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The Pandemic’s Impact On Health Care Design: Smaller, Flexible Spaces With Great Adaptability

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The pandemic rocked U.S. health care facilities in 2020, leaving them with falling revenue from moneymaking surgeries and ordinary care as physicians and nurses shifted their attention toward patients infected with the coronavirus.

But the real change will come three to four years from now, when the impact of new designs implemented on existing and new healthcare facilities are deployed based on what architects and physicians have learned over the past nine months.

“Health care clients are already shifting their focus and asking for smaller footprints and more space flexibility along with additional isolated, negative air pressure rooms,” said Architect and EYP principal Miranda Morgan, while speaking at Bisnow‘s ‘The Future of DFW Healthcare’ webinar. “The smaller footprints are just more efficient and lean. We are still providing everything that is needed, and we are still doing big huge patient towers. But instead of big luxury, patient rooms, clients are asking us to be closer to code and to get what you need in that space and provide the patient with a good experience, but don’t go overboard.”

A large focus of future design will be on keeping healthy and sick patients separate rather than feeding everyone through the same access points and maneuvering the same hallways. Luxurious common areas have lost some favor as health care systems shift toward making sure more rooms are available to isolate emergency care and hospital inpatients while also better managing various points of access to segregate healthy and sick populations on-site.

“We are examining the way patients flow through the facilities,” said Dwain Thiele, UT Southwestern Medical Centersenior associate dean. “Some of the most challenging are imaging facilities or places that previously did not have a large amount of space, hallways or waiting rooms. It is something we will be looking at in the future.”

“What we have seen through the pandemic from a needs standpoint is more access points for people to be seen and to have access whether through telehealth or smaller, faster clinics where people can get in and out,” Transwestern National Managing Director of Healthcare John Huff said. “I guess we realize we don’t all want to sit in a huge long waiting room for an hour.”

In the future, waiting rooms very well could be a thing of the past, with that square footage allocated to more isolated treatment rooms, health care experts said.

“Other trends here to stay include the ongoing push for more outpatient care centers and ambulatory facilities that can take care of non-life-threatening illnesses while hospitals are hit with pandemics,” Huff said.

“Technology also will play a significant role in reshaping the future of health care, with telemedicine, or remote health care visits, allowing hospitals to keep healthier patients away from pandemic-stricken areas,” Methodist Health System Chief Operating Officer Pamela Stoyanoffsaid. “I would say prior to COVID, we probably saw about 1% of visits in the outpatient setting with telehealth. In April and May, when we saw the first surge, we were probably up to 80% to 90% of our visits. When some of the restrictions lifted, telehealth usage dropped back down to 15%, but it’s expected to have a place in the future of health care services. It is now a massive part of what we do, and it is here to stay.”

 

Source: Bisnow

As They Scour Acquisition Opportunities, Which Assets Are High-Net-Worth Investors Favoring?

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As high-net-worth individuals (HNWI) and family offices survey the commercial real estate landscape, they’re seeing some peaks and some craters.

They assuredly lacked a roadmap for navigating a landscape marred by the coronavirus pandemic, though. However, HNWI and family offices are finding their way through this uncharted territory. And their compasses are pointing them toward commercial real estate investments that they believe are positioned for long-term growth.

In this climate, investors and advisers say, HNWI and family offices are steering toward acquisitions of medical assets, warehouses and multifamily properties.

“With real estate, my clients are willing to settle for lower short-term returns for stability. And the quality cash flow from real estate opportunities is attractive as a long-term investment for them,” says Mark Germain, managing director of Mercer Advisors Inc., a wealth management firm in Denver.

“In pursuit of stability and cash flow amid the current economic environment, HNWI and family offices are looking at recession-resistant asset classes,” says Charles “Chick” Atkins, principal of Atkins Cos., a real estate developer, investor and manager based in West Orange, N.J.

Atkins points to the medical office sector as a standout in this regard, thanks in part due to pandemic-spurred demand for health care services. This trend includes stand-alone offices, retail spaces, medical clinics and urgent care facilities, according to Atkins and others.

“Health care is essential, and people will still need to see doctors and other health care professionals no matter the economic conditions,” Atkins says. “While the use of telemedicine is on the rise, the aging population of baby boomers, coupled with the short supply of well-located, class-A medical offices, should help ensure a continued need for health care properties.”

Germain cites the warehouse sector as another one that’s attracting attention from HNWI and family offices. This includes supply chain warehouses (think Amazon) and refrigerated warehouses. In surveys by NAIOP, a commercial real estate group, 62.6 percent of commercial real estate and banking professionals reported acquisitions of industrial buildings in May, up from 57.3 percent in April.

During a May 28 call, Spencer Levy, chairman of Americas research at commercial real estate services company CBRE said “Although rental and vacancy rates for industrial properties will soften over the next year, the pandemic-fueled jump in e-commerce, the reshoring of manufacturing and the climb in business inventories bode well for long-term industrial demand.”

CBRE says a 5.0 percent increase in business inventories calls for an additional 400 million to 500 million sq. ft. of warehouse space.

“Industrial is not only going to perform better than any other asset class with the exception of multifamily, [but] we are actually more optimistic about industrial today than we were three months ago pre-COVID,” Levy said during the call.

Another sector drawing interest from HNWI and family offices is multifamily. NAIOP’s surveys indicate an uptick in multifamily acquisitions from April to May. CBRE data shows multifamily acquisitions totaled $38 billion in the first quarter, a year-over-year decline of just 1 percent.

In a June 1 report, CBRE said pandemic lockdowns and economic uncertainty lowered the multifamily turnover rate—the share of rented units not released each year—from 47.5 percent in 2019 to 42.1 percent in April. That’s the lowest turnover rate in over 20 years, according to the firm. This low turnover “is helping owners maintain occupancy and cash flows,” the report states.

An example of continuing faith in the multifamily sector: Greensboro, N.C.-based Bell Partners Inc., an apartment investor and manager, announced on June 3 that it had closed an apartment investment fund totaling $950 million. The fundraising goal was $800 million. The fund’s investors include accredited HNWIs.

The value-add Bell Apartment Fund VII empowers the company to spend more than $2.5 billion on apartments in its 14 target markets. The fund has already purchased three properties. Bell Partners has about 60,000 units under management.

“The fact that we were able to close Bell Apartment Fund VII above our target, despite the volatility caused by COVID-19, is a strong vote of confidence from our investors,” Jon Bell, CEO of Bell Partners, said in a news release.

Aside from industrial and multifamily properties, Cassidy senses an interest among HNWI and family offices in downtown office buildings in emerging markets.

“Whether they are core or value-add plays for investors, these spaces will be key components of these cities’ economic engines moving forward,” Cassidy says.

NAIOP’s surveys signal a dip in office acquisitions from April to May, primarily due to uncertainty over how the explosion in remote work will affect office demand.

Even though more employers are likely to switch fully or partly to remote work, MetLife Investment Management predicts the amount of occupied offices in the U.S. will reach 8.1 billion sq. ft. by 2030. That would represent an average annual growth rate of 1.4 percent from the 7.1 billion sq. ft. that’s occupied today. The historic average growth rate is 1.5 percent, MetLife noted in a May 14 report.

MetLife expects remote working trends arising from the pandemic will have “a relatively limited impact” on long-term demand for office space.

“Any stigma or fear that COVID-19 creates related to the office sector, especially as a growing number of firms announce real estate cost savings plans, could create investment opportunities,” MetLife says.

“HNWI and family offices also are watching hard-hit sectors like retail for potential bargains,” said Michael Finan, managing director of Chicago-based BMO Family Office LLC. “We are in a stressed period for real estate, but not distressed. There are many buyers on the sidelines with capital available, and new distressed property funds are being formed each day in anticipation of fire sale deals in the not-too-distant future. While distressed retail properties will certainly satisfy some investors’ appetite for deals, HNWI and family offices are also eyeing single-tenant net lease properties as sources of stable income. We recognize that brick-and-mortar retail is challenged, but not all consumers are satisfied with Amazon or Walmart.com.”

 

Source: NREI

Healthcare Real Estate Investors Choose to Diversify in Face of Fever-Pitch Property Demand

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It’s a highly competitive environment when it comes to healthcare real estate out West, so say InterFace Conference Group’s Healthcare Real Estate West panelists.

One of the central themes of the day-long conference, which was held March 6 at the Omni Los Angeles and attracted 219 attendees, was the pent-up property demand from investors. However, most panelists agree the opportunities are somewhat limited due to a lack of new product and the long-term holding pattern many healthcare investors have adopted.

“You have all this demand, yet transaction volume is staying flat,” said Darryl Freling, managing principal at MedProperties Realty Advisors and moderator of the 2019 Outlook panel. “Where’s the bottleneck? So much is held by healthcare systems and they’re not letting go because clearly there’s just so much demand.”

Shane Seitz, fellow panelist and senior vice president at CBRE, doesn’t see this level of trading picking up, at least not with the current healthcare supply.

“REITs don’t get incentivized to turn over their product,” Seitz noted. “They buy and hold. They treat it just like the nonprofit health system does. They want to have it forever. We also have foreign and domestic groups coming in. They historically invest in funds, but now they’re saying, ‘You know what, I’m going to buy strategically in this space.’”

Seitz further noted that the level of capital in the healthcare real estate sector was around $6 billion in 2008. It’s now $12 billion.

“It’s that instant capital coming in,” Seitz explained. “Everyone has read the headlines about healthcare and they want to buy.”

This frustration has caused many healthcare players to pivot. After all, what happens when one investment vehicle dries up? You look elsewhere. That’s led to diversification.

“Healthcare real estate has really changed a lot over the past 20 years,” said fellow panelist P.J. Camp, principal and co-founder of H2C. “It used to be it was just medical office buildings of 40,000 to 60,000 square feet, two to three stories, on a health campus. This is not at all the case now. With all the capital flooded into our space, it’s driven the product type to be much more diverse.”

Healthcare real estate, for many, now includes not just hospitals and standard medical office buildings (MOBs), but skilled nursing facilities, satellite buildings, home health services, wellness centers, walk-in clinics, seniors housing, micro hospitals and rehabilitation and long-term care centers.

“I never would have thought of seniors housing and long-term care as the world we play in,” Camp continued. “I don’t know when that changed, but seniors and medical buyers have come together. MOB means so many different things now. It’s confusing the market a little bit. We used to know what an MOB was. Now we have to think of all these different products and uses in terms of long-term viability. It’s a very complicated market today. It used to be so simple.”

Community-Driven

One of the largest motivations for the diversification in uses is the community-driven, patient-facing approach many are taking to healthcare nowadays. Deeni Taylor, fellow panelist and executive vice president and CEO of Physicians Realty Trust, believed this is where the focus should have been all along, meaning this “pivot” is essentially a return to Healthcare 101.

“The successful operation of all these products is dependent on the goal of the healthcare organization,” Taylor said. “If it’s for the patient, the probability of success is much higher. If it’s simply a reimbursement scheme, that real estate play is a disaster. It’s just a matter of time. That’s just not a risk we’re willing to take as a public company.”

Karen Costello, senior program manager at Hoag Hospital and participant on the Hospitals & Systems panel, believes organizations will need to embrace the patient and their care as the industry faces two major hurdles.

“We need to be flexible and develop new places to engage with consumers and we have to create stickiness with them because we have to deal with two tidal waves: the aging demographic and tech distraction,” Costello said. “They’re both coming. The question is what’s going to hit first and will the two clash?”

Panelists note that this creates an interesting conflict, as seniors prefer a more personal approach to healthcare, while the younger generation appreciates technology that prevents them from having to physically visit a doctor’s office.

Convenience-Driven

Unless an organization is in a specific niche, such as seniors housing or wellness and preventative care, companies must accommodate both populations and preferences. One of the easiest ways to do this is through micro hospitals, walk-in clinics and ancillary service providers, such as home healthcare agencies.

“We have a disruption issue,” said Jeff West, Hospitals and Systems panelist and executive director of Irvine, Calif.-based Providence St. Joseph Hospital. “The disruption from within is incremental. The continuum of care keeps marching on. What we really need to get to is healthy populations. That’s keeping people out of the hospital. That now involves delivering doctors and nurses to patients’ homes. That’s a very viable, cost-effective model.”

West also says that outside disruptors, chiefly Amazon, are advancing and revolving their model around artificial intelligence. The e-commerce giant recently joined forces with Berkshire Hathaway and JPMorgan Chase on a healthcare company called Haven. The joint venture’s focus is threefold: better access to health providers, easy-to-understand insurance benefits and affordable prescription drugs. Haven will only be available to employees of the three firms, at least for now. The joint venture has stated it eventually plants to share its findings with others outside its network.

Costello sees this play as one the current healthcare industry will need to respond to — and quickly.

“We need to start looking at healthcare as a lifestyle brand,” Costello said. “All healthcare needs to start reflecting wellness. We need to create ‘easy’ so we can be around when people like Amazon come to market. Healthcare has to be somewhere where people want to be. We’re marching down this brand of consumerism, and consumers want to be in Newport Coast. They want to be at the Irvine Spectrum Center.”

John Wadsworth, senior vice president of Colliers and a Leasing & Operations Update panelist, believes partnerships and one-stop shops are where the industry is headed. In fact, he believed retail and healthcare have more in common than many may think.

“Healthcare is retail,” Wadsworth said. “Retail conversions are a real opportunity. How many mall operators have reached out and said, ‘Help us. Be our savior’? It can work. The fundamentals of those spaces can work. They’re not an end-all, be-all solution, but they’re here to stay.”

Pacific Medical Buildings (PMB) is one firm capitalizing on this opportunity. The firm is converting the 50,000-square-foot, 1980s-era Harkins Theatre in Goodyear, Ariz., into a build-to-suit medical office building.

“Converting the movie theater drove down costs and gave us speed to market,” said Jake Dinnen, senior vice president of development for PMB and a Trends & Market Forces panelist. “It was 98 percent leased from day one.”

Connection-Driven

Another retailer has caught Costello’s eye as she calculates the “stickiness” formula for consumers: CVS/pharmacy.

“We use CVS as a benchmark,” Costello said. “With MinuteClinic, they’ve got easy down. They’re convenient, they’re connected. They don’t have specialist physicians. Health systems need to play in that space if they’re going to do prevention health. CVS has established a stronghold there. We need to watch them carefully and meet and exceed them in the way they’re embracing the consumer.”

The lack of specialist physicians means CVS can only have so long of a reach. It also reinforces the notion that partnerships will maximize everyone’s value.

“We really need to know where CVS starts and stops, and where we then start,” said Jeff Land, senior vice president of corporate real estate for Dignity Health and fellow Hospitals & Systems panelist. “When you work in population health, it really becomes about who you partner with because you don’t have to be an expert in everything.”

Whether it was CVS, Walmart, Amazon or each other, panelists agreed competition was out there. Neil Carolan, senior vice president of Rendina Cos. and a Trends & Market Forces panelist believes in mutually beneficial partnerships, noting that 80 percent of his firm’s business is repeat business. One relationship he’s focusing on currently is with retail landlords,

Carolan adheres to the old saying, “if you can’t beat hem, join them” — or at least move in alongside them. “Will people go to a doctort next to Macy’s?” Carolan asked. “Probably. They like to put pediatricians near grocery stores. Mall redevelopment is going to be a big trend. We’re doing several of them. The pipeline is long. Competition doesn’t scare me. I don’t think it scares anyone. Bring it on.”

 

Source: REBusiness Online