Future still bright for healthcare real estate

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by Dan Rafter

Midwest Real Estate News spoke with Dave Arnold, executive vice president at Irgens, about the strength of the healthcare real estate and medical office building market throughout the Midwest. Arnold, who oversees medical office building development in the Chicago area for Irgens, has been watching these markets carefully. He had plenty of good news for those brokers working in healthcare real estate today. 

Midwest Real Estate News: Let’s start with the obvious question: How busy is the healthcare real estate market today? Are you seeing a lot of new construction of stand-alone clinics and medical office buildings today?
Dave Arnold: The pace of activity has definitely increased. You might not look at the landscape and see a what looks like a lot of healthcare real estate under construction. But there is more activity in terms of systems and providers at least talking about specific plans and about specific submarkets. Providers are now ready to expand, and that is good news for the healthcare real estate industry.

MREN: What had been slowing down the amount of new construction or health provider expansions during the last few years?
Arnold: The Affordable Care Act has introduced a lot of uncertainty for a number of years. That has been the case since 2010 and forward, really. It had frozen a lot of systems into inactivity while they spent time analyzing the impact of the act. Now that some of that uncertainty has lessened, we are seeing more activity from providers. The other factor is the amount of integration that has gone on between systems, hospitals and physician groups. As acquisitions and mergers are occurring at a greater pace, that is having an important impact on the real estate decisions being made by providers. Some of the providers have not been able to pursue new developments or do anything with their current assets until they close a big merger or acquisition. Those two elements have caused a lag in activity for the last number of years.

MREN: When it comes to the Affordable Care Act, I’m sure there’s still some uncertainty out there among healthcare providers. But is that uncertainty at least lessening a bit?
Arnold: There are things happening in the reimbursement world that are helping providers and health systems understand a little bit better what the reimbursement environment will look like in the not-too-distant future with the move from volume of care to value. It is becoming reality. There are now reimbursement structures that are being put in place and introduced by the Feds that will define how systems and providers are being reimbursed for care on a value basis. So that is something that providers are getting a better handle on. I think we’ll see bigger plans from providers as all of this becomes even clearer over time.

MREN: We’ve written a lot about healthcare providers expanding deeper into their communities by building a greater number of free-standing clinics and emergency care centers. Is that still happening today?
Arnold: The strategy is still there. It is about bringing care out to the community today. Other than replacement of obsolete facilities, we are not seeing a lot of acute care construction work in the near term at all. Most of the focus will be on either outpatient centers on hospital campus or satellite offices that provide ease-of-access and efficiency. Neighborhood clinic developments will continue to be important for healthcare providers. You will see more of the smaller 15,000- to 20,000-square-foot satellites that are actually in the neighborhoods. Providers are moving more toward a hub environment, and are unveiling larger off-campus outpatient platforms.

MREN: It seems like this will be a long-term trend.
Arnold: Consumers have been seeking a non-hospital experience for some time. With consumers being more active in finding providers, it’s more important for these providers to open up facilities closer to their patients. It’s more important for providers to place the care where folks expect it to be and where it is convenient to them. Simultaneous with this, there is another dramatic shift to the outpatient environment. On the real estate side, there have been some B or A- retail locations that have become available on the market because of the Amazon factor. These spaces are now available not just for retail uses, but for medical providers. We are looking at locations such as that for our health-system partners. There are some really nice opportunities to consider in spaces that used to be reserved for retail users. There might even be an opportunity for a redevelopment of an existing B- retail location for medical users today.

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