Browse Tag: Hospital

When A Hospital Closes

English: Looking east from Grand Concourse acr...

The health care industry is going through a series of stark trends that affect economic relationships between hospitals and nearby commercial property. The site selection of large hospitals has always had a major effect upon the fortunes of surrounding retail, and nowhere is that relationship felt more keenly than in the urban setting. So when such hospitals close, the prospects tend to dim for the restaurants and convenience stores nearby dependent upon the thousands of foot-traffic customers the hospital attracts.

While there is no discernible wave of hospital closures nationally – despite what some strident political opponents of the new Affordable Care Act law say – there is a pair of trends in healthcare that are reworking the economics of health care property.  The first trend is medical consolidation.  Consolidation is the concentration by purchase of medical properties under a single provider network, more or less characterized by the independent neighborhood clinic becoming a satellite of a large provider or hospital / network. Consolidation tends to not spread disruption in urban settings as the changes are in ownership and operations, leaving doors open and a stream of patients and families untouched.

The more disruptive trend in terms of property is found on the other side of the first one.  Increased patient flows to neighborhood clinics are being driven by hospitals increasingly spinning off outpatient care such as dialysis and MRI imaging to these satellite clinics.  With the large hospitals facing aging facilities and a increasing concentration on inpatient care, facilities built for both decades ago fall out of favor and closure becomes more likely.

And that’s bad news for the surrounding business property performance.  One illustrative example comes from the Lincoln Park neighborhood in Chicago, where the recent closure and moving of Children’s Memorial Hospital has left the neighborhood in a retail “dead zone”.

According to an analysis by the Lincoln Park Chamber of Commerce, more than 1.5 million people visited the hospital each year, for an average of 4,100 people a day.

When the hospital moved to Streeterville in June 2012 and became the Ann & Robert H. Lurie Children’s Hospital, it took more than 4,300 employees with it, according to the chamber.

One of the businesses that decided to pull the plug on its Lincoln Avenue location, Costello’s Sandwiches, has had success at its other three locations for years.

The Lincoln Avenue location lasted only seven months.

“Our original thought was we really liked the space,” said Rob Procell, co-owner of Costello’s. “I think that specific location being on that stretch of the street is going to turn into a dead zone.”

Lincoln Ave. a Dead Zone Without Children’s Memorial, Business Owners Say – Lincoln Park – Chicago.

Healthcare Real Estate: Looking Beyond The Indicators

English: The main office of North Carolina Eye...

With only a few exceptions, the mood was decidedly up at Thursday’s Healthcare Real Estate Conference in Chicago.  The investors, brokers, tenants, developers and managers who met at the University Club came to hear about strategies and trends in development, management and capital for medical properties ranging from medical office buildings (MOBs) to large healthcare campuses to retail outpatient facilities.

Superficially, the first indicator from 2012 was a drop in medical facility construction starts.  Usually, when a sector sees a drop in national groundbreaking, it’s kind of tough to read the tea leaves as anything other than a negative.

That wasn’t the diagnosis at the conference.

On a panel including Shawn Janus of Jones Lang LaSalle’s Healthcare practice, the drop in starts was likened to a deception associated with long-term factors finally clearing up.

“We saw a decrease due to the capital markets still rebounding, and a SCOTUS ruling on ACA, then an election,” said Janus.  “With all that behind us, we’re going to ses greater activity.  On the acute care side, that has dropped off. Community hospital starts has slowed down.  But we’re going to see higher-acuity activity driven into the outpatient environment.”

Testing Positive For Jargon

The healthcare sector of commercial real estate has a set of keywords that don’t appear elsewhere.   Let’s take a look at Shawn’s response and unpack it a bit.

  • acute care: more or less means large hospitals
  • high acuity: medical interventions for seriously ill people (acuity is another term for acuteness or severity of illness).  High acuity medecine is typically conducted on inpatients, that is, hospital patients.  But the general trend in medicine and the incentives are to take some higher acuity patients and treat them not in hospitals but in specialized outpatient settings.  One classic example of this trend is the dialysis clinic.  There was a time that dialysis for kidney patients was conducted primarily inside a hospital: that has changed in a great many places today.
  • outpatient : a patient not hospitalized overnight

What he’s describing is a trend — several trends, in medical payments, technology and facilities management — that will cause an explosion in non-hospital medical facility utilization for outpatients.  Strip mall spaces, office renovations, all manner of off-campus medical facilities are going to form the demand nationally going forward.

Consider it a retailizaton of medicine.

IT First, Space Solutions Next

And the trends in healthcare facilities are moving in a particular order, creating further deception in the recent numbers.  The Affordable Care Act contains mountains of incentives for the adoption of healthcare information technology (HIT) including electronic medical records (EHR).  Tina Waldrup, VP of HealthDirections, an Illinois consulting firm, put it this way:

“From the provider perspective: ACA is causing providers to spend much more on IT and thereby less on real estate [and creating] lots of repurposing of office space. ”

In other words, the changes are marching to the beat of the federal drum, placing priorities on reworking existing space — for now.  But approximately 35 million more Americans will be insured  – and that population, plus the “silver tsunami” of baby boomers aging into high medical care use – means a major explosion in demand for medical space is coming.

Watch The Source this week for more coverage of the Healthcare Real Estate Conference.

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Healthcare Real Estate: The Consolidation Trend

A photo of the sign out front of University Ho...

In the wake of the recent Healthcare and Real Estate Summit held in Chicago, a clearer picture is beginning to form of healthcare business trends and property dispositions going forward nationally under the Affordable Care Act (aka “Obamacare”).  The commercial property professional in most markets is a stakeholder in these trends in a few different ways.

Healthcare Property Consolidation 

The property market in the hospital and health care provider segment faces a series of changes that are at bottom designed to provide greater efficiency in delivery of healthcare services.   While the changes are not sweeping or alarming, nor do they reflect anything like a “takeover” of health care by entities other than health care providers, they are significant in property terms because of the trend of consolidation.

The already-existing national trend of hospitals establishing off-campus outpatient facilities and specialty practices is dovetailing with the business plans and exit strategies of independent practices, who are finding their profitability declining.  Owing to the rising costs of medical care provisioning –  driven by everything from very unwieldy and complex billing struggles to the wider economic picture where six out of ten US doctors reporting that their patients have difficulty paying for care – entrepreneurial physicians will increasingly see buyout offers from hospitals as attractive way to get out from a lease or to sell a building.

Sharing Of Resources Includes Square Footage

Controlling of costs and maintaining high quality of care means an increase in sharing of developed space.  The electrical, plant, IT and environmental requirements of healthcare construction represent sunk costs that need to be leveraged across a greater number of health care practitioners going forward.  Beyond that, stringent requirements for information technology updates for medical recordkeeping and the aforementioned billing will continue to be a major driver for the sharing of health care delivery facilities meaning labs, waiting rooms, exam rooms and the like.

The commercial property strategy that wins is one that finds solutions  for sellers and buyers in support of the consolidation trend.

Doctors Wondering If They Should Own

On the sell side, drivers of the consolidation trend are reflected in the position paper “Should Docs Own Office Buildings?”, by Robert Rosenthal and Barry Weinbaum of Pacific Medical Buildings. While certainly written from the point of view of advocating such ownership, the paper’s description of exit strategies for doctors looking to cash out of such investments rings like a bell for the commercial broker with experience in IRS 1031 tax-deferred exchanges.  If the prevailing trend is doctors on the way out of such properties in advance of hospitals and healthcare providers moving headlong to a distributed model driven by cost-sharing, the commercial REALTOR® would do well to watch the local market for examples and be ready to provide a key role in the business plans of doctors.


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