UT Southwestern’s Move Is A Trend Breathing New Life Into Big, Empty Department Stores

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Turning abandoned mall space such as the closed Sears store in the RedBird development in Dallas into medical offices and clinics is a new use for tired shopping centers that has already found success in other cities.

RedBird owner Peter Brodsky just announced that UT Southwestern and Parkland Hospital are taking over vacant retail space at the former Red Bird Mall. UT Southwestern will open offices in a 150,000-square-foot Sears store that closed earlier this year. About 43,000 square feet of a Dillard’s store that closed in 2008 is already being retrofitted for Parkland.

Dallas developer Frank Mihalopoulos, who has been working with Brodsky since 2015 on the RedBird project, has already successfully adding university-affiliated medical offices to aging malls in Nashville; York, Pa.; and Atlanta.

 “Selling the RedBird development to local health care companies became a priority as community needs and wishes matched up with trends in the mall redevelopment business,” Brodsky said.

“Health care companies want to reach underserved populations and are trying to find ways to serve more people with the least amount of cost,” Mihalopoulos said. “Repurposing mall space can keep costs down. The University of Pittsburgh Medical Center, for example, has opened occupational therapy clinics and back offices in 22,000 square feet of the West Manchester Mall in York, Pennsylvania It’s lowered their overall cost of occupancy, and then the university medical center is able to rent its space that can fetch higher rents to others.”

In Atlanta, Emory Healthcare agreed in October to lease 224,000 square feet of a former Sears store at Northlake Mall to house offices for 1,600 administrative staff. That also adds daytime traffic to the mall, which is anchored by J.C. Penney and Macy’s. Northlake and the mall in Pennsylvania are owned by ATR Corinth, a partnership of Mihalopoulos and Dallas real estate investor Tony Ruggeri formed 15 years ago to redevelop ailing malls.

“Mall locations have a lot of what medical clinics and offices need,” Mihalopoulos said. “There’s parking, good real estate with good exposure to freeway locations. Old department stores have high ceilings that office tenants are looking for these days and those new office workers can shop and eat without leaving the property.”

ATR Corinth’s first big success was in Nashville, where Vanderbilt University Medical Center put administrative offices and medical clinics in One Hundred Oaks Mall.

“That project began in 2008, and within five years of the redevelopment, the stores in the center had experienced sales increases of as much as 100%,” Mihalopoulos said.

While they were considering the RedBird development, UT Southwestern officials visited that project. They also visited the Jackson Medical Mall in Mississippi, which was converted from a shopping mall in 1996 after it lost customers and stores to a newer mall in Jackson.

At that point, Red Bird Mall was also well into its decline. The former mall at the intersection of Highway 67 and Interstate 20 in Dallas was one of the early shopping center casualties. Several Dallas mayors and out-of-town owners tried to fix the center as the mall continued to lose traffic. There are 800 vacant anchor spots at the 1,300 malls and outlet centers in the U.S., according to an updated mall report from Green Street. In addition to health care uses, malls have been turned into call centers and even Amazon warehouses. When Brodsky first purchased the mall, Sears and Macy’s were still open.

“But it became apparent that anchor stores would have to be filled with other sorts of activities to draw people to the property,” Brodsky said. “The shopping center still has about 60 tenants, from Burlington Coat Factory to small mom-and-pop businesses that are doing well. A Foot Locker is under construction in a new green space being built on the Camp Wisdom side where Starbucks opened last year. I’m new to the real estate industry and I give Frank a lot of credit for his track record of converting malls into highly productive office space.”

 

Source: Dallas News

2019 U.S. Medical Office Trends: Steady Market Fundamentals Supported Thriving Investor Demand

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U.S. medical office market fundamentals have been resilient in 2019.

Demographic and health-care industry trends are firmly entrenched and forecast to persist, supporting long-term demand for medical office space.

— The U.S. medical office vacancy rate remained stable at 10.3% through midyear 2019 despite a surge of completions of new medical office space. In addition, average asking rents stayed near record levels.

— There has been a dramatic decentralization of the health-care industry to provide services closer to the consumer through outpatient centers rather than more costly hospitals. Consolidation among healthcare providers has led to greater mergers and acquisitions activity of hospitals and health-care systems.

— Top-tier domestic institutional and foreign capital, as well as REITs, have fueled demand for medical office properties. Although medical office investment volume was down from 2018 through the first half of the year, the expectation for second half medical office investment volume remains strong.

For a complete copy of the report, please click here.

 

Source: HREI

2019 Medical Office Building Transaction Volumes 50% Higher Than Pre-Recession

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Increasing interest from institutional investors has helped to push the medical office sector to hefty transaction volumes and steady occupancy despite record construction in the second quarter.

A new report from CBRE notes that US transaction volumes this year for medical office properties are 50% higher than their pre-recession levels. Meanwhile, medical-office capitalization rates – a measure of a property’s income as a percentage of its price – have pulled even with those of conventional offices after years of registering higher.

Much of the market’s momentum comes from demographic trends toward longer lifespans and more healthcare consumption as well as a medical-industry shift toward more outpatient care. CBRE defines medical offices as office buildings in which at least half of leasable space is occupied by medical uses such as dental, surgical or special practitioners and services.

GlobeSt.com caught up with Ian Anderson, CBRE’s head of Americas Office Research, for an exclusive interview about the report’s findings on the medical office sector. Here are excerpts from that conversation.

GlobeSt.com: What about the medical office sector is most appealing to institutional investors and why are they jumping into the sector now rather than years earlier?

Ian Anderson: Medical office buildings have been an attractive target for institutional investors for many years, but this current cycle has been unique in accelerating that trend. The current expansion has seen a dramatic transformation in the way commercial real estate is being used, and that sometimes has negatively affected demand for space. That’s particular true for conventional offices, for which demand is influenced by workplace strategies and densification, and for retail space, which is adapting to e-commerce. As a result, many institutional investors have been forced to seek new opportunities that offer attractive returns. This has caused a surge of interest into alternative commercial real estate investments where growth is more robust, such as life sciences lab space, self-storage, and co-living, among others.

Aside from the ‘push’ by investors into emerging, alternative commercial real estate investments, the ‘pull’ of deeply entrenched and highly attractive demand drivers is what is really driving demand for medical office space. Any investor seeking to capitalize on the demographic and consumption trends unfolding in the United States wants to have a position in medical offices. Underlying these megatrends, though, is the continued shift by healthcare systems to provide services in a lower cost setting that is more convenient to the consumer. In other words, allowing consumers to obtain healthcare services near to their home, rather than venturing to the main hospital of a healthcare system. Finally, though, medical office investment is driven by the income derived from these properties, which are frequently supported by a variety of tenants with abundant demand and a reluctance to move upon the expiration of their lease.

GlobeSt.com: What has fueled demand for medical office space in markets where it is strongest, namely Chicago, Atlanta, New Jersey and Nashville?

Ian Anerson: Demand for medical office space varies from market to market due to several reasons. In some instances, we observe higher net absorption – demand – simply as a result of the delivery of new medical office buildings in markets where it is easier to build. For example, there are more medical offices under construction and waiting to be occupied in the Inland Empire than Los Angeles, where it is more difficult to build. In other instances, there are local trends in the healthcare industry, such as a merger between healthcare systems, that may affect demand for space. But generally speaking, higher demand for medical office space by market results from a combination of favorable demographics, either in the form of a growing total population or an existing, abundant elderly population, supported by attractive and growing incomes.

GlobeSt.com: Given the strong trends driving the sector, why aren’t we seeing more construction of medical office buildings? Does the pipeline include more deliveries on par with the record set in this year’s second quarter?

Ian Anderson: Like most types of commercial real estate today, construction of medical offices has remained in check with demand. Not surprisingly, the vacancy rate of US medical offices hasn’t budged by more than 20 basis points in the last two years. In the second half of 2018, we saw construction volume of medical offices drop significantly, which should help boost rent growth for investors in the near-term. Then construction activity picked up in 2019 to levels consistent with the average since 2010, but still well-below the peak of construction in 2016.

 

Source: GlobeSt