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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

 

The Pandemic Has Made Healthcare More Desirable

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“The pandemic increased demand and made healthcare a more desirable asset class,” Rahul Chhajed, VP and senior director of healthcare at Matthews Real Estate Investment Services, tells GlobeSt.com about how the asset class fared during the pandemic.

For one, medical properties moved onto the list of darling asset classes, and it isn’t hard to understand why.

“It is no longer just a recession that investors are worried about. If there is another pandemic, healthcare services are something that people are always going to need. At the end of the day, everyone needs medical care,” says Chhajed.

With the exception of a temporary pause in the market at the beginning of the pandemic, when elective surgeries and other healthcare services were paused to allow healthcare providers to focus on COVID-19, healthcare properties outperformed other asset classes. Chhajed notes that many tenants didn’t need rent relief and continued to pay rent.

This year, investors have been trading out of more challenged asset classes, like retail and office, in favor of medial facilities.

“COVID really provided a proof of concept for the industry to show that this product type is here to stay. It is not only institutional, but it is an asset class that private capital should look at as well,” says Michael Moreno, VP and senior director of healthcare at Matthews Real Estate Investment Services.

Institutional capital has been the dominant player in the healthcare sector, and that is because it can be a more complicated asset class. Now, both institutional capital and private investors are competing for deals.

“More institutions have definitely entered the ring, but we are also seeing the private markets have started to buy these deals,” says Moreno.

And, there is a third player: owner-occupiers. Existing owners are looking at the demand—which has driven cap rates down significantly—and deciding to sell.

“The sale-leaseback market is really picking up, and a lot of that has to do with pricing,” says Moreno.

Over the last few years there has been significant cap rate compression, and owners would rather take the proceeds and put it back into the business and grow.

“Private buyers love those deals because they typically contain long-term leases and they are triple net,”  Moreno says.

On the lease side, retail owners are finding new users in healthcare. Many clinics and ambulatory centers are signing leases in retail facilities as part of the trend from in-patient care to out-patient care.

“Retail-centric healthcare is great for providers because the care is coming to the consumer,” says Chhajed. “A lot of these healthcare systems are looking for ways to provide ease of access, and retail centers meet those needs to make healthcare more accessible. The confluence of these trends is creating a heyday for medical assets after the pandemic. Now healthcare is looking stronger than ever.”

 

Source: GlobeSt.

Cornerstone Companies MOB Fund VI Acquires 12 Medical Properties In Nine States For $48.7 Million

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Cornerstone Companies, Inc. has closed on its sixth medical office building portfolio; acquiring 12 healthcare real estate properties in nine states totaling more than 155,000 square feet.

The properties have been acquired by Cornerstone Fund VI for $48.7 million by Cornerstone MOB Fund VI, a private equity fund focused solely on medical  real estate. Cornerstone is the fund’s general partner.

The fund’s portfolio includes six individual clinical MOBs, three clinic/ambulatory surgery centers, an imaging and diagnostics center, a senior care facility, and a single stand-alone ambulatory surgery center. The facilities are located in the Midwest, Southeast and Southwest

The Fund VI portfolio assets include:

• Gateway Clinic Medical Office Building in Moose Lake, MN – an 18,000-square-foot medical office building on the campus of Essentia Health’s Moose Lake Hospital, which is a level IV trauma center. Gateway Clinic is the largest independent multi-specialty practice along the I-35 corridor which connects Minneapolis and Duluth. Gateway Clinic provides five core specialties including general surgery, emergency medicine, family medicine, obstetrics and internal medicine.

• Owensboro Dermatology ASC in Newburgh, IN – a 10,000-square-foot dermatology clinic and ambulatory surgery center scheduled to be completed in November 2021. The new ASC and clinic will have eight exam rooms, four procedure rooms and one operating room. Owensboro Dermatology Associates is the market leading dermatology practice in the Evansville-Owensboro market, and the second-largest dermatology practice in a 100-mile radius of Louisville, KY.

• Vanderbilt University Medical Center Shelbyville Clinic in Shelbyville, TN – a 16,000-square- foot multi-specialty clinic including women’s health, endocrinology, internal medicine, wound care, family medicine, pulmonology and sleep medicine. VUMC operates nine hospital systems and 48 hospital locations, inclusive of clinics, physician practices and affiliates practices.

• Crestview Medical Office Buildings in Crestview, FL – three medical office buildings comprising more than 25,000 square feet on the campus of North Okaloosa Medical Center, approximately 45 minutes northwest of Pensacola. The buildings feature multi-specialty clinical space, including urology, cardiology, rehab, podiatry, primary care, sleep lab and human resources.

• Keystone Eye Associates ASC & Clinic in Philadelphia, PA – a 14,000-square-foot, full- service ophthalmology clinic and ambulatory surgery center. Keystone Eye Associates is one of the leading ophthalmology practices in Philadelphia, PA. Amongst 18 independent ophthalmology practices in Philadelphia, Keystone Eye Associates is the highest performing as ranked by procedure volume.

• Atlantic Gastroenterology and Endoscopy Center in Greenville, NC – a 9,000-square-foot outpatient endoscopic facility specializing in colorectal cancer screening and the treatment of various diseases involving the digestive tract. The property houses the twenty-year-old practice clinical practice as well as a two operating room ambulatory surgery center.

• Hollywood Diagnostics Center in Hollywood, FL – a 9,500-square-foot full-service diagnostics center including open and high-field MRI, CT scan, PET scan, mammography with 3D tomo,  ultrasound and x-ray. The facility treats more than 30,000 patients per year.

• Surgery Center of Baton Rouge in Baton Rouge, LA – an 11,000-square-foot ambulatory surgery center which is home to the joint venture between Surgery Partners, Inc. and five leading  interventional pain specialists. Surgery Partners is a leading operator of surgical facilities, with more than 180 locations nationwide. The Surgery Center of Baton Rouge is the market leading interventional spine practice providing procedures, therapeutic injections and neurostimulation in a state-of-the-art setting.

• Henry Ford PACE Senior Care in Pontiac, MI – a 30,000-square-foot facility providing primary and specialty care, physical therapy and assisted living services for aging adults. PACE of SouthEast Michigan is a joint venture between Henry Ford Health and Presbyterian Villages, the largest assisted living operator in Michigan. PACE of Southeast Michigan operates six facilities in southeast Michigan and is a nationally recognized leader in the Program of All-Inclusive Care for the Elderly (PACE.)

• OrthoArizona MOB in Mesa, AZ – a 10,000-square-foot medical office building that is 100- percent leased to OrthoArizona, the second-largest orthopedic practice in Arizona. The MOB provides clinical orthopedics, podiatry and physical therapy services.

All of the Cornerstone MOB Fund VI assets are supported by net leases with a weighted average lease term for the entire 12-property portfolio of more than 10 years. Fund VI is projected to deliver a five-year average cash-on-cash yield of more than 11 percent to its investors.

Cornerstone has acquired more than $150 million in healthcare assets over the past four years amongst five other Cornerstone MOB Funds. Cornerstone sold MOB Fund I in 2018, generating a 17-percent IRR for its investors. Cornerstone MOB Funds II, III, IV and V generated cash-on-cash returns in 2020 of 11.51percent, 11.49 percent, 10.51 percent and 12.03 percent respectively.

About Cornerstone Companies, Inc.

Cornerstone Companies, Inc. is a leading healthcare real estate firm, drawing on more than 35 years of experience. With an exclusive focus on the healthcare real estate industry, Cornerstone helps physicians, hospitals, and third-party owners across the nation develop, build, lease, manage and optimize their healthcare real estate while enhancing the patient and provider experience. To  date, Cornerstone has successfully completed more than $1 billion of medical office developments and currently manages more than 100 medical facilities encompassing 7.7M SF. To learn more, visit cornerstonecompaniesinc.com.

 

Source: HREI