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e’re back! The Colorado

Springs medical office

market is doing great. Col-

orado Springs continues

to experience a decline in

vacancy rates as the second quarter

is ending with a total vacancy rate

of 7.16 percent, down from 7.54 per-

cent at the beginning of the year. As

predicted, the first half of 2017 con-

tinues to show positive absorption

along with increasing rental rates.

It has been a long road to recovery;

just four years ago the vacancy rate

was 21.46 percent.

While these numbers are an

important synopsis for our region,

the main focus and conversation

among health care systems and

hospitals revolves around the loom-

ing uncertainties of new legislations

and the future of the Affordable

Care Act. These

uncertainties will

impact future

building plans and

leasing structure,

and set new trends

that will inevitably

change the way

patients receive

care along the

Front Range.

The first rec-

ognizable trend

in our area is

the decision to

build and expand

at existing sites

rather than com-

mitting to newly built facilities. An

example of this is the $110 million

expansion of the Memorial Hospi-

tal North. Health care systems are

as expense conscious as ever, and

locating all departments centrally

creates cost efficiencies. Ultimately,

for community members, this is a

positive change as each expansion

is located on a campus with proven

success and will allow for central-

ized services to be delivered more

quickly and cost efficiently in the


Additional considerations for

health care operators include

leases, which are now under scru-

tiny after the Financial Accounting

Board published a new Accounting

Standards Update in February 2016.

Prior to the recent update, leases for

health care assets were classified

as “operating leases,” which had a

minimal influence on the balance

sheet of the tenant. In two to three

years, depending on whether a

company is public or private, enti-

ties will be under tougher scrutiny

and likely will have to classify their

leases as “capital leases,” thus treat-

ing the lease as debt on the balance

sheet. Classifying leases as a capital

lease has incentivized health care

systems to consider purchasing

property instead of leasing. Devel-

opers have been quick to recognize

the change and are building sites

with lease-to-own opportunities.

Developers also have been able

to recognize another growing niche

in the MOB market: rehabilitation

hospitals. Post-surgery patients are

typically left with few affordable

options. Hospitals also are faced

with high readmission penalties for

patients that were reemitted to the

Colorado’s health care market has seen a number of big buys and big builds Breaking, buying PAGE 4 Making health care decisions in an uncertain environment The dilemma of providing senior housing for the middle-income market Crystal ball Stuck in the middle PAGE 10 PAGE 19

Memorial Hospital North’s expansion at its existing site is a recognizable trend in Colorado Springs – the decision to build and expand at existing facilities versus committing to build new facilities.

July 2017 Development soars, pushing Springs medical market to take flight

Taking flight

Laura Lynch,


Managing director,

Colorado Springs


a Cushman &

Wakefield Alliance,

Colorado Springs

Please see 'Lynch,' Page 23