Healthcare Real Estate Trends

by CoyDavidson on August 30, 2013

iStock_000015034049Small I recently attended the InterFace Healthcare Real Estate Conference in Dallas where many developers, lenders, hospital system executives and service providers came together for a one day conference to network and discuss the latest trends in healthcare real estate. Candidly, I didn’t hear anything new that I have not heard over the past 18 months already, since I am active in the healthcare sector, but the event was still worth the time.

Here is a summary of the key takeaways from the conference:

  • Population Health Management is the buzz term du jour.
  • The Impact of the Affordable Care Act on the the healthcare real estate industry is still fuzzy and the only certainty is that the landscape will change. Alternative business models to the dominant fee for service healthcare model are still at this point unproven.
  • Retail fundamentals and demographics are playing a bigger role in site selection for medical facilities as the push off campus to provide better access to consumers continues.
  • As a result of the acceleration to the physician hospital employment model and the acquisition of private physician practices, hospital systems are inheriting more leasehold interests and seeking more non-transactional real estate services beyond brokerage (lease administration, consulting) from real estate service providers.
  • The desire to better control referrals is putting primary care physician practices in high demand with hospital systems. Whether this proves to be an effective strategy remains to be seen.
  • Hospital systems are now increasingly looking at real estate to control costs in response to revenue constraints and operating cost pressure.
  • Cap Rates for On-Campus and Off-Campus medical office assets are essentially the same today provided suburban MOB’s have hospital system credit or hospital system sponsorship comprising a majority of the tenancy.
  • Medical Office Development is trending towards smaller suburban projects. Large on-campus medical office building development projects are few and far between. New development consists of more branded single-tenant hospital system tenancy. More specialized use requirements is creating underwriting challenges and replacement tenancy concerns.
  • Hospital Systems are looking to fill antiquated facilities with post acute care uses.
  • Consumers often don’t understand the difference between free-standing emergency departments and urgent care facilities.
  • Medical office building design is changing as many providers are looking for larger floor plates often low-rise with open multi-use environments.
  • Physician practices are getting more sophisticated from a real estate perspective and beginning to realize the benefits of reduced operating costs from state of the art building design may justify higher rental rates.

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