Yesterday, I attended Interface Medical Office-Houston, an information and networking event focused on the Houston healthcare and medical office real estate market.
The panels included executives from REIT’s in the healthcare sector, lenders, hospital system executives and real estate/ facilities managers from major hospital systems in the Texas Medical Center, as well as representatives from the brokerage community focused on the healthcare sector.
The half day conference was broken up were broken up into three sessions. My bullet point notes from the conference are below:
The Outlook for Investment Development & Financing for Houston Healthcare and Medical Office Real Estate
- The availability for capital from both the debt and equity side is much improved from 12-18 months when basically capital was not available, but the landscape looks nothing like 2-3 years ago at the peak of the real estate market cycle.
- Medical Office Real Estate weathered the recession much better than general office from the Lender’s perspective as the sector did not experience significant erosion of occupancy levels or net operating income. However, capitalization rates are up 150 basis points.
- Healthcare REIT’s are flush with cash and actively seeking acquisition and development opportunities, and are bullish on Houston.
- The impact of Healthcare reform will not drive demand for high-end Class A medical office. Of the 25% uninsured segment of the Texas population half is expected to be in the Medicaid program, which will require new outreach facilities in lower income demographic areas.
Report from the Frontlines: How to Win the Leasing Management & Operations Battle in Today’s Market
- Physicians have been unwilling to commit to long-term leases due to uncertainty driven by the economic recession and a wait and see attitude on the impact of healthcare reform. Short term renewals not historically associated with medical leases have been the norm.
- From a leasing perspective the focus has been on tenant retention for Medical office owners as it has been difficult to attract new tenants.
- Rental Rates have remained flat, so owners have aggressively managed operating expenses, particularly energy management, but have been careful not to eliminate services and amenities that impact the physician’s office environment.
The Hospital and Healthcare System Perspective: How to Fund Growth in a Capital Constrained Environment
- Growth in the Texas Medical Center is constrained due to availability of land, geographical barriers and infrastructure issues and we may see more growth on the academic and research side than actual expansion of clinical facilities in the Texas
- Hospital systems will continue to expand with facilities in suburban markets due to Houston’s size, giving patients easier access to healthcare. The Methodist Hospital and Texas Children’s Hospital new acute care faculties in West Houston were cited as examples. The areas most mentioned as opportunities for development were Northwest Houston, North Houston (The Woodlands) and potentially the Clear Lake area.
- More physicians interested in the hospital employee model due to uncertainty with healthcare reform, downward revenue pressure and access to capital for real estate.
- The panel didn’t see a trend of monetizing their real estate assets by accessing third party developers or owners for on-campus medical office buildings. The clear preference and strategy is to retain ownership control and self-manage these assets.
On a personal note, our clients (Health Care REIT, The Methodist Hospital, Christus Health) and the Colliers International Healthcare Service group were well represented at the event, participating both as speakers and moderators of the various sessions.
Learn more about: Colliers Healthcare Service Group