IRVINE, CA—As reported last week on GlobeSt.com, Colliers International has hired Mary Beth Kuzmanovich as national director, healthcare services. The 25-year industry veteran spent time on the client side, as well, most recently as VP for facilities management with Carolinas HealthCare System. GlobeSt.com spoke with Kuzmanovich to glean her thoughts on the opportunities and challenges the healthcare sector presents both for Colliers and for the industry in general. In part one of this two-part interview, she surveys the landscape as the industry adjusts to the new reality brought on by the Affordable Care Act.
GlobeSt.com: The healthcare sector is seeing a number of changes as a result of the Affordable Care Act. How are they affecting teants' real estate requirements?
Mary Beth Kuzmanovich: The premise of the ACA is that by more people having insurance, healthcare systems will be able to have more reimbursement for what in the past had been uninsured and unpaid-for care. The reality for healthcare systems is that the impact is much greater on their operating margins. Along with changes in demographics and technology, it's driving healthcare systems from volume-based activity to value-based activity. That shift means that they're trying to push patients into the lowest-cost setting possible, and trying to avoid providing high-cost care. The real estate impact is that you're seeing healthcare systems shift from being inpatient-centric to outpatient-centric.
As a result, you're seeing the systems providing healthcare in much more accessible places, locations that are much more retail-oriented. When Blockbuster Video went bankrupt, all of these great locations became available.
From a real estate perspective, this creates both an opportunity and a challenge. The opportunity is finding all of those great, prime sites that are attractive to patients for lower-cost care. The challenge is that some of those locations don't have the same real estate support structures that healthcare uses require, predominantly parking. For Colliers and other service firms, the challenge and the opportunity is how to find those locations, make them readily available and stay ahead of the healthcare systems as they're looking for that sweet spot in the marketplace.
GlobeSt.com: It would seem that another opportunity and challenge is finding sites that are favorable not only from a location standpoint, but also from a rent and operating cost standpoint.
Kuzmanovich: Yes, because retail locations often demand a higher rent per square foot, and healthcare systems, because they're facing those financial pressures, are looking for ways to find a much more favorable rent rate. It is a challenge, but the other side of that is that healthcare systems tend to have a longer presence in a location. They may take a seven- to 10-year lease term where a retail operation would take a shorter term, so there's an opportunity to play with that cost per square foot by giving a longer lease commitment. The retail owners are becoming more accepting of healthcare uses in their spaces; it provides them with an anchor.
GlobeSt.com: Not all healthcare systems are moving toward retail; there's still plenty of traction in traditional medical office space, correct?
Kuzmanovich: That is true. One of the things that healthcare systems are doing is consolidating their physician practices so they can reduce overhead. So traditional medical office locations remain very viable in the marketplace. They put two or three practices together and they can share a receptionist or an X-ray technologist. It's also a convenience for the patient, because they can come to a destination and have multiple services done. And that product is very attractive to investors; medical office is trading in very high demand right now. There's actually more money in the marketplace, through some of the public and private REITs, than there is product.
Tomorrow: Mary Beth Kuzmanovich discusses Colliers' near-term direction in the healthcare real estate sector.
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