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April 2017 — Health Care Properties Quarterly — Page 5
Health Care News
Urgent Care Extra also leased
4,991 sf of retail space at 500W.
Hampden Ave. in Englewood.
Maher and Palmer represented
the tenant in the transaction.
The landlord was Landance
LLC.
Generations impact growth,
says Marcus &Millichap
Marcus & Millichap’s 2017
Outlook Medical Office Report
noted that generational differ-
ences are driving growth and
advancement in today’s medi-
cal office market.
The report noted that while
the baby boomer generation
has a huge impact on the cur-
rent growth of the health care
industry, the millennial gen-
eration, which has surpassed
the baby boomers in size, is
driving a major shift in the
care delivery model and they
way they approach, research
and resolve issues.
The outlook noted that tech-
nological advances as well as
the ability to search online for
doctors, research treatment
options and use web-based
diagnostic and health tracking
tools are placing a wealth of
knowledge and information
about personal health care
into the hands of the patient.
Millennial and future gen-
erations will further drive an
emerging trend in the revital-
ization of health care, prefer-
ring quick access to physicians
and more transparency from
providers and insurance com-
panies regarding coverage and
costs.
Urgent/acute-care centers,
retail clinics (walk-in centers
often located in pharmacies
and grocery stores) and stand-
alone emergency departments
are replacing primary care
physicians and hospital emer-
gency rooms as this genera-
tion strives for more efficient
and affordable health care
options, the report added.
Marcus & Millichap also
noted:
• Strong demographic trends
support growing the industry,
remains driver in investment
activity this year. Institutional
funds and real estate invest-
ment trusts are actively
searching for larger deals and
portfolios. Private capital is
emerging as a major option
in the $5 million to $20 mil-
lion price tranche and could
begin to take a larger share
of transactions this year. A
rise in crossover capital is
also increasing competition
for medical office properties
as single-tenant retail inves-
tors target similar investment
opportunities in this segment
for higher yields. For-sale
inventory is limited as medi-
cal office assets are in high
demand with cap rates com-
pressing over the past several
years.
• As the health care industry
evolves, so do office design and
building amenities. The impact
of an aging population and
generational drivers on the
design of medical office space
has been realized in recent
years as builders conform to
the standards of a patient-cen-
tered approach to health care
and advances in technology.
Large health care providers
are acquiring and expanding
services off campus and closer
to residential areas, providing
patients easier access to care.
• Absorption is concentrated
in newer properties with modern
amenities and flexible design.
The combination of reduced
deliveries since the recession
and strong demand from pro-
viders seeking space in recent-
ly completed medical office
buildings has concentrated
absorption in properties con-
structed since 2000.Vacancy
at these properties has fallen
more than 500 basis points
since 2010, and constricting
vacancy in these buildings will
drive additional deliveries over
the next several years.
• Rent advances persist but
growth is restrained by changes
in the health care landscape.
Hospital acquisitions of pri-
vate practices and the move of
outpatient services away from
campuses and closer to where
patients live and work are
placing major medical provid-
ers in control of a large share
of leasing activity. As a result,
overall rent gains are trekking
along at a modest and steady
pace.
Duke Realty looks at health
care trends to watch
Duke Realty released a com-
prehensive white paper on six
major health care real estate
trends to watch in 2017 and
their impact on patient care.
The paper was written by
Keith Konkoli, Duke Realty’s
executive vice president of
health care, and Jared Stark,
the firm’s senior vice president
of health care development.
Duke Realty’s white paper
noted:
• More health systems will
develop convenient micro hospi-
tals. Last year, the health care
real estate industry saw an
increase in the development
of micro hospitals, and Duke
expects this trend will prolifer-
ate in the coming years. Micro
hospitals are smaller than
typical hospital campuses and,
thus, easier to navigate, but
usually offer the same type of
health care services found in
larger hospitals. Micro hospi-
tals also are usually more con-
venient and accessible because
they are located in neighbor-
hood settings and smaller
communities where people
live and work.
• Health systems will continue
to develop rehab hospitals to
avoid readmission penalties.
As things stand now under
the Patient Protection and
Affordable Care Act, hospitals
still face financial penalties
for above-average rates of
readmissions for certain “pre-
ventable” conditions covered
by Medicare. Because studies
suggest that patients who
receive post-acute or home
care are less likely to be read-
mitted to acute care hospitals,
more and more providers have
been considering or are offer-
ing high-quality post-acute
rehab services to reduce these
penalties, according to Duke.
Providers that are considering
developing new rehab hospi-
tals, especially those that have
limited experience with this
model, often find it beneficial
to partner with an experienced
rehab hospital operator.
• More providers will imple-
ment expansions rather than
new builds as part of their real
estate mix. Health care facility
expansions are expected to
be more prevalent than new
ground-up developments this
year.While building new or
replacement facilities some-
times is the best option in a
health system’s long-range
development plan, expan-
sions are an attractive alterna-
tive. They usually require less
capital than new construction,
and they enable the system to
bring new and expanded ser-
vices to market more quickly.
A medical facility expansion
also makes a great deal of
sense if the provider already
has the “ideal” location where
there is a strong demand for
new health care services and
the site is highly visible and
accessible and near other in-
demand services.
• The industry will continue to
see changing attitudes toward
site selection and challenges
with “site neutrality.” In the
current environment, health
systems are focused on pro-
viding expanded services in a
lower-cost, higher-quality and
more efficient manner. As a
result, off-campus, multispe-
cialty outpatient facilities near
where people live, work and
shop are more in demand. So
providers have found it neces-
sary to familiarize themselves
with a different kind of real
estate – retail – and identify
sites with characteristics that
are critical for a successful
retail location. One of the
most important issues related
to health care real estate site
selection is the “site neutrality”
rule, which affects reimburse-
ment rates for hospital-affiliat-
ed, off-campus facilities. This
policy can have a big impact
because it can substantially
reduce Medicare reimburse-
ments for health systems and
hospitals that are considering
acquiring physician practices
or building new off-campus
hospital outpatient depart-
ments that are more than 250
yards from an existing hospital
campus.
• Payment policies will con-
tinue to be top of mind rather
than possible major changes
to the PPACA. Regardless of
what happens with the PPACA,
most health care providers
are moving forward with the
real estate strategies they
developed during the past sev-
eral years. Providers are most
concerned about the payment
policies being enacted by the
Centers for Medicare and Med-
icaid Services. How Medicaid
will be funded and distributed
to the states is probably the
most important issue. In addi-
tion, population health, bun-
dled payments, risk sharing
and MACRA (Medicare Access
and CHIP Reauthorization Act)
are more top of mind at the
operational level than what
might become of the PPACA.
Providers don’t see these poli-
cies changing and are adapt-
ing strategies for dealing with
them.
• More health systems will
apply best practices from other
industries to their health care
real estate strategies. For some
time, hospitals and health
systems have worked hard to
lower their failure and error
rates, often by studying and
applying best practices used
by other industries. Now we’re
seeing more and more provid-
ers using the best practices of
other industries, such as the
general office, hospitality and
travel sectors, commented
Duke Realty.
NexCore leads way in
outpatient projects
Denver-headquartered Nex-
Core Group completed more
square feet of outpatient medi-
cal space than any other devel-
oper last year, according to the
Outpatient HRE Development
Survey released by research
firm Revista and Healthcare
Real Estate Insights magazine.
In 2016, NexCore completed
five outpatient medical build-
ings comprising 397,900 square
feet and with a total construc-
tion value of around $146 mil-
lion, including the Buck Creek
Medical Plaza in Avon.
“NexCore has had an incred-
ible year doing what we do
best – working hard, meeting
challenges head on, collabo-
rating with our partners and
communities, and developing
creative and innovative solu-
tions that meet the demands
of today’s healthcare environ-
ment,” saidToddVarney, Nex-
Core managing principal. “We
are proud to be recognized in
this important inaugural sur-
vey, and congratulate the other
companies who are also con-
tributing to quality health care
solutions.”
The new Outpatient HRE
Development Survey was
developed by Revista and HREI.
For the survey, Revista, in
collaboration with HREI, devel-
oped a questionnaire that col-
lected data on all outpatient
HRE development projects
started or completed in 2016
that exceeded $2.5 million in
value and that included at
least 5,000 sf of new or reno-
vated space. Data was gath-
ered using surveys completed
by the developers, as well as
other sources, which was then
verified by Revista.
For purposes of the survey,
outpatient projects include all
medical office builidngs, out-
patient surgery centers, dialy-
sis centers, clinics, freestand-
ing emergency rooms/depart-
ments, imaging centers, urgent
care centers, retail medical
buildings and other purpose-
built medical buildings where
outpatient care is provided.
In the first independently
verified research project to
look exclusively at those ques-
tions, Revista and HREI found
that outpatient medical real
estate development projects
totaling nearly $7.7 billion in
construction value and 19.4
million sf were completed in
2016. Another 17.3 million sf
of outpatient projects with a
value of almost $6.5 billion
were started.
Griffis/Blessing to manage
downtown MOB
Griffis/Blessing was selected
to manage 719 N. Cascade
Ave., a 2,397-square-foot medi-
cal office building in down-
town Colorado Springs.
The building is 100 percent
occupied by the Front Range
Endoscopy Center.
The commercial property
services team of Dixie Snyder,
CPM, ACoM, portfolio man-
ager, and Stephanie Simer,
portfolio assistant, will oversee
the daily performance of the
property.
Griffis/Blessing manages
more than 750,000 sf of medi-
cal office space.s
NexCore’s Buck Creek Medical Plaza in Avon was one of five outpa-
tient projects the firm completed in 2016.
Griffis/Blessing will manage the medical office building at 719 N.
Cascade Ave. in Colorado Springs.