Three experienced commercial real estate professionals serving a niche in the national medical office building (MOB) sector have formed Capital Healthcare Properties to address the needs of leading healthcare systems, physician groups and specialty providers.
Daniel Ahlering, Jack Sullivan and Jay Heald, the firm’s founding principals, have also formed a programmatic joint venture partnership with HSG Medical, an affiliate of Hubbard Street Group, to facilitate and launch new development and acquisition initiatives.
Ahlering, Sullivan and Heald will draw on their recent experience with a Chicago-based MOB developer where they completed more than one million square feet in new developments and leasing assignments and earlier within the capital markets and tenant representation groups at JLL. Capital Healthcare Properties provides a comprehensive menu of services ranging from ground-up development to acquisitions to leasing of owned and third-party assets. On the development front, the joint venture will target medical office buildings ranging from 20,000 to 100,000 square feet.
“Our primary goal in forming Capital Healthcare Properties is to leverage our collective experiences, resources and relationships to lessen a client’s real estate burden. This allows them to focus on providing tremendous patient care, their core business,” said Jay Heald, Managing Partner, Capital Healthcare Properties.
In partnering with HSG Medical, Capital Healthcare Properties will draw on the experiences and expertise of the two HSG Medical Principals, John McLinden and Kage Brown. Combined, the Principals of HSG Medical have over 45 years of national real estate development experience and have developed over 12.5 million square feet and 5,000+ residential units, exceeding $3 billion in aggregate capitalization for these projects.
“Strategically we believe the health care industry represents a huge growth opportunity for commercial real estate,” said Kage Brown, Principal, HSG Medical. “In the aftermath of the pandemic, medical offices remain one of the most resilient and recession-resistant commercial real estate sectors, with low correlation to greater economic and geopolitical trends.”
HSG Medical will provide capital, investment oversight, accounting and administrative services along with office space for the joint venture. The partnership will operate independently from Hubbard Street Group.
The principals’ resume of involvement in new development projects includes work with Northwestern Medicine, Advocate Health, Northwest Community Hospital, HonorHealth and The CORE Institute, among others, in Illinois and Arizona. The development projects, with varying degrees of complexity, range in size from 20,000 to 180,000 square feet. Further, several projects were awarded national and regional awards for development excellence. Specific project highlights include:
• Oak Brook Commons, a 180,000-square-foot ground-up development for Northwestern Medicine that was completed in the fourth quarter of 2022 and is located in Oak Brook, Ill.
• NCH Buffalo Grove Outpatient Care Center, a 71,000-square-foot ground-up development for Northwest Community Hospital that was completed in the third quarter of 2021 and is located in Buffalo Grove, Ill. The project has been recognized for excellence by a variety of healthcare and real estate organizations.
• Mercy Medical Commons II, a 60,000-square-foot ground-up development anchored by The CORE Institute that was completed in mid-2020 and is located in Gilbert, Ariz. The project has been recognized for excellence by a local real estate media outlet.
“Delivering successful outcomes is all about relationships, tactical execution and regular communication during all phases of a client project,” said Dan Ahlering, Managing Partner, Capital Healthcare Properties. “Our collective experiences and contacts in the industry, and our partnership with HSG Medical, give us the tools and insights to uniquely serve our clients and redefine the client-service provider relationship.”
The Healthcare Environment
Despite many issues facing the healthcare sector—labor shortage/costs, supply chain issues, inflation and reimbursement pressure, etc.—there remains a tremendous need and appetite for outpatient medical office investment and development. This is due to a variety of market forces that include a shift in patient care preferences away from hospitals to outpatient and ambulatory surgical centers.
The shift already was occurring with policy/regulation changes, purchaser preferences, innovation and a lower provider operating cost, and then was exacerbated during and post-pandemic.
Outpatient facility revenue is estimated to be approximately 50% of hospital revenue and those facilities provide a lower cost basis versus inpatient or HOPD sites. According to Kaufman Hall and JLL, outpatient revenue grew by 8% in 2022. Further, the JLL report says outpatient demand for ages 55+ alone is forecast to grow 16.9% by 2025.
“Hospitals, healthcare systems and physician groups recognize the need to invest in their outpatient strategy, especially as the healthcare environment, business climate and patient preferences constantly evolve,” said Jack Sullivan, Managing Partner, Capital Healthcare Properties. “We’ll make those investments more sound because of the depth of resources we bring to each assignment.”