SAN CLEMENTE, CA—In the wake of JLL‘s acquisition of locally based CLEO Manufacturing, on which GlobeSt.com reported last week, JLL’s market director for the Southwest region Peter Belisle tells us the purchase allows flexibility in services and talent use. We spoke with Belisle about the significance of this acquisition and the types of expansions and renovations that he’s seeing in the healthcare-facilities arena.
GlobeSt.com: Why is this acquisition significant for you and your firm?
Belisle: We actually as a firm are very heavily into the healthcare sector. I used to run our project- and development-services group nationally, and in terms of project value, we became one of the top three project-management firms in the country on healthcare projects eight to 10 years ago. For the past five years or so, we’ve been aggressively moving more into full-service real estate work for healthcare systems.
We saw a big outsourcing trend in corporate America 10-15 years ago where companies began to focus more on their core competencies and started outsourcing many of their corporate real estate functions. Now, the healthcare sector is starting to look at outsourcing. Healthcare systems on the provider side are getting pinched with Obamacare and insurance, and their revenues are challenged to take in money to do these kinds of projects. They’re using an applying those skill sets, but with an eye toward outsourcing facility-management, transaction and project-management services. This is a natural extension of what our firm has had a real specialization around doing, but now we’re applying it to health systems around the country to deliver effectively for these systems.
CLEO is a nice addition to the teams we already have that are providing services for these clients. For people who are not used to working in healthcare or acute care, there are high barriers to entry. You can’t just put someone whose experience has only been in office construction into building a hospital. There’s a tremendous amount of knowledge needed about the regulatory approval process for healthcare projects. It’s very detailed. The CLEO professionals have worked on very large hospital projects in excess of $400 million and have been doing this kind of work for decades. Getting people on our team with that kind of résumé is fantastic.
GlobeSt.com: What types of expansions and renovations are becoming most popular in the healthcare-facilities arena?
Belisle: There is a big push in the healthcare industry to look at how they can better deliver services to their patient group more effectively. The days of going into a main hospital, staying overnight for surgery and recuperating in the hospital are disappearing, and systems are looking at creating more of a retail strategy with surgical centers, more outpatient facilities, more specialized services. These areas are more akin to a retail environment that what you would see traditionally. They’re not trying to reduce the quality of care, but the delivery infrastructure cost basis. There’s a huge trend of these global brands applying their brand with doctor groups in smaller facilities that can be run more cost-effectively and efficiently.
In addition to that, we’re also seeing upgrading investment in core hospital facilities. Seismic upgrading has triggered a lot of infrastructure replacement. Also, healthcare is converting from traditional paper records format to an electronic format, which is changing space use.
We’re also going to see the healthcare industry—especially the hospitals—rely heavily on private benefactors’ and organizations’ donations. New capital campaigns will provide a new vehicle for development around these hospital systems.
GlobeSt.com: How much are health groups and systems spending on these expansions and renovations?
Belisle: It is literally in the billions of dollars over the next 10 to 20 years. From the service side, it’s one of the biggest growth areas we will see in this country. It’s tied to aging Baby Boomers, people living longer and advances in healthcare needing better infrastructure to aid the Baby Boomer population. Also, a natural adjunct to the healthcare-services group is around facilities designed to support the aged: senior living. There are different levels of senior living—from some that are primarily a residential play with basic amenities to heavily supported, more convalescent-style facilities. That sector will boom over the next 10 to 20 years. A lot of this product doesn’t exist yet today, so the industry is looking at where it should be located and what it should look like. Health systems may be interested in having projects adjacent to universities as a way for universities to stay close to this alumni base that may become benefactors as their lives progress.
GlobeSt.com: How long does the construction take, on average, to complete?
Belisle: It’s really interesting to take a look at building a hospital vs. an office building. The whole process for putting up a high-rise takes about four years on average. For a hospital, you could literally be in fundraising for two to four years, in regulatory approvals for another 2+ years, involved in master planning for a year, design for a year. The entire process theoretically could be from six to 15 years to fill out a master plan. It’s an unbelievably long horizon. Many campuses are in multi-phase development plans that literally span 20 to 25 years.
GlobeSt.com: What are some of the challenges to completing these projects?
Belisle: With these long-term projects, one of the biggest challenges is trying to get the right talent to be available as permanent in-house employees—being able to get what you need when you need it vs. trying to hire that person potentially years in advance and hope they stick around internally to execute. But an internal firm doesn’t have to worry about what to do with the individual when the job is done.