Healthcare Industry Updates
The healthcare industry has something it didn’t last week: more certainty. This was the recurring theme at Bisnow’s National Healthcare Real Estate Summit in Chicago.
Now that the election’s a done deal, it’s unlikely the Affordable Care Act will go away. That means major healthcare providers will be more inclined to kick off new development and consolidation, according to our expert healthcare execs, real estate developers, and architects, who also pointed to the continuing wave of consolidation and changes in the way healthcare is delivered to be more efficient with tighter cost control. One persistent challenge: designing space now and watching it become obsolete in a few short years as medical technology advances. (The only safe sector is tongue depressor jars. How would one improve upon little wooden sticks?)
Outpatient care facilities are at the heart of growth in healthcare real estate, but over the next five or 10 years, outpatient care will be transformed completely. Individual practice sites are giving way to group practice sites, and fragmented service is becoming a one-stop experience for patients. Demand will also skyrocket, not only as the population ages, but also as the pool of insured increases in 2014. Outpatient facilities must be budget-conscious, yet consumer-oriented.
The cementing of healthcare reform is bound to spur new development. Major healthcare systems had been waiting to see which way the wind blows and not only develop rapidly to preserve market share, but also to capture new business from the newly insured. Healthcare systems will also be increasingly receptive to third-party capital to achieve their goals. MOB development is also undergoing a shift from multi-tenant properties (the standard now) to multi-specialty facilities.
A panel of owners at the Bisnow’s Summit and investors agreed healthcare real estate has largely become an industry driven by REITs, which have access to cheap money they need to invest. Given that the demographics of aging make the asset class an attractive flight to safety, cap rates are being driven down and higher sales prices are helping to get hospitals comfortable with the idea of selling their MOBs (especially if they can keep the ground leases).
At our final panel today, Rush University Medical Center CEO Dr. Larry Goodman and Temple University Health System CEO Dr. Larry Kaiser) said that as a low-margin, cash-hungry business, hospitals find every source of revenue under pressure and incentives stacked toward consolidation to increase size and influence with payers. They’re seeing the center of the healthcare universe shifting from hospitals to outsourced centers and the home, and models going from fee-for-service to group accountability and acceptance of risk. As a result, hospitals can’t just care anymore purely about providing the best care, but must also focus on managing patient populations to the bottom line.
Information obtained from BOMA Healthcare & Bisnow’s Healthcare Summit
NAI Keystone Commercial & Industrial, LLC