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Wellness Is Critical In Healthcare Investment

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Wellness is the biggest trend rocking the healthcare investment market today. It has become essential to bending the cost curve down, according to healthcare investor and developer Meridian’s John Pollock, and players in the product type should focus on wellness as a means of managing population health.

“Wellness is critical to help bend the cost curve down. Providers and payors have to embrace this mindset and focus on managing the health of the population,” Pollock, CEO of Meridian, tells GlobeSt.com in a recent interview about market trends. “I recently caught up with Ken Gorman, Founder and CEO of Power Wellness. It is clear that focusing on population health vis-a-vi wellness centers is trend that should continue and aligns with Meridian’s mission to help ‘bend the cost curve.’”

Wellness centers have evolved tremendously, and insurance companies are catching on the importance of these services.

“These centers have evolved over the years from small retail-based outlets that were referral only to what Ken calls “Gen 3 Wellness Centers” serve upwards of 6,000 community members and integrated into clinical care pathways,” says Pollock. “Payors are finally realizing that wellness is less expensive than treating chronic conditions and should be reimbursable under Medicare Advantage, most Accountable Care Organization and/or risk-based contracts.”

This is an important trend for both experienced and new players to not. The healthcare market has seen substantial increase in the capital players.

“There has been a lot of entrants into the healthcare real estate space over the past few years, particularly in the value-add space, and it is disconcerting,” says Pollock. “Often new operators don’t truly understand the dynamics of medical office and are at risk because the space is nuanced, users are very particular, and the correct tenant ecosystem is critical to an asset’s success.”

This has also pushed healthcare operators into outlying markets, and as a result, healthcare is expanding in nearly every metro across the country.

“With so much competition in the primary markets, some of my colleagues are seeing opportunities in secondary and tertiary markets where yields can be 100-150 bps higher than in primary markets for similar lease terms and credit profiles,” says Pollock. “At Meridian, for our investment business, we continue to focus on primary markets and look for the opportunities that others don’t see. We believe our unique lens allows us to see opportunities that leverage our core competencies that include entitlement prowess, a seasoned project management bench, intense asset management and access to flexible capital.”

 

Source: GlobeSt.

Healthcare Is Entering A New Era Of Medical Office Development

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Meridian CEO John Pollock uses three words to describe the biggest trend in healthcare real estate at the moment: outpatient, outpatient, outpatient.

“As healthcare enters a new era, companies providing more outpatient services are on an upswing,” Pollock said. “We are in an era of tremendous growth in outpatient services,” Pollock wrote in an email to Bisnow. “In fact, we are so sure that outpatient services is where the industry is headed that this sector is nearly our singular focus at Meridian. I believe that as healthcare systems provide more care in a lower acuity setting, they will be able to provide a better experience for patients and at a lower price.”

Healthcare is undergoing a tremendous transformation. Healthcare is adjusting, evolving and growing rapidly as baby boomers continue to retire, millennials and Generation Z mature, and technology continues to shape the healthcare space.

“Now more than ever, bigger players and more money — especially from institutional investors — are entering the industry, CBRE First Vice President Angie Weber said. “These large providers have really taken over and the independent physician has become a thing of the past,”

Weber and Pollock are speaking at Bisnow’s National Healthcare West event June 20. Because of the growing population and the fact that most everyone at one time or another gets sick, healthcare is seen as a safe and resilient investment.

“It’s very safe and strong,” Weber said. “But it’s very expensive. The cost of managing staff and patients, tenant improvements and construction are very high.”

Outpatient demand is driving the development of medical office buildings greater than 150K SF, according to a JLL report released in May.

“No area of growth in healthcare is higher than outpatient services,” Pollock said.

There are currently 44 medical office developments larger than 150K SF under construction in the U.S., according to the report. The projects, estimated at $5.3B worth of investment, total nearly 11M SF and represent 22% of all medical office projects underway, the report states. Of the 44 projects, five are 450K SF or more, one is in the 350K SF to 449K SF range, eight are 250K SF to 349K SF, nine are 200K SF to 349K SF and 21 developments are 150K SF to 199K SF.

“This new trend is a function of the well-recognized growth in outpatient care with its focus on the patient experience and physician convenience with critical services and specialties housed under one roof, with the added goal of accountable care in a lower cost setting,” the report states. “The timing couldn’t be better given the surge in capital seeking investment opportunities in healthcare given the quality of tenancy and durability of medical office properties.”

Weber said the outpatient trend is being driven by a combination of demands from patients and medical providers. Many people, especially millennials, don’t like visiting a hospital for treatment.   Medical providers also find that it costs more to do certain medical procedures in a hospital than an outpatient setting.

“Along with preventive care options, medical providers are opening more specialized healthcare facilities, such as those that offer treatment for depression or post traumatic stress disorder and behavioral and mental health facilities,” Weber said.  “We’re going to see more of that,” she said. “I think you’re going to see these outpatient clinics in all shapes and sizes.”

 

Source: Bisnow

Consolidation In Healthcare Spurs Medical Investor To Adopt Large Tenant Strategy

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Consolidation in the healthcare industry is spurring a need for large blocks of medical office space.

Medical office building at 3531 Fashion Way in Torrance (PHOTO CREDIT: Meridian)

Medical real estate investor and developer Meridian has adopted a large tenant strategy for its latest acquisition. The property, a 26,000-square-foot medical office building in Torrance, was 100% vacant at the time of the sale and was marketed as a redevelopment opportunity. Instead of redeveloping the property into another use, Meridian saw that this would fulfill a need for large medical office tenants, and it was able to secure a tenant for half of the property during escrow.

“As the healthcare industry continues to consolidate, we’re seeing much more demand for larger blocks of contiguous space,” R.J. Sommerdyke, director of acquisitions at Meridian, tells GlobeSt.com. “We felt particularly good about this acquisition because it represented a unique opportunity to provide tenants with one of the only options in the market for large blocks of ground-floor space, which is very desirable from a medical perspective. We’re already seeing our thesis being proven by securing a large tenant so early-on in the process.”

The renovation will be complete late next year, but the early leasing activity bodes well for early lease-up.

“The property was previously operated as an imaging and radiation oncology center,” adds Sommerdyke. “As such, the building housed two linear accelerator vaults, which are used for radiation therapy in cancer patients. These vaults are extremely expensive to construct at $1.5 million to $2 million each, and by having those improvements in place, we can offer a very compelling rental rate to a future tenant who can utilize those improvements versus having to construct them on their own.”

The location will also help to promote leasing activity, and was a major reason why Meridian saw potential in the property.

“Meridian pursued and ultimately purchased the property due to the unique location between two major hospitals and the inherent value in the existing building improvements,” explains Sommerdyke.

While the micro-market is ideal for the medical office project, Torrance in general has improving fundamentals that helped to drive Meridian’s interest in the property.

“In addition to great demographics, the medical office fundamentals for Torrance are strong and continue to improve,” John Pollock, CEO of Meridian, tells GlobeSt.com. “The submarket has consistently experienced positive net absorption since 2010 and market vacancy for medical has dropped to single digits.”

 

Source: GlobeSt.