facilities, as well as individuals working in certain other settings involving face-to-face interactions with patients. The IFR effective date was December 5, 2021; however, legal challenges have enjoined enforcement in many states. Most recently, in an unprecedented move, the U.S. Supreme Court announced it will hear oral argument on an emergency application on January 7, 2022. The court’s order to hear oral argument on the issue demonstrates the perceived legal and practical importance of the federal government’s IFR.

Health Care Real Estate – Capital Trends

Historically low interest rates for taxable and tax-exempt debt continue to give hospitals and health systems flexibility in financing capital projects. Hospitals are seeing historically low rent factors and, increasingly, are taking more direct financial control of their real estate assets through direct placements and non-traditional financing mechanisms. Capital competition for core, quality, hospital-sponsored medical office buildings continues to be strong in light of supply-side shortages. On the other hand, skilled nursing and senior housing projects are facing a different set of challenges in terms of sourcing equity and debt. In a recent survey from Hilltop Securities, investors expressed the most concern with senior housing and skilled nursing sectors when compared to other industry sectors. This means investors and lenders will continue to take a more conservative approach to underwriting senior housing and skilled nursing projects heading into 2022.

Medical Office Buildings

The Medical Office Building (“MOB”) continues to demonstrate resiliency relative to other asset classes. Based on trading earlier this year, we expect final 2021 figures to show MOB sales volume having bounced back to pre-pandemic or near pre-pandemic levels, especially in sunbelt markets. As health care continues its shift away from inpatient care models, and as the traditional (non-medical) commercial office market continues to experience uncertainty, demand for MOB investment is predicted to remain strong.

Life Sciences

Over the last 18 months, governmental entities and private investors have pumped billions of dollars into the life sciences industry. A CBRE report found investments from venture capital into the life sciences industry last year totaled a record-breaking $17.8 billion through the second quarter of 2020 and anticipated funding from the National Institutes of Health to grow 6% from the prior year ($42 billion total). As a result, the demand for real estate to support that uptick in life sciences work also increased. The amount of laboratory space grew by 12% in 2020, with 95 million square feet of laboratory space in the United States and another 11 million under construction. It makes sense, therefore, that one recent market survey ranked life sciences and biotech as the best risk-adjusted health care real estate opportunity, significantly outperforming medical office buildings and senior housing. Because COVID-19 testing is widely available and vaccine availability is increasing, capital investment for research and development related to COVID-19 and other infectious diseases is likely to continue. As a result, the demand for real estate to support that research and development should also continue.

Medtail

Medtail — a relatively new term referring to the combination of medical and retail — has continued to gain traction this year. As health care consumers continue to seek convenience care options, expect the medtail trend to continue. In 2021, discount retailer Dollar General joined other retail giants like Walgreens and CVS when it announced the hiring of its first chief medical officer who will be tasked with expanding affordable health care services through Dollar General stores, especially those in rural communities.

Senior Housing

After a difficult two years, experts are predicting increased investment activity in this sector in 2022, even with forecasted occupancy levels not reaching pre-pandemic levels until late 2022. Senior Housing News estimates by 2029, there will be 14.4 million middle-income seniors. Providing affordable senior housing will continue to be one of the biggest opportunities and challenges, as 54% of the middle-income seniors will lack resources to pay market senior housing rates according to the same Senior Housing News report. Expect the post-pandemic changes to the senior housing industry to include:

• Hiring new clinical staff and bolstering on-site clinical services offered at senior housing locations;

• Expanding telehealth options for residents to reduce travel to off-site inpatient and outpatient facilities;

• Permanently installing and implementing disease and infection prevention policies and procedures to control future outbreaks; and

• Focusing on active living communities to better balance socialization and privacy, thereby avoiding the isolation many residents experienced during the pandemic.

The COVID-19 pandemic will not only affect the construction and operation of senior housing, but also the location of these facilities. During the pandemic, millions of people moved from large urban areas to less populated locations in middle and smaller markets around the nation. Many of these markets offer a lower cost of living and a warmer climate that may attract aging populations as compared to more densely populated areas. As a result, expect more development in those markets to align with the aging population’s migration trends.

Finally, a number of senior housing developers have started to offer “ultra luxury” senior housing products in certain markets. These facilities often include private chefs, personal butlers and premium design features and are targeting elite members with monthly fees up to $20,000 on top of entrance fees of $200,000.

Skilled Nursing Facilities

Despite a difficult two years and ongoing operational challenges, Skilled Nursing Facilities (“SNFs”) could see some modest relief in 2022; although, it is likely to remain a challenging environment for the near term. Earlier this year, it was announced that nursing homes would receive a 1.2% net Medicare increase for fiscal year 2022 under a proposal announced by CMS, which would result in an estimated $410 million much‑needed financial boost to SNF operators. According to the final rule, due to the ongoing public health emergency, CMS will also suppress the SNF 30-day all cause readmission measure for the FY 2022 value-based purchasing program year.

Social Determinants Of Health; Housing Is Health Care

Social Determinants of Health (“SDOH”) continue to gain traction with hospitals and health care providers. Last year, we reported on focus areas addressing homelessness and affordable housing, with some providers emphasizing “housing is health care.” We saw that momentum continue this year, with a number of major health care-anchored housing investments around the country. At this year’s HLTH 2021 Conference, executives from several major health systems highlighted affordable housing as a key health care intervention strategy. As a relatively flexible and tangible community benefits investment strategy, affordable housing is increasingly popular with hospitals and health systems. The early data on these programs show promising results. A March 2021 analysis of one hospital system’s affordable housing program, which includes over 800 affordable housing units, found a social return between $1.30 and $1.92 for every dollar spent operating those units. There is still a dearth of research about the social and economic returns of affordable housing and other social determinants programs, but expect more providers to invest in these types of programs if future data supports results like the March 2021 study. At the federal level, the Aligning for Health Consortium was successful introducing the Social Determinants Accelerator Act of 2021, a bipartisan bill designed to help states and communities develop strategies to better address SDOH and improve health outcomes.

 

Source: Lexology

Look Who’s Investing In Healthcare

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Commercial real estate has been in a whirlwind.

Industrial properties are incredibly hot—and expensive with subterranean cap rates. Multifamily is nearly as in demand, but many keep wondering if the end of federal Covid unemployment assistance combined with significant unemployment and the Delta variant could pull a rug out from under the sector.

You could look at the office and wonder when companies will be fully back; retail and remember e-commerce continues to grow; self-storage and ask when demand could max out; or you could look for a different investment prescription.

Medical real estate has a lot going for it: an economic sector that represents 17.7% of U.S. GDP, tenants with high credit and financial strength, and a customer base for which services are a literal matter of life and death.

“There’s always been investors with a healthcare strategy,” Andrew Twito, vice president of capital markets at Ryan Companies, says. “In the last 12 to 18 months, essentially every type of investor has been evaluating the sector. What they’re finding now is it’s an attractive place to deploy capital because it’s a defensive sector during a recession. People still get sick, they still have to go to the hospital, and they still have to get treated.”

Medical also means following big changes in healthcare delivery and structures and facing popular distrust in skilled nursing and elder care segments. Opportunity, for those who want to jump in, needs some preparation and a reexamination of the landscape.

Transformation Of The Medical Office

“Medical office is doing well,” Bo Stuart, a senior associate at Transwestern’s Southeast healthcare advisory services team, tells GlobeSt.com. “It started coming out of the pandemic earlier than certain product types and there was less uncertainty.”

The cap rates are relatively good compared to, say, threes in industrial.

“I’ve seen anywhere from stuff in the fours to a lot of stuff in the fives,” says Ben Reinberg, founder and CEO of Alliance Consolidated Group of Companies. “You have short term leases that trade in the sixes and sevens.”

Investment rewards are nothing new to those with experience investing in the sector. John Wilson, president of HSA PrimeCare, points out that the medical office building, or MOB, sector performed well in the financial crisis of 2008 through 2012.

“It not only remains strong, but I think the pandemic has accelerated the growth and number of investors and it’s brought new capital because of some of the fundamentals of the space, comparing it to general office,” Wilson says. “General office is still facing the uncertainty of employees coming back, when they’re going to come back, how many are going to come back. Medical office shows more clarity in long-term demand.”

This hasn’t been a surprise to those like Robert Atkins, a principal at Atkins Companies, whose multigenerational family firm, with 700,000 square feet of medical office space, was in MOB “way before it was considered a separate asset class.”

“Having a lot of different asset classes through the years, residential, retail, general office, we decided years ago to focus almost exclusively on medical office,” Atkins says. “We believed it was one of the most attractive and stable asset classes in our experience through the various peaks and valleys of the real estate market.”

However, for all the benefits, this isn’t a market to nonchalantly enter.

“Healthcare is a very complex industry,” says Alfonzo Leon, CIO, Global Medical REIT, who has been in the space since 2005. “The thing that always stood out for me when I compared it to apartments or office or retail, it takes a long time to make sense of the healthcare landscape. Apartments are pretty straightforward, with a lot of demographic analysis. In healthcare, you also have demographic analysis, but it’s more complex. There are relationships between hospitals and physicians, payment issues, a lot of regional stuff, each city has its own dynamic and history. Then you get into the insurance companies. I felt like it took me five years to feel I understood what I was looking at and what the risks were.”

For example, demographics will direct which types of practices will thrive in specific areas. As the dynamics of the relationships change, so do the fundamentals of associated real estate investment.

“If you go back 20 or 25 years, you had mom and pop practices,” says Wilson. That is increasingly rare.

Atkins has watched the evolution of single practitioners getting swallowed up by larger medical practices or hospitals.

“It’s almost impossible now for a young doctor to come out and hang his shingle,” Atkins says, because the economics are unfeasible with student debt, insurance, and the cost to buy or establish a new practice. “The only single practitioners and single groups you see are the old timers finishing out their careers and who don’t want to get involved with the larger groups.”

Where once the primary tenants for medical offices were small practices, now it’s large-scale medical systems, hospitals, and private equity groups acquiring specialty practices.

“We’re in North Jersey in Essex county,” Atkins says. “Our home office is in the building but we’re the only non-medical office.” The tenant next door was an oral surgery group of four doctors, with multiple locations, reaching retirement. “They sold out to a younger oral surgeon, an aggressive guy buying a bunch of these practices, and he just re-upped on a new 10-year lease. This group of doctors had a strong reputation.” The young doctor wanted to keep it.

But such examples are minor compared to the larger healthcare industry forces at work, which are visible in both leasing and construction.

New Developments And Leasing

“There’s a backlog of projects,” says Doug King, national healthcare sector leader at Project Management Advisors. “Healthcare, there’s a backlog of projects that were probably already on their radar.” “What clients are building are the outpatient or ambulatory care facilities being planted in neighborhoods in urban areas. They’re outpatient services, but also have diagnostics or treatments that are fairly sophisticated. There’s a fair amount of money out there for community health and public health.”

There are even moves to have some overnight beds.

“They’re allowing observation beds in some areas so you’re able to do them in a lower cost structure and keep the patient safe,” says William Colgan, a managing partner at CHA Partners.

The same pattern appears in leasing, as large organizations set up treatment centers that are far less expensive to run than traditional hospitals but with enough resources to provide more expansive care than clinics.

“You see money migrating to those types of facilities,” Colgan says. “Smaller types of office buildings are less attractive. The larger, consolidated healthcare services under one roof for convenience is where you find money chasing. What used to happen in healthcare, every doc was an entrepreneur. We have a whole new generation of docs that are all employees.”

The change in healthcare delivery—due largely because of the complexities and realities of much more “risk-based reimbursement” of providers, as Colgan notes—has changed what potential tenants want in buildings.

“The old-style medical office building had small suites,” says Mindy Berman, senior managing director and co-head of JLL’s healthcare capital markets group. “Some of them are in good real estate locations and will be adapted, not that hard. These newer models need more infrastructure.” Heavier equipment requires more floor load and power.

Even the number of columns, column spacing, and floor to ceiling height become important.

“If you get an eight or eight-and-a-half foot ceiling, it’s somewhat confining,” HSA PrimeCare’s Wilson says.

More space also reduces the anxiety levels of patients, improving the experience and presumably making them more likely to come back rather than to choose another facility.

Skilled Nursing And Senior Care

There are long-term forces at work in skilled nursing and senior care as well, but also shorter-term reactions to pandemic experiences. Think of all the stories about nursing home residents dying from Covid-19.

“Every two to six weeks you see a New York Times story about nursing homes,” says Don Husi, a managing director of privately-held investment bank Ziegler, which does a lot of work in healthcare and senior living. “There’s a group of people out there doing their best to give our industry a bad name without outlining the good things we’re doing.”

Husi and some others in that part of the industry thought that ultimately the criticism was forced and ignored the origins of the problems.

“No one knew where the numbers were going to go, and you can’t discharge somebody out of a hospital to nowhere,” Colgan says. “If you receive them from a nursing home, where do you discharge them to? The governor’s mandating you send people back to free up beds. No one knew how long these people could infect other residents. The most vulnerable people were the ones affected by covid and we cohort the most vulnerable into one facility. It’s unclear whether things would have been as bad if the people had been dispersed and not concentrated.”

The impact on the segment was sharp and difficult. Colgan pointed to the State of New Jersey considering a requirement that everyone had to be in a private room.

“If investing in a large nursing home and 70% of the beds are two to a room—these are Medicaid patients—think about the amount of revenue they’ll lose if they’re in private rooms,” Colgan says. Then there were discussions of a 100% air exchange. “Could you imagine taking 10-degree temperature air and having to heat it to 72 to make it comfortable for a senior? The amount of energy you need is through the roof.”

Investors took notice.

“Generally, what you’ve seen from the REIT market is repositioning their portfolios to position themselves for growth in a post-Covid world, if there is such a thing,” Husi says. “You look at HealthPeak, who sold off all their independent living portfolio. But they like for-profit entrance fee communities.”

While the criticisms and potential for additional expenses, with resulting lower margins, was one reason, there was another.

“If you’re a publicly-traded REIT, just speaking to that market, it was an opportunity or excuse to reposition your assets and look to the future,” says Husi. “If we get through the next 24 months, our senior housing and care industry is going to do very well just because of demographics and the lack of new properties coming online. Pre-covid, we were overbuilt. There will be less overbuilding because it’s more difficult to get a construction loan for senior living. There are new buildings going up, but it’s at a much slower pace than pre-covid.”

There are also other challenges for skilled nursing and senior living. Labor shortages are causing issues.

“I think medical office buildings right now look attractive more so than skilled nursing facilities,” Iman Brivanlou, managing director of high-income equities at TCW and the TCW Global Real Estate Fund, tells GlobeSt.com. “Those, especially the operators there, are being decimated by labor costs. They’re dealing with operational pressures that are going to be more pronounced than people think. Senior housing is catching a little improvement because occupancies are increasing.”

But with problems and resultant falling values come those that want some bargains while they still last.

“For the first time I’m starting to hear different kinds of groups—that would be large private equity, REITs, large family offices, strategic investors in seniors housing— talking about wanting to make large portfolio and platform acquisitions again after taking a long pause,” Ted Flagg, senior managing director and co-head of JLL’s healthcare capital markets group, tells GlobeSt.com about communications starting in late summer. “I’m hearing that from enough smart money that something interesting must be happening out there to cause that.”

“We’ve seen real increases starting around April through August and September, with August being a real kick up even from the average occupancy pickups of April through mid-summer and July,” Flagg adds.

He sees performance for senior care and skilled nursing as taking a turn toward the positive over the last quarter or so. There are also expectations of a cyclical bull market, given baby boomer demographic waves coming and the reduction of supply during the pandemic.

“I think there is no doubt from most smart money that the next five years are going to be significantly up in terms of NOI, pricing, occupancy, and everything else,” Flagg says. “The real question is around what the time and what is the pace of that increase. Is it next year, two years from now, today? People are thinking in terms of the right entry point. Strategic players are starting to come to the table and what’s available in terms of reasonable acquisitions today.”

In other words, 2022 has the potential for being an inflection point and possibly a time to buy into these asset types, just as values are tipping toward a rise. Or it could be too early.

It’s just another way that healthcare might tempt and then taunt CRE in 2022. There’s medical office space going through transitions, with those trying to jump on having to negotiate a steep learning curve. Then skilled nursing and senior living make a comeback … at some point.

But, more importantly, there’s a sector that’s been an alternative to other CRE types for years. One where there are longer-term leases, clientele that can’t just shrug off getting services, providers that are long-term with great credit, and an industry that’s closing in on almost a fifth of the GDP of the largest economy currently in the world.

Nothing is guaranteed or easy but making good investments in medical real estate seems like a good treatment plan for lower alternative yields. Who’s investing in medical CRE? Maybe the answer should be you.

 

Source: GlobeSt

COVID-19 Has Altered The Speed And Design Of Healthcare Projects, Perhaps Irrevocably

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A six-story, 180,000-sf patient tower addition to BayCare St. Joseph’s Hospital in Tampa, Fla., was well under way when, in the summer of 2020, the healthcare system wanted to open three patient floors earlier than scheduled to accommodate the COVID-19 pandemic’s anticipated surge.

The project’s construction manager, Robins & Morton, brought in additional supervisory staff to coordinate this compressed schedule with other building team members, which included AE firm HOK and structural engineer Carastro Engineering.

“As a result of this collaboration, the tower opened two months early, in July 2020,” says Robins & Morton’s President and COO Robin Savage.

This has been a common tale during the pandemic, told by AEC firms whose healthcare clients want their projects up and running quicker, a task made more complicated by the shortage of skilled labor in many markets.

“A major challenge has included changes made during design and construction while maintaining the budget,” states Matthew Holmes, Global Solutions Director of Health Infrastructure for the construction management firm Jacobs, 70 percent of whose healthcare-related work last year involved in-patient design.

To mitigate this issue, Jacobs continuously forecasts estimates during a project to leverage proper budgeting.

“Taking the time to accurately scope the project in the budgeting process is essential,” Holmes says.

“The healthcare core market continues to operate on razor-thin margins,” observes Hamilton Espinosa, DPR Construction’s Healthcare Core Market Leader. “The need to project value and efficiency is at the forefront of key decision-making.”

A geotechnical report conducted during preconstruction of a 32,000-sf Veterans Affairs outpatient clinic in Johnson County, Kan., uncovered an unexpected need for rock excavation totaling $150,000. McCownGordon Construction, the project’s CM, reduced that allowance to $100,000 by rerouting the water, fire, and storm utilities, recalls Daniel Lacy, the firm’s Vice President−Healthcare and Life Sciences.

Many of Jacobs’ healthcare projects entail what Holmes calls “progressive design-build,” where the designer and builder work together “from day one with an established budget and program description.” Early project team engagement, asserts Pepper Construction’s Project Director Brian Mullen, CHC, LEED AP, is critical because “it leads to more informed design.” And by remaining flexible to accommodate future improvements in interior remodeling, Pepper “can help ensure that clients are prepared to incorporate the latest technology.”

By aligning a project manager with key designer, trade partner, and healthcare system personnel, McCarthy Building Companies is able to “triage” questions and ask only what’s needed to move the project forward.

“Then, it can provide options for consideration,” says Patrick Peterson, McCarthy’s Executive Vice President of Healthcare for the Southern California region.

AEC firms have had to be creative to find skilled labor to complete healthcare projects within time and budget parameters. To connect with smaller and more diverse subcontractors,

“Skanska breaks up its bid packages to widen the labor pool,” says Chris Hopper, its Vice President and General Manager.

Skanska also conducts its Construction Management Building Blocks Training Program in its offices across the country to engage smaller subs through partnership and business development.

Healthcare Projects Back on Track

AEC Giants contacted for this report say they’ve been working on a wide range of healthcare projects. But the agenda for some clients shifted between 2020 and 2021.

“Most of Henderson Engineers’ healthcare projects over the past year were for temporary measures that included infrastructure to support care for COVID-19 patients,” says Mark Chrisman, Healthcare Practice Director for Henderson Engineers and Henderson Building Solutions. “But since early 2021, demand for construction and renovation projects of all sizes has reverted close to pre-pandemic levels.”

During the pandemic, DPR Construction pivoted to respond to help with clients’ immediate needs. But much of its work continued to be for new hospitals and patient tower expansions.“

“There’s strong demand for outpatient care, too, although health systems are re-evaluating program sizes to factor the impact of virtual healthcare and remote patient monitoring for lower-acuity chronic case management,” say Sean Ashcroft and Deb Sheehan, DPR’s Healthcare Core Market Leader and Healthcare Strategy Lead, respectively.

HKS-designed VCU Health’s ground-up 500,000-sf Children’s Hospital of Richmond is being built by DPR Construction and is scheduled for completion in 2023. For the first time, VCU Health’s pediatric services will operate from one building, dubbed the Wonder Tower, with 72 private rooms and shell space for 48 more if needed. The tower will connect by bridge to the hospital’s outpatient pavilion built in 2016. The hospital’s Emergency Department will extend 5,000 sf. (RENDERING CREDIT: HKS)

While new construction that included the nine-story Children’s Mercy Research Institute in Kansas City, Mo., accounted for McCownGordon’s largest recent healthcare projects.

“The majority, in terms of volume, have been adaptive reuse,” says Lacy.

McCarthy’s Peterson points out that healthcare clients are exploring strategies for maintaining aging buildings and repurposing existing  spaces for a changing service model. AEC firms are engaging more renovations and expansions, too. McCarthy recently worked on theLoma Linda University Medical Center’s Campus Transformation Project to bring it up to California’s seismic compliance requirements.

Brian Forsythe, LEED AP, CHC, Pepper’s Vice President and Project Director, predicts that clients who have delayed master-planning projects will need to move forward to remain competitive. And he cites a trend toward public-private partnerships to fund healthcare projects, such as the University of Illinois Health’s 205,000-sf Outpatient Surgery Center and Specialty Clinics in Chicago, for which Provident Resources Group, a 501(c)(3) corporation, is financing three-quarters of the building’s $194 million total cost through tax-exempt bonds, and will lease the building to UI Health during the 30-year term of the bonds. This project should be completed next year.

Universal Patient Rooms Are In Vogue

Alternative project delivery is among the design and construction trends that have emerged in the healthcare sector. The University of Illinois project, designed by Shive Hattery, deployed modular construction to stay within budget.

“One of Robins & Morton’s priorities is to determine how to leverage prefabrication and modularization,” says Savage.

And during the pandemic, the controlled environment and potentially higher production rates that prefab offers “took on a renewed sense of urgency” for McCarthy. Peterson says prefab systems his firm now focuses on include exterior envelopes, framing and wall panels, MEP, medical and interiors, bathrooms, and vertical transportation.

The $329 million, 444,000-sf expansion and renovation of the University of Virginia Health System’s University Hospital in Charlottesville increased bed capacity to 84 (all of them ICU-compliant), with the potential for up to 180 beds. The architect was Perkins and Will. Skanska the CM at Risk on this LEED Silver project, which was completed in July 2020. (Photo: Halkin|Mason Photography,Courtesy Skanska)

Skanska is among the AEC firms that have been getting more requests for larger private and “universal” rooms. For its University of Virginia Health System hospital expansion in Charlottesville, Skanska built a patient tower with fully ICU-compliant universal patient beds.

“Healthcare providers are showing a strong desire to establish permanent isolation rooms to manage patients during infectious disease outbreaks,” said Chrisman of Henderson Engineers.

Other trends in healthcare projects that Jacobs’ Holmes is seeing include high-end technology for patient and procedural spaces, combined heat and power turbines for steam and electricity, combined pre- and post-recovery bays, more space allotted for telehealth and behavioral health, and growth in emergency departments.

The Phoenix-based architectural planning and interior design firm Orcutt | Winslow has experimented lately with alternate structural solutions to steel framing and joists, such wide-flange structural frames and steel-masonry hybrids.

“The firm is also increasingly using Lean approaches, such as pull planning, to improve a project’s speed to market,” says Chuck Hill, its Healthcare Studio Leader.

Matthew Kennedy, Orcutt | Winslow’s Senior Healthcare Planner, adds that his firm has tried out several digital media platforms—such as Miro and Microsoft Teams—for communications and file sharing. It’s not alone, as virtual interaction has become the norm in a socially distanced world.

When the pandemic hit, Skanska saw an opportunity to use StructionSite, a project site photo documentation software, to conduct virtual job walks abetted by advanced imagery and video.

“Pepper leverages web-based platforms to bring everyone to the jobsite virtually,” says Forsythe.

During the pandemic, Pepper also launched Virtual Reality Training modules, and expanded its use of TouchPlan with the Last Planner System for digital pull planning. Robins & Morton’s application of technology for healthcare projects includes entirely virtual mockups, 3D printing, augmented reality, and testing robots to photograph and laser-scan jobsites.

Sustainable And Resilient Healthcare Buildings

Healthcare systems are trying to change their reputation for being profligate users of energy and water by seeking project solutions for efficiency, carbon neutrality, sustainability, and resilience.

Savage of Robins & Morton points out that healthcare clients are interested in stemming carbon emissions that are mostly released from the material supply chain before a new or renovated facility even opens. Skanska’s Hopper cites a 2020 Health Affairs study, which estimated that the healthcare industry accounted for more than 8 percent of CO2 emissions in the U.S.

“Healthcare systems have made carbon reduction a part of their collective mission and values,” says Hopper.

Concerns about embodied carbon can be tied to a larger effort among healthcare systems and their AEC partners in favor of environmental sustainability and resilience. One of Robins & Morton’s projects—the recently completed Fisherman’s Community Hospital in Marathon, Fla.—sits on higher elevation to combat storm surges, has a tilt-up concrete core, and includes impact-resistant exterior and removable flood barriers.

Chrisman expects larger healthcare systems with financial means to be the main drivers of sustainability and resilience over the next decade. Client demand was one of the reasons why Henderson last April hired its first director of sustainability, Brian Alessi, AIA, LEED AP BD+C, who has worked on more than 400 LEED-certified, net-zero, and passive house projects.

By August 29, Louisiana had evacuated 22 nursing homes and 18 assisted living facilities as Category 4 Hurricane Ida was pounding that state’s coast. However, 2,400 COVID-19 patients still in Louisiana hospitals hadn’t been moved, partly because there was no other place to put them, but also because modern hospitals are better prepared to stay open during natural disasters.

“COVID-19 has made clear there is a need to increase and maintain resilient healthcare systems through a holistic approach to how, when, and where we access care,” says Jacobs’ Holmes. “Sustainability is a required item and, at Jacobs, that means ensuring long-term business resilience.”

“Resilience is built into every healthcare design we see,” says McCarthy’s Peterson.

And Hill of Orcutt | Winslow is confident that once this sector is less distracted by its immediate supply-chain issues, “resilience will emerge as a driver for healthcare projects.”

 

Source: Building Design + Construction