Are Hospitals Still In Real Estate?

SAN DIEGO-Hospitals and health systems are relying more heavily on brokerage firms for their real estate needs, preferring instead to focus on the business of healthcare, said panelists at NAIOP's Development '13 conference here this week. Accordiing to Jim Rohan, SVP of development for PMB LLC, it depends on the situation, but “more [hospitals] are wanting brokers to get involved. They like to have a broker who understands how healthcare works.”

Panelists agreed that there is no one-size-fits-all answer for healthcare real estate needs, and patients have a lot of choice in where to get their needs met, which makes these decisions for hospitals even more critical than before. This could be one reason why hospitals are turning to professional healthcare real estate brokers for answers.

Retail models for healthcare are becoming more popular since they can be put in place almost overnight and don't require as much time or capital investment as developing hospitals does, Rohan added. Also, the fate of systems themselves will be evidenced on a case-by-case basis, said Michael Monaldo, VP of facilities development for John Muir Health. “Some systems will close, and others will expand. There will be fewer services per person, but more people in the system.”

One trend that seems to be moving rapidly through the healthcare industry is the desire for all providers from one system to be integrated into one building, which Monaldo says would have happened with or without Obamacare. Health systems want to master-lease a building and sublease space to third-party tenants in order to have more control over which tenants are in the building, said Deeni Taylor, EVP for Duke Realty.

The movement in hospitals is also toward outpatient services. “The key is not overbuilding in certain markets,” said Taylor. “There could be overbuilding if a building in a particular area is not in the patients' ACO.” He added that hospitals will be closing over the next five to 10 years in order to accommodate healthcare reform.

Despite the somewhat gloomy predictions for hospitals, there is development on that front, as GlobeSt.com reported in August. PMB broke ground on a $37-mllion, 70,000-square-foot medical-office building and adjacent parking structure on the Los Alamitos Medical Center campus here. The project, scheduled to be completed in summer 2014, consists of a three-story MOB and a six-level, 1,077-space parking structure that will serve both the MOB and the 167-bed hospital.