Yesterday, over 200 attendees joined us for Bisnow’s first LA Healthcare Real Estate Summit at the LA Athletic Club. Were any doctors in the house? Possibly, but there definitely were people who plan, design, and build facilities to house them—our terrific panel of experts.
Our able moderator, land use and real estate attorney David Waite of Jeffer Mangels Butler & Mitchell (left) calls healthcare one of the bright spots in the real estate market. No one needs to doctor up these stats: Healthcare reform will add 32 million new, previously uninsured patients by 2019 nationally. That translates into 64M SF of additional medical facilities throughout the country, whether adaptive reuse, rehab of outdated facilities, or ground-up development.
VP of SoCal capital projects Ron Smith says Kaiser Permanente’s strategy is to decompress campuses and push care out into the community by expanding the number of MOBs and surgery centers. “The pressure on us is time to service”—Kaiser’s plan is to build 78 additional MOBs over the next five years and 22 hospital projects (patient towers and new hospitals). The company’s had some success repurposing existing office buildings into fully functional MOBs. It’s also looking at a small hospital concept—100 to 110 beds—which can be distributed on a much broader scale in a much shorter timeframe.
Executive director of real estate development Brian League says USC is starting a specific plan process with the goal of entitling 2M SF at its Health Sciences campus over the next 20 years. In addition, part of the university’s mission is to establish a doctors of USC brand throughout SoCal, with clinical space throughout the region (a 20k SF facility is set to open next year in Pasadena). USC’s looking at infill spaces as it expands into the community. “We want to be tenants in someone else’s building” as opposed to owning new buildings outside of its academic campuses.
VP/regional healthcare practice leader Alicia Wachtel says HOK sees delivery of care being decentralized—fewer big hospital centers and replacement hospitals, more emphasis on what she calls smart MOBs or outpatient medical centers to conserve space. A 450k SF health sciences ambulatory pavilion and 400k SF parking structure that’s being built at Cedar-Sinai is a great example. The pavilion is all outpatient space but connected to the hospital so it can serve inpatients. It’s not just medical office anymore but a flexible environment.
Jones Lang LaSalle’s managing director of healthcare solutions Jason Clark says the healthcare industry is seeing a perfect storm: margin compression, increased operating costs, and a stricter regulatory environment. You’re going to see more M&As in every major health system because size is power. In addition, there’s tons of money standing on the sidelines waiting to come into healthcare, and there are some advantages in going outside to third-party capital—“using someone else’s money and paying a little bit of a fee” in order to conserve cash for more profitable uses (such as buying up physician groups).
Children’s Hospital Los Angeles opened an MOB in Arcadia last year and will open another in Valencia in March, according to associate VP of construction, design, and facilities Elizabeth Cochran. The provider is planning to expand some specialties into the community but is also looking to partner with physicians in other hospitals. CHLA is looking at efficiencies, condo use of MOBs, and buildings where it can do a plug-and-play without investing a large amount of capital in terms of remodeling–“something we can turn over and use very quickly.”
Archway Holdings Corp president Sean Moghavem says doctors are now forced to band into groups, and in doing so they’ll realize efficiencies not only on the real estate side—sharing waiting rooms, back offices, front office areas—but also sharing of the staff. That’ll allow the landlords to boost rental rates, because the increased cost will be minuscule compared to the savings these doctors are going to have by grouping together. Even if healthcare reform gets tossed out, demographic pressures will require more and more medical buildings “and in our opinion, higher rents.”
EVP of strategic initiatives Chris Corpuz explains why Kilroy Realty, which historically has focused on Class-A office space, is moving into healthcare real estate. It’s a large sector of the economy that isn’t getting any smaller, and there’s an often-overlooked predictability factor and progression of procedures. You can count the number of people in the room who are 40, and know that in 10 years they’re going to be 50. “I can tell you they’re going to go from procedures they don’t mind to colonoscopies.” The amount of square footage that will be needed is like building another San Francisco.
After the program, we snapped this of Transwestern West Region president George Garfield. He tells us the company’s been in the healthcare real estate space for a long time, predominantly out of its HQ in Houston, where Transwestern has built a services and development practice around the Texas Medical Center. The company followed suit in Chicago, the Southeast, and Phoenix, and George says the company’s now in the process of doing it on the West Coast.
We also took this of Medical Asset Management’s Angie Weber and Mitch Yankowitz. The company manages office buildings located across from hospitals in California. One trend it’s seeing is improved government funding for AIDS research.
We couldn’t put on programs like this without our sponsors. Here’s Boulevard Investment Group’s Michelle Rodriguez-Lagos, Craig Rogers, and Samantha Hattick.
Source: Real Estate Bisnow, Julie