Our Health Care Real Estate Briefing is your comprehensive summary of weekly health care real estate highlights happening across the nation.
Hall Render hosted its Health Care Real Estate Executive Summit last week. Instead of covering headlines from the previous week, we have outlined several trends discussed at the Summit.
1. ASCs. There has been tremendous growth in the ambulatory surgery center (“ASC”) industry. There are approximately 9,000 ASCs in the U.S. The major ASC companies own a fraction of the total number of ASCs in operation today. The cost of receiving care at an ASC is often 50% less than hospital care.
2. Hospitals Aren’t Dead. Even though more health care is being provided at home and in outpatient settings, hospitals aren’t dead – they are changing. Academic medical centers (“AMCs”) and specialty hospitals (e.g., rehab hospitals) are being built all over the country, and hospitals must focus on highly complex and unique cases.
3. New Construction. Construction costs have doubled in some cases. Renovating existing facilities can be more cost effective and faster to complete when compared to de novo projects.
4. Growth Markets. Florida and Texas continue to experience tremendous growth in terms of new hospitals and health care facilities. Neither state has Certificate of Need (“CON”) laws, although the planning and zoning process for de novo projects can be just as challenging as the CON process.
5. Hospital Consolidation. The fastest way to grow a hospital system is through affiliations and M&A activity. Building large short-term acute care hospitals (“STACHs”) in new markets is inefficient. It can take 7 to 8 years to plan and construct a new STACH, and it may take 15 years before it is profitable.
6. Innovation Districts. AMCs are developing innovation districts around the country where universities, hospitals, life science companies and startups collaborate on new health technology.
7. Joint Ventures. Hospitals are looking for ways to partner with specialty health care providers through joint venture (“JV”) models to deliver new services (e.g., ASCs, behavioral hospitals, rehab hospitals and neighborhood hospitals). Provider alignment is more important than the JV structure.
8. Housing Is Health Care. Hospitals are getting into the housing business to address social determinants of health and to provide affordable workforce housing for hospital employees. Hospitals don’t need to write a big check to support new housing projects. There are lots of ways to partner with other stakeholders to create housing opportunities.
9. Own vs. Lease. Hospital systems with good credit are choosing to own vs. lease new facilities. Cash or bond financing is often the lowest cost of ownership, and credit tenant lease financing is the next best option. The non-profit real estate foundation is gaining traction.
10. MOB Leases. Hospitals prefer shorter leases (3 to 5 years) for clinics in new markets. MOB rental rate escalators are all over the map, although fixed annual escalators are preferred by hospital tenants.
