CREJ - Healthcare Properties - April 2017
UCHealth Memorial Hospital North not only has broken ground on a major expansion to offer new, advanced services for patients – it has expanded the project beyond its original scope to meet demand in Colorado Springs. Due in part to increased demand for health care at the campus, the project has grown from $85 million to more than $110 million, expanding the hospital to more than 110 inpatient beds. The expansion and new tower at Memorial Hospital North will provide additional women’s care and birth center services, including two cesarean section operating rooms, nine additional emergency department rooms, including two more trauma suites, two additional general surgery operating rooms and additional acute care and intensive care unit inpatient beds. These services, some of which have expanded beyond the original scope of the project, will allow Memorial Hospital North to significantly expand the birth center, Level III trauma center and surgical specialties including an orthopedic and spine surgery program, according to UCHealth. “UCHealth is committed to the Colorado Springs region and to providing the very best care to our patients. We have expanded the original scope of this project because the demand for specialized care has grown so rapidly,” said UCHealth Memorial President and CEO Joel Yuhas. “This investment follows more than $130 million spent since 2012 in new technology, expanded facilities and additional services for the Pikes Peak region.” From fiscal years 2014-2016, inpatient admissions grew more than 60 percent at Memorial Hospital North, and births increased more than 20 percent. Outpatient visits tripled during this time, underscoring the need for further development. “Memorial has become a true regional referral center, drawing people from throughout Southern Colorado and Northern New Mexico,” said Dr. Jose Melendez, UCHealth Memorial chief medical officer. “We offer the most advanced cancer and cardiology care in Southern Colorado, and Memorial is the only hospital able to provide comprehensive stroke capabilities for patients in Colorado Springs. We are excited about this expansion and about Memorial’s future.” The design of the expansion will complement plans by Children’s Hospital Colorado to build a full-service pediatric hospital on the UCHealth Memorial North campus. The hospitals will collaborate to ensure the community has access to advanced adult and pediatric care on the same campus, and both projects are expected to be completed in 2018 or early 2019. Memorial Hospital North opened as a small, community hospital in April 2007 and has since transformed into a full-service hospital at 4050 Briargate Parkway. Rangewood Medical Bldg. trades for $2.19 million A trust in Denver recently acquired a Colorado Springs medical office building for $2.19 million. The more-than-15,000-square-foot Rangewood Medical Building at 7560 Rangewood Drive was sold by NetREIT. At the time of sale, the property was around 73 percent occupied. “The buyers were able to buy on existing income and have some upside through leasing up the remaining vacancy,” noted Dan Grooters of Newmark Grubb Knight Frank. Grooters and NGKF’s Riki Hashimoto represented the seller. Cleve Schenck of Genesse Commercial Group LLC represented the buyer. Constructed in 1998, the three-story facility features glass and steel frame construction. “It’s a real, high-quality building near the Rangewood and Briargate areas with a solid residential base,” added Grooters. Rangewood Medical Building is home to tenants including dentists and orthodontists. Boulder Community Health to grow in Erie Boulder Community Health acquired 6.1 acres of land in Erie, where late this year construction will start on a two-story medical office building. Boulder Community, a community-owned and -operated not-for-profit, will break ground on the 40,000-square-foot medical office building, which will include an urgent care facility that has an estimated completion date of fourth-quarter 2018. “Boulder Community Health has served the residents of Erie for many years, now we will serve directly in the growing community,” said Darryl Brown, chief business officer for BCH. “This property is strategically located to serve Erie and the surrounding communities.” “The addition of the BCH facility not only provides another service for our health-conscious, family based community, but provides additional employment opportunities for Erie,” said Paula Mehle, economic development coordinator. “Erie is experiencing an increase in skilled service businesses moving in that will help our community to attract additional businesses including the retail and primary employers that Erie resident’s desire.” The property, adjacent to Erie Community Park and the Erie Community Center, is situated along the main corridor into historic downtown. In September, in response to a request from BCH, a zoning amendment was approved by the board of trustees to allow an urgent care facility as a permitted use at this location. The land sold for $1.6 million The Suites Loveland opens doors One of the largest developers of health care properties in the country has wrapped construction on a Loveland post-acute property. Hospitality-focused post-acute property The Suites Loveland recently opened. The facility, geared for short-term rehabilitation patients progressing from the hospital to home, is near the Medical Center of the Rockies at Centerra. OZ Architecture completed exterior design of the 70-bed, 50,000-square-foot property. The exterior design reflects the building’s Northern Colorado surroundings and the natural backdrop of the Rocky Mountains and Long’s Peak. The design includes use of stone, fiber cement siding and warm earth tone finishes. The general contractor was Meyer Najem and interior architect was American Structurepoint Inc. The property is owned by Mainstreet Capital Partners LLC. Rocky Mountain Gastroenterology inks lease in Lakewood Rocky Mountain Gastroenterology leased 4,890 square feet of space at Union Financial Plaza, 355 Union Blvd. in Lakewood. It leased the space in the 44,000-sf building, which features a renovated lobby and “ample” parking spaces. “This is a great location for RMG,” said Eric Shaw of Pinnacle Real Estate Advisors LLC. “The quality of the building, ease of access and abundant parking will benefit the tenant.” Shaw, along with Pinnacle Real Estate’s Greg Titus, represented the landlord, Westerra Credit Union. Urgent Care Extra closes two deals across Colorado Urgent Care Extra recently closed several deals across Colorado. It paid $1.2 million for 6480-6486 N. Academy Blvd. in Colorado Springs, a 6,902-square-foot retail property. NAI Shames Makovsky’s Bill Maher and Nathan Palmer of National UC Realty represented Urgent Care Extra in its purchase of the space. The seller was RIG Dublin Square LLC. Urgent Care Extra also leased 4,991 sf of retail space at 500 W. 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 differences are driving growth and advancement in today’s medical office market. The report noted that while the baby boomer generation has a huge impact on the current growth of the health care industry, the millennial generation, 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 technological 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 generations will further drive an emerging trend in the revitalization of health care, preferring quick access to physicians and more transparency from providers and insurance companies regarding coverage and costs. Urgent/acute-care centers, retail clinics (walk-in centers often located in pharmacies and grocery stores) and standalone emergency departments are replacing primary care physicians and hospital emergency rooms as this generation 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 investment trusts are actively searching for larger deals and portfolios. Private capital is emerging as a major option in the $5 million to $20 million 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 investors target similar investment opportunities in this segment for higher yields. For-sale inventory is limited as medical office assets are in high demand with cap rates compressing 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-centered 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 providers seeking space in recently completed medical office buildings has concentrated absorption in properties constructed 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 private practices and the move of outpatient services away from campuses and closer to where patients live and work are placing major medical providers 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 comprehensive 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 hospitals. Last year, the health care real estate industry saw an increase in the development of micro hospitals, and Duke expects this trend will proliferate 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 hospitals also are usually more convenient and accessible because they are located in neighborhood 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 “preventable” conditions covered by Medicare. Because studies suggest that patients who receive post-acute or home care are less likely to be readmitted to acute care hospitals, more and more providers have been considering or are offering high-quality post-acute rehab services to reduce these penalties, according to Duke. Providers that are considering developing new rehab hospitals, especially those that have limited experience with this model, often find it beneficial to partner with an experienced rehab hospital operator. • More providers will implement 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 sometimes is the best option in a health system’s long-range development plan, expansions are an attractive alternative. They usually require less capital than new construction, and they enable the system to bring new and expanded services 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 providing expanded services in a lower-cost, higher-quality and more efficient manner. As a result, off-campus, multispecialty outpatient facilities near where people live, work and shop are more in demand. So providers have found it necessary 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 reimbursement rates for hospital-affiliated, off-campus facilities. This policy can have a big impact because it can substantially reduce Medicare reimbursements for health systems and hospitals that are considering acquiring physician practices or building new off-campus hospital outpatient departments that are more than 250 yards from an existing hospital campus. • Payment policies will continue 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 several years. Providers are most concerned about the payment policies being enacted by the Centers for Medicare and Medicaid Services. How Medicaid will be funded and distributed to the states is probably the most important issue. In addition, population health, bundled 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 policies changing and are adapting 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 providers 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 NexCore Group completed more square feet of outpatient medical space than any other developer 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 buildings comprising 397,900 square feet and with a total construction value of around $146 million, including the Buck Creek Medical Plaza in Avon. “NexCore has had an incredible year doing what we do best – working hard, meeting challenges head on, collaborating with our partners and communities, and developing creative and innovative solutions that meet the demands of today’s healthcare environment,” said Todd Varney, NexCore managing principal. “We are proud to be recognized in this important inaugural survey, and congratulate the other companies who are also contributing 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, developed a questionnaire that collected 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 renovated space. Data was gathered 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 buildings, outpatient surgery centers, dialysis centers, clinics, freestanding emergency rooms/departments, 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 questions, 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 medical office building in downtown 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 manager, and Stephanie Simer, portfolio assistant, will oversee the daily performance of the property. Griffis/Blessing manages more than 750,000 sf of medical office space.