Veterans Offer Rx for Healthcare Property Management

A trio of industry veterans speaking at the Institute of Real Estate Management’s fall conference last week offered a snapshot of rapid changes in healthcare, which poses a challenge for real estate owners, as well as medical professionals.

Grappling with the rapid changes in healthcare poses a challenge nearly as great for real estate owners and managers as it is for medical professionals themselves. With that in mind, a trio of industry veterans speaking at the Institute of Real Estate Management’s fall conference last week offered a snapshot of what is on the horizon.

“There’s such a huge opportunity,” said Christopher Mauth, a Charlotte, N.C.-based senior property manager for Lincoln Harris, at the event in New Orleans last week. He ticked off characteristics of the new model for medical office buildings: a single spot for patient check-in and checkout; a common waiting area; and shared space for medical testing and labs. These steps also make operations more efficient by reducing the facility’s footprint.

The graying of the Baby Boomers is propelling broad changes in healthcare delivery. Patricia Jones of Lillibridge Healthcare Services Inc. cited an aging population’s need for specialized cardiac, orthopedic and cancer care. An emphasis on providing services at outpatient centers rather than hospitals is pushing the development of new facilities.

As a case in point, she cited Cancer Care Center of Decatur, which Lillibridge completed in the Illinois city two years ago at a cost of $12 million. The 55,400-square-foot facility provides diagnosis, treatment and research services in a single location. The facility illustrates a trend that will increase outpatient services a projected 30 percent during the current decade while in-patient hospital visits are declining 2 percent.

At the same time, major medical hubs are also attracting new development. Helen Moise, vice president of asset management and customer service for Duke Realty Corp.’s south and southeast regions, pointed out that $6 billion of healthcare-related development is under way in her Dallas hometown alone. “These are management jobs for us, guys,” she said to the audience. Moise reported that Duke is developing its eighth facility for Baylor University Medical Center in Dallas, the latest in a series that includes the $154 million Baylor Charles A. Sammons Cancer Center, which opened in early 2011.

The speakers also commented on the nuances of development and managing healthcare-related properties. Hospitals prefer developers to take the lead, Moise pointed out.

“They do not want to be in the real estate business, but they do want to control the campus ground lease,” she said.

Fifteen-year triple-net leases are the norm, along with a significant portion of seven-year leases. Also characteristic are higher tenant improvement costs compared to conventional office buildings and annual rent increases of 2 percent or 3 percent.

Beyond these nuts and bolts, however, managing a healthcare facility demands an understanding of the specialized needs of the end users. “It changes the dynamics in managing the properties,” Jones added.

For example, the management team should bear in mind that many visitors to a medical office building are unwell and may have difficulty getting around.