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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

 

Navigating the Tension Between Medicine, Real Estate And the People Who Pay For It All

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In what has been a transformative year for healthcare, more than 250 national leaders in the sector just came together in person at the GlobeSt. Healthcare Real Estate conference in Scottsdale, AZ.

And while many of the sessions drilled down into the opportunities to be had in this asset class, at least one discussed the tensions that can exist between the practice of medicine and the realities of paying for it.

According to Angie Weber, a first VP at CBRE, healthcare has two speeds… Slow and slowest. “Covid added a new one…slowest. You have the physicians who want what they want and you have the finance folks where a plan needs to be in place before anything gets done. Who will come out on top depends on the system and the state.”

Jon Boyajian, a principal at Echo Real Estate Capital, says there is also an arm wrestle in the hospital between the operations group and the finance group. “Their capital and expansion plans really got turned on its head during Covid,” he said. “The finance folks want to move all the family practice and provider groups into buildings they already own, and the operations people are saying, ‘no wait, those buildings are well located and are great amenities etc….why would you move these practices.’”

As for what the future holds for these spaces, Weber said that she believes the systems will start to utilize their space within the four walls of their hospital differently than they have been.

“What Covid showed is that they cannot afford to not do surgeries because of other patients being too ill, said Weber. “I think we will start to see that over the next five to 10 years, they will take things out of the mother ship and put it nearby. You will see different utilization for space within the walls of the hospital because they don’t have a choice. They do have to make money and oftentimes, elective surgeries is how they do that. The behavioral health side is also going to be more of a trend in a big way for sure.”

Switching gears, when discussing flexibility of healthcare space, Boyajian said that every doctor his company has spoken with would prefer larger exam rooms for people to spread out. They also said they would want larger or multiple break rooms for provider and staff and admins to spread out.

“The footprint will increase in the future because they want and need to spread out,” said Boyajian.

Weber added: “You have two things right now…you have the physicians and the ones who own them.  There has been a real tug over the last years over what physicians want and the reality. I think Covid will increase the size of a lot of space, but I also think it will be a reevaluation of how they do things. All of these changes and even putting as many flags in as many places as possible takes resources and dollars and it isn’t just systems. There is a lot of VC money that has come into healthcare. They are going big and all over whether it is 3,000 square feet of space or 15,000 square feet of space and they are planting flags in spots like fertility groups, oncology groups and more. On the systems side, some have more financial wherewithal than others.”

Boyajian added that private equity companies don’t just make an investment and sit on it.

“They make an investment and want to see growth, said Boyajian. “The good part about it is private equity groups when they can partner with nimble development groups, they can roll out more quickly and then the landscape and network is there.”

 

Source: GlobeSt.

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.