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LAS COLINAS, TX-A combination of the health care reform debate and the still-sluggish economy is having an impact not only on health care providers, but on the real estate in which they practice. On Nov. 13, experts and speakers shared their expertise and predictions on what, exactly, might happen to medical real estate at the second annual RealShare Medical Office Buildings.

A year ago, at RealShare’s first MOB conference, the mood was best described as vastly emotional, ranging from somber to shell-shocked. Taking place just weeks after the financial system collapsed, the November 2008 conference centered around real estate ownership survival and how to weather the pending economic storm.

Then, as recently, the conference took place at the Four Seasons Hotel & Resort. But the mood of this year’s conference, hosted by ALM’s Real Estate Media and produced by Real Estate Forum and GlobeSt.com, was less panicked and more purposeful. Throughout the day, close to 200 participants listened to experts debating how health care reform might change the system and how that change, in turn, might impact medical real estate. Though none of the experts could predict when, exactly, healthcare reform would take place, all were fairly unanimous in that it would change the way in which current medical real estate is being used.

Many of the experts pointed out that reform could lead to a burst in pent-up demand as patients who had postponed things like routine visits and elective surgery would go ahead with these activities, which might lead to more space requirements. But Jean-Claude Saada, CEO with Cambridge Holdings cautioned participants not to make an automatic leap from pent-up patient demand to the automatic need for more space. Physicians like cheap space, he added; that, more than anything, would be the driver for growth.

The parameters of the space would likely change, however. The current stock of buildings that were developed during times when a previous health care model was operating. The experts agree that these buildings will somehow have to be retrofitted, which can be an expensive proposition.

However, with the coming demand for electronic medical records, facilities will have to change to meet the demand. The old model simply won’t work much longer.

When it comes to the doctors of today, especially the younger doctors, they are very much hooked up electronically, explains Michael Arvin, senior vice president and chief development office with Methodist Health System. It means that older facilities might be outdated. Even the ones coming out of the ground might be outdated in the very near future. “If you can’t record it, read it and send it to someone’s PDA, you’re not competitive,” Arvin added.

Sean Janus, national health care leader with Jones Lang LaSalle said another impact on the medical profession was accounting reform, which would impact hospitals leasing space. Among the change is that “all leases will need to be on the balance sheets,” he said. “No grandfathering any more with the leases.” Those changes could make hospital owners think more carefully about whether they want to be in the real estate business, he added.

But it isn’t only hospitals that are trying to hightail it away from real estate. “Younger doctors coming out of school with a lot of debt just want to practice medicine. They don’t want anything to do with business,” said AMN Healthcare vice president, business development Kurt Mosley. “Older doctors, too, don’t want to really deal with the business end.”

But on the real estate end, we could see more partnerships between hospitals, physicians and developers/building owners. Pedro Vergne-Marini, managing member of Physician’s Capital Investments, pointed out that physicians are going to need other sources of revenue because of contained costs. “The model we see today of just leasing medical office buildings to doctors is going to go,” he predicted.

Investments were also discussed, with Mike Lincoln, executive vice president of marketing and business development at Lillibridge noticing that lending institutions are starting to loosen the reins, just a bit. “Banks are starting to think about lending again,” he commented. “Their appetite for risk is starting to improve.”

But the loan terms themselves are changing as well. Jason Bates, vice president of finance with Codgell Spencer Erdman said amortization periods have come down, while lenders are basing values on debt coverage. Furthermore, “everything takes longer,” he said. LTVs are down too, added GIB Investments Principal Jason Blake approximately 15%-20%.

On the equity side, hospital REITS offer a good source of cash. Furthermore, “we’ve seen interest from non-US based sources of capital,” remarked Josh Kamin, a partner with King & Spaulding.

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