5 Healthcare CRE Trends To Watch In 2017

small scale hospitals

Despite uncertainty over the future of healthcare reform, demand for healthcare services will rise within the next few decades. Aging Baby Boomers are demanding more care and will make up one out of every five people by 2050. Since 1993, outpatient visits nearly doubled, according to a report from JLL. Check out five trends affecting healthcare real estate this year.

1) More Small Scale Hospitals

Much like the rapid expansion of urgent care and retail clinics, micro-hospitals are arising in metro settings to provide additional healthcare options. These facilities are basically full-service hospitals on a small scale and provide emergency care, inpatient care, some surgical procedures and often labor and delivery services. The two- to three-story 35K to 45K SF micro-hospitals increasingly cropped up in 2016 with many health systems partnering with Emerus, the nation’s first and largest operators of these hospitals.
San Francisco-based Dignity Health has been opening micro-hospitals in Phoenix and Las Vegas. SCL Health has micro-hospitals in the Denver area, while Baylor Scott & White Health has several throughout Texas.

2) More Expansion Of Existing Sites

Health systems are opting for expansions of existing sites rather than building new facilities this year to save money. Expansions take less time and capital, allowing health systems to provide expanded services faster. Expanding services at an already popular location is also ideal since the site has already proven to be accessible, according to Duke Realty.
UCSF Benioff Children’s Hospital Oakland, for example, is in the process of a 10-year expansion plan, which will add a six-story 89K SF outpatient clinic. The plan includes a renovation of the main hospital that will increase beds to 210 and add additional services.

3) Health System Consolidation

Even though health systems are expanding their hospitals, there will be fewer independent hospitals and health systems within the next decade. Deloitte expects half of the non-government health systems, a total of 1,833 in 2014, will exist by 2024 and there will be no independent hospitals in 2024.

4) New Leasing Arrangements

New accounting rules set up by the Financial Accounting Standards Board will dramatically affect how providers structure their leasing arrangements. Under the new rules, which will go into effect in the next two to three years, providers will have less flexibility in how they classify their leases, according to Becker Hospital Review. Providers are currently able to classify long-term leases as operating leases and providers have the option of sale-leaseback arrangements without an impact on balance sheets.
Under the new rules, leases will be classified as financing leases, which are like debt on the lessee’s balance sheet. These rules have had providers rethink their leasing arrangements and whether they want to own or lease a newly built facility. Developers are starting to offer alternatives such as credit-tenant leasing arrangements, where a provider gets the benefits of ownership when the lease expires.

5) More Rehab Hospitals

Hospitals and health systems are considering offering more post-acute rehabilitation services or to partner with an experienced rehab hospital operator as a way to avoid steep readmission penalties for preventable conditions. Through an experienced operator, hospitals can provide improved post-discharge patient care, better cost efficiency and speed to market, according to Duke Realty.
Source: Bisnow
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Rendina Breaks Ground On Cleveland Clinic Facility

cleveland clinic

Rendina Healthcare Real Estate obtained a $26.6 million construction loan to break ground on the Cleveland Clinic outpatient facility in Coral Springs.
New Jersey-based Siemens Financial Services awarded the mortgage to Coral CC Investors, an affiliate of Jupiter-based Rendina Healthcare Real Estate. The developer recently acquired the 5.2-acre site at 5701 N. University Drive — near the Sawgrass Expressway — from Cleveland Clinic Florida for $3.2 million. The new building will be leased to Cleveland Clinic.
The nonprofit health care organization held the ground breaking ceremony for the 72,000-square-foot facility on April 3. It will include family health services, ambulatory surgery with six operating rooms, imaging equipment such as CT/MRI, mammography and X-ray, 24 prep/recovery bays and 40 exam rooms.
This will be Cleveland Clinic’s eighth facility in South Florida. The hospital is also expanding its main campus in Weston.
Source: SFBJ
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House Republicans Push To Give Hospitals Greater Say In Expansion

hospital expansion

For four decades, hospitals wanting to expand or open new facilities have had to get the state to agree there’s a need for more healthcare in their community.
It’s a rule that Republicans in the Florida House say creates unnecessary burdens on the free market. This week, they’ll be passing a bill to repeal it.
But opponents of the repeal worry that allowing hospitals to build beds wherever they want will encourage health facilities to build in wealthy areas, leaving poor communities with limited options and safety net hospitals strapped for cash.
Legislation (HB 7) to repeal the regulations, called certificate of need (CON), is expected on Wednesday to pass the Florida House, where it is a priority of Speaker Richard Corcoran, R-Land O’Lakes. It also has the endorsement of Gov. Rick Scott, who called it one of his top healthcare priorities this year.
Supporters of repealing CON say the bill eliminates regulations that limit hospital beds in a community, stifle competition, inspire costly legal fights over hospital construction and raise healthcare costs.

“Removing it will eliminate a lot of these unnecessary barriers to entry,” said Rep. Alex Miller, R-Sarasota, who is sponsoring the repeal legislation in the House.

But the legislation’s odds appear slim. Similar bills in the Florida Senate have not had a single hearing.
That’s good news for Democrats in the House. Rep. Evan Jenne, D-Dania Beach, called it “one of the worst bills this session.”
Democrats and others say getting rid of CON is unnecessary and might reduce the quality of care by overcrowding the market.

“Won’t repealing CON create a two-tiered system: One for the insured living in wealthy areas and one for uninsured in low-income areas?” said Rep. John Cortes, D-Kissimmee.

The state’s safety net hospitals oppose repealing CON for exactly that reason.
They worry about getting stuck with large numbers of patients on Medicaid, who pay less than the cost of care provided, or who have no health coverage at all.
But Miller says safety net hospitals like Jackson Health System, Tampa General and Johns Hopkins All Children’s get incentives to take on charity care cases with extra Medicaid funding.
What’s more, she doesn’t expect too many new hospitals to open.

“There’s not a big appetite to build new bed towers,” Miller said. “They’re very expensive. They cost $1.5 million per bed, so often they can be $100 million or $200 million just to build a bed tower.”

Thirteen states have taken CON off the books already, and proponents say the effect has been minor in hospitals. States with the restrictions have just 13 percent fewer hospital beds than those without the restrictions.
Source: Miami Herald
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Miller Construction Company Completes Second EliteHealth Medical Practice Facility In Broward County

EliteHealth Pembroke Pines

Miller Construction Company has completed the second Broward County location build-out of regional medical practice EliteHealth, at 5480 Griffin Road in Davie. EliteHealth partnered with health insurance giant Humana on the project to create a prototype diagnostic and preventive care facility.
Miller’s interior build-out of the 4,347-square-foot space provided all of the visionary elements that are standard in EliteHealth facilities, including six exam rooms, a medical procedure room, ultrasound, X-ray and allergy testing areas, a weight-loss center and an activity room for events such as exercise classes, meetings, seminars and workshops by healthcare experts. The facility will serve a wide range of patients, whether or not they are insured by Humana.
According to Dr. Perry Krichmar, EliteHealth co-founder and chief operating officer, the innovative Davie facility is the latest step in his medical practice’s growth strategy, enabling South Florida patients to receive state-of-the-art, affordable care that is exceptional, without long travel times.

“Convenience is a key factor in motivating patients to be healthier, and that means creating cost-effective spaces for care and wellness programs, close to their homes,” said Dr. Krichmar.

Completing the new facility on an accelerated timeframe demanded precise scheduling and close coordination of building trades on-site, according to Miller Sr. Vice President Brian Sudduth. It was Miller Construction Company’s second project for EliteHealth. In 2016, the firm completed construction of the medical practice’s 10,347-square-foot diagnostic and patient care facility in Pembroke Pines, which set the standard for additional state-of-the-art EliteHealth facilities that will be built throughout Florida and eventually, across the U.S.
With headquarters in Miami Beach, EliteHealth focuses on preventive medicine and primary medicine as well as executive healthcare, concierge medicine and corporate wellness. The Pembroke Pines facility provides all the amenities of its Miami Beach headquarters, including concierge medicine and full diagnostic and laboratory testing. A senior activity center within the facility serves surrounding communities. The one-story building in the Village at Mayfair office and retail development includes exam rooms, physician offices, a laboratory and pharmacy, as well as spaces that Miller Construction Company prepared for X-ray, ultrasound, and mammogram equipment.
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Co-Working Inspires New Medical Offices

coworking

Doctors typically lease small medical office spaces to serve their private practice. This means that medical offices are often a configuration of small leased spaces. Now, that is beginning to change. Rather than lease a small individual space, doctors are grouping together to lease large, shared spaces. Think of it as co-working for medical office. To find out more about the emerging trend, we sat down with Evan Lewitt, associate on the healthcare brokerage services team at CBRE, for an exclusive interview.

GlobeSt.com: Why is there a trend toward large spaces leased by a group of doctors?

Evan Lewitt: There has been an integration and consolidation in the healthcare industry in Southern California. Sole practitioners are competing with large healthcare providers that are very efficient. A single physician practice requires a waiting room, a nurse, an administrative assistant and equipment. A three-physician practice can share that same waiting room, nurse, assistant and equipment – allowing them to reduce expenses. So the net effect is, physicians are selling their practices to large groups, or banding together with other physicians to create a group.

GlobeSt.com: How are these lease deals structured?

Lewitt: The lease deals are structured exactly the same. Instead of a single practitioner leasing 1,500 SF, a, let’s say, three-physician practice will lease maybe 3,000 SF. And a group of six physicians could get by leasing maybe 5,000 SF. With each additional physician the amount of square feet per physician decreases. So we are seeing larger average transaction sizes but with lower square footages per physician. The larger spaces fetch higher rates due to constrained supply but overall the deals are structured the same.

GlobeSt.com: How is this concept similar to trends we’re seeing in office with co-working spaces?

Lewitt: The overarching theme of “efficiency” is the same but we are not seeing shared medical space in a WeWork-type model where independent practitioners or those belonging to different medical networks are sharing the same space. It’s a concept that has been kicked around and talked about a lot recently by all sorts of different folks in our industry; doctors, landlords, venture capitalists, entrepreneurs etc. but for now it’s just talk. I do think that as co-working continues to find success in the office market, it’s inevitable that somebody will try and adapt it for medical, so stay tuned.

GlobeSt.com: What are the challenges and benefits of doctors sharing space like this?

Lewitt: The benefits are many and mainly revolve around cost savings resulting from efficiencies. The only real challenge I can think of is that some physicians would prefer not to share. Unfortunately, for these individuals, it will be tough to compete with the large providers. If consumers have gotten comfortable sharing car rides, office space and apartments, then physicians can get comfortable sharing their practice with some of their contemporaries. And if the thought of this makes them sick, at least they all know a good doctor.

GlobeSt.com: How are building owners reacting to this trend?

Lewitt: This is the million-dollar question. Some medical office building (MOB) owners are forward thinking and are working to adapt their building to the changing market. We have had a lot of success working with owners to help them create and market large blocks of space. The owners who are choosing not to change their buildings and are looking to fill individual 1,000 SF or 1,200 SF spaces will face challenges finding tenants in the long run.

GlobeSt.com: How can building owners adapt their properties to attract these tenants? What is your advice?

Lewitt: The first thing we do is look at every lease and every suite and study the expiration dates, relocation rights and cancellation clauses. We look at all this in the context of where the vacant suites already are, and start putting the puzzle pieces together to create a large block of space. We have much more success marketing a 7,000 SF space versus seven 1,000 SF spaces, and we will fetch higher rates and better credit doing it.
Source: GlobeSt.
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