Outpatient Health Care Services Driving CRE Income

Nationally it appears that there is insufficient square footage available to accommodate the significant growth seen in the healthcare real estate sector, with the rate of absorption outpacing new product deliveries, according to Northmarq.

“This has put national occupancy rates for medical office at a historic high,” Colin Cornell, Northmarq vice president, healthcare investment sales, tells “We anticipate a steady stream of opportunities for investors in 2023, including newly developed facilities, new long-term leases on historically vacant MOBs, and retrofits of what were historically retail-oriented buildings.”

Cornell said that like most sectors, healthcare has been in the price discovery stage since interest rate increases began, but values seem to be settling somewhere between 2019 and 2021 levels.

“The investor demand is there, and the question is will owners be willing to meet that demand at the new return buyers requires,” Cornell said.

These investors are best to focus on outpatient services, according to JLL’s most recent Healthcare and Medical Office Perspective, which shows that outpatient sites dominate healthcare services delivery compared to hospital admissions.

Additionally, according to Kaufman Hall National Hospital Flash Report, outpatient revenue rose 8% in 2022, while inpatient revenue was flat when compared to 2021.

JLL’s report said that up to a third of hospital revenue is activity shifting to ambulatory surgery centers, office-based labs, and other ambulatory sites.

“More sophisticated procedures can be done in outpatient settings than possible a decade ago.” Amber Schiada, head of Americas work dynamics and industry research, JLL, said in prepared remarks. “Innovation in care combined with reimbursement pressures are driving a sustained shift to outpatient facilities, and consumer preferences for outpatient care have increased as well, as outpatient facilities are often more accessible or conveniently located. Furthermore, experience shows that outpatient locations are less expensive to build and operate, produce better-quality medical outcomes, and yield higher rates of patient satisfaction.”

Medical Office Space and Health Care Real Estate Producing Income

Allan Swaringen, President & CEO of JLL Income Property Trust, tells that medical office space, and healthcare-oriented real estate more generally, will continue to be a key piece of an income-producing, core fund such as JLL Income Property Trust.

“The extremely positive demographic trends driving tenant demand for this sector, combined with the often-long-term leases of tenants who look to serve their local population and often invest heavily in building improvements, create a scenario where owners can generate long-term, stable cashflow,” Swaringen said. “That’s why we have continued to construct a geographically diversified healthcare-oriented portfolio that today is valued at nearly $635 million and totals approximately 1.4 million square feet.”

The Continuum Of Care

Andrew Salmon, chief future officer at SALMON Health & Retirement, tells that given the aging demographics, it’s no surprise that we are seeing an explosion in need for outpatient facilities.

“What’s pivotal is the consideration for the continuum of care, as the 80+ population is forecasted to balloon nearly 50% in the next 10 years, and they will require both inpatient and outpatient opportunities as they age,” said Salmon. “Our goal is to establish the continuum of care across the aging population, to ensure that independent and assisted living opportunities exist with convenient, local access to major medical providers, allowing our residents to maximize the outpatient system while maintaining independence.”

Outpatient Services Leads To Higher Satisfaction

Doug King, national healthcare sector lead for Project Management Advisors, tells that healthcare providers have been actively positioning outpatient services closer to where their patients reside for at least a generation.

Outpatient facilities typically result in higher patient satisfaction, King said, and the challenges to outpatient facilities presented by telehealth and home healthcare are minimal as many clinical limitations and regulatory challenges exist for these two off-site methods.

“Decentralized ‘brick-and-mortar’ outpatient facilities will continue to grow,” according to King. “A vast majority of care will be occurring in outpatient settings, including urgent care centers, free-standing emergency departments, medical office/doctor offices, and ambulatory care facilities – outfitted to accommodate same-day surgical activities. In healthcare, we say, ‘follow the money’ and The Center for Medicare and Medicaid services are reviewing how reimbursement strategies can promote this model. An example is the growth of OBL (office-based labs) to house sophisticated surgical and imaging services performed on an outpatient basis.”

Developing, Rehabbing, Modernizing Facilities

Mitch Creem, principal of GreenRock Capital, tells that investors have always viewed medical office buildings as safe investments during uncertain financial times, primarily due to their historically proven resiliency during market downturns.

“But now, 75 years after the Boomer generation was born, we are expecting a ‘gray tsunami,’ fueling the need for additional healthcare services and many more sites of care,” Creem said. “Physicians, hospitals, real estate investment funds, and individual investors are all keen on developing new sites or rehabbing and modernizing existing buildings to provide state-of-the-art care and attract new patients.”

Deliver Care In Outpatient Settings More Economical

Brian Edgerton, senior vice president, healthcare services team – NAI Hiffman, tells that after historic growth in 2021-2022, the sector is not without headwinds.

“It saw rising cap rates and fewer starts and deliveries at the end of 2022,” Edgerton said. “In 2022, healthcare real estate developers kept busy delivering modern medical office buildings to accommodate health systems and large multi-specialty practices, including those seeking to consolidate multiple specialties under one roof in highly visible, patient-proximate locations. At the same time, developers are feeling the squeeze of construction cost increases, supply chain delays, and interest rate hikes, all of which are reflected in the higher rental rates that must be charged to make these deals pencil out. Yet, even if they’re paying more today than they would have a year ago, it is still more economical and efficient for providers to deliver care in outpatient settings, many of which are located in close proximity to where their patients live and work.”

Edgerton said that like retail, healthcare increasingly follows rooftops, so services are moving closer to the patient thanks to technological advancements that can more easily be implemented in newly developed and repurposed buildings, rather than the medical office building of 30 years ago.

When Choosing Project Sites, Demographics Matter

Craig Gambardella, vice president at TSCG MD, tells that clients understand that their property, and a potential fit for an outpatient healthcare facility within that particular property, is crucial in their decision-making.

“You must look at demographic, psychographic and prevalence of diseases in certain trade areas, and 5- to 10-year projected growth of not only disease prevalence, but how that translates to outpatient demands to help health systems forecast potential growth,” Gambardella said. “For example, the owner of a large mall that is looking to repurpose a portion of it into medical must accurately forecast the demand in that area for an outpatient facility, what types of clinical services may be needed, based on disease prevalence and 5- to 10-year projected growth.”

A Continued Extension Of Outpatient Services

Rich Steimel, senior vice president and principal in charge, healthcare, New York, at Lendlease said that throughout the industry, more procedures are taking place away from the main clinical facilities as there is a continued extension of outpatient services across metro areas and into the suburbs.

“This shift allows hospital campus operations a greater opportunity to expand and connect with a growing base of patients who require critical care but desire the convenience of off-campus facilities,” said Steimel.


Source: GlobeSt.

Q&A Regarding Real Estate’s Fast-Emerging Frontier In Cancer Care And Research & Development

Thomas Osha has a unique vantage point when it comes to innovation districts rooted in the life sciences. As executive vice president of Wexford Technology + Science out of Baltimore, he runs point for one of the most active U.S. developers of real estate used by major research universities and their private-sector partners.

He recently caught up with Ashley Fahey, The Business Journals’ national real estate editor, to talk about post-pandemic development and how demand is reshaping real estate needs in the realm of cancer-related R&D and treatment.

Below is an edited transcript of their conversation.

Ashley Fahey: Can you talk a little bit about what markets you want to be in?

Thomas Osha: One of the things that we have seen is an acceleration of a move by companies and startups to be near university research. It doesn’t necessarily matter where it is, it matters what it is. So we are seeing areas popping up in Sacramento, Phoenix, Providence, Winston-Salem, Charlotte. A number of cities, Baltimore, St. Louis, that aren’t necessarily considered the major hubs of life sciences, yet at each one of these there are scientists, there is intellectual capital and innovation that companies want to be near.

So it’s starting to branch out to some tertiary and secondary cities, and that’s where you guys are planning your next projects? Very much so. I’ve always said that talent is the currency of innovation.

Ashley Fahey: A lot of cities want to get in on life sciences. What are you seeing at Wexford?

Thomas Osha: I spend a lot of time with local mayors talking about what it is like to create an innovation district. So much of the conversation was around an innovation district being a place where people cluster and connect. It’s not just draw a line and say, “This is the district. You’re in, or you’re out.” In a lot of ways, this is about place making as much as it is about construction of buildings.


Click here to read the remainder of the interview.

MLL Capital Expands Medical Office Portfolio With Four Acquisitions

MLL Capital, a Boston-based commercial real estate investor focused on medical office, laboratory and life sciences properties across the US, announced today the recent acquisition of four medical office buildings, totaling 251,546 square feet during December of 2019.

The properties are located in Chicago, Minneapolis/St Paul, Washington D.C. and Nashville markets.

“These acquisitions align with our strategy to build a portfolio focusing on opportunistic and value-add investments in this sector and repositioning them to attract and retain high-quality medical tenants,” said Wyndsor DePetro, an MLL Capital Principal. “The assets, which are currently 81% occupied, present the opportunity to lease up to stabilized occupancy levels by attracting and retaining a diverse mix of high-quality medical office tenants with a targeted leasing effort using attractive lease packages and capital improvement plans.”

The acquisitions include:

— The 95,043 square foot Advocate Sherman medical office building located on the campus of the Advocate Sherman Hospital in Elgin, IL, part of the Chicago market

28 White Bridge Road, a 60,540 square foot medical office building located near the 498-bed St. Thomas West Hospital in Nashville, TN

46440 Benedict Drive, a 35,405 square foot medical office building in Sterling, VA, a submarket of Washington D.C.

— The 60,558 square foot High Pointe Health Campus located in Lake Elmo, MN in the Minneapolis/St. Paul market.

“These are well-located medical properties that present an opportunity to create premier, on- and off-campus, multi-tenant healthcare properties,” said Kyle O’Connor, MLL Capital President and Founder. “There continues to be strong interest from investors in value-add medical office, laboratory and life sciences properties, which offer some of the best risk adjusted returns in the market today given the underlying demand fundamentals and downside protection. These recent acquisitions have us on track to reach our goal of building a $500 million portfolio of institutional-quality assets in this sector.”


Source: HREI