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Page 10 — Health Care Properties Quarterly — April 2017
Market Update
C olorado’s health care industry
continues to grow and be an
accelerator for development
and employment. Medical
office leases are desirable and
investors continue to seek health care
real estate assets in Colorado and
across the United States.
Colorado followed the national
trends in 2016 for medical office with
low vacancies, positive absorption and
increasing rent rates along the Front
Range.Vacancy is 10.2 percent, up from
the previous year, and rents increased
to $27.15 per square foot full service
gross.
A healthy health care real estate
appetite is due to four primary influ-
encers; health care systems monetiza-
tion of medical office building assets,
the perceived low risk with high ben-
efits, strong health care demand and
growth in health care employment.
• Health care systems’ monetization. In
the past, health care systems owned
most of their on-campus and off-cam-
pus medical office real estate. Changes
in health care reimbursement, aging
facilities and the need to invest in the
endless medical technology improve-
ments have led to several organizations
monetizing their assets.
In 2016, Colorado-based Catholic
Health Initiatives monetized over $700
million of their medical office portfolio
totaling over 3.1 million rentable sf.
Transferring the burden of real estate
leasing, management and operation
to a third-party frees up hospital man-
agement personnel and resources to
enhance patient care.
Investment companies are interested
in the ownership of medical real estate
and are willing to offer attractive pur-
chase prices, particularly for hospital-
anchored leases.
• Perceived low
risk and high benefits.
Medical tenants
often have financial
strength, low risk
and sign longer-term
leases. One reason
for a long-term
lease is the cost of
construction for the
interior build out.
A second reason is
patients’ loyalty is
often based upon
location, therefore
the providers relocate less often.
Investor-owners are buying and
developing traditional on-campus
MOBs as well as off-campus facilities.
Off-campus facilities can often provide
a cost-effective extension of the hospi-
tal’s services.
MOB assets are increasingly being
viewed as long-term holds, with inves-
tors valuing their steady tenant base.
One of the most important compo-
nents of a MOB’s success is recruiting
the appropriate tenant mix. Under-
standing the tenant mix strategic plan
provides increased value to providers
due to shared referrals and patient sat-
isfaction.
The financial strength of a health
care system tenant adds additional
value for both on- and off-campus
facilities.
• Strong health care demand. The Metro
Denver Economic Development Corp.
reported in its January profile that by
2040 Colorado’s population ages 65 and
older is projected to double to 1.5 mil-
lion. Concurrently, life expectancy in
Colorado has increased from 77.2 years
to 80.4 years since 1990.
This demographic shift toward
an older population will generate
increased demand for health services.
Further, the expansion of the insured
population in the state will continue to
increase the need for health care pro-
viders and facilities development.
• Growth in health care employment.
Health care accounts for the metro
region’s largest industry sector for
employment at 9.6 percent.This is an
increase of 5.4 percent in 2016 and is
expected to grow by 43 percent by 2025.
The older population requires more
health services and the newmodels
of health care reimbursement have
increased spending.This creates
growth within the health care industry
and in return this increases develop-
ment of health care real estate and
continues the trend of investor inter-
est.
Many nurses and physicians are
among the baby boomers who will
start to retire in the next three to five
years.The federal government is pre-
dicting that by 2020 nurse and physi-
cian retirements will contribute to a
shortage of approximately 24,000 doc-
tors and nearly 1 million nurses. It will
be important for the state, as well as
individual communities, to ensure they
can attract and retain a skilled work-
force to meet these demands.
The influence of health care systems
monetizing, the perception of risk and
benefit as well and demand for health
care services and employment will
affect health care real estate for many
years to come.s
Cheryle Powell
Vice president,
Rocky Mountain
Commercial
Advisors, Golden
LET THE HEALING START SOONER.
MEDICAL OFFICE BUILDINGS
AMBULATORY SURGICAL CENTERS
ASSISTED LIVING FACILITIES
SKILLED NURSING FACILITIES
MENTAL HEALTH FACILITIES
EMERGENCY CENTERS
In the Ambulatory Surgical Center business, every extra day a center can
be open produces great financial return for the Owner. So, when an Owner
reported that other contractors required five months to complete build-outs,
Brinkmann promised a construction schedule of 120 days —and then beat it.
We have sustained an average completion schedule of 90 days, thanks to
our disciplined scheduling, and creative work sequencing.
That speed of delivery helped the Owner generate two bonus months of cash
flow, and let the healing starts sooner.
ST. LOUIS │ DENVER │ KANSAS CITY
3855 Lewiston Street, Suite 100 Aurora, CO 80011 Tel (303) 657-9700