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Somehow during all the presidential debates, no moderator asked how healthcare reform would affect Boston commercial real estate. Luckily, Boston CRE is all we care about, and Obamacare was a major focus of Bisnow’s 3rd Annual Boston Healthcare Real Estate Summit yesterday morning at the Westin Copley Place.
220 guests heard a broad spectrum of approaches from our panel: Children’s Hospital Boston’s VP Charles Weinstein, Steward Health Care System’s Patrick Murphy; BioMed Realty Trust senior director Bill Kane, Whelan Associates co-founder Bill Whelan, and Walsh Brothers CEO Richard Walsh. Perhaps only 15 of the 55 free-standing US pediatric hospitals will survive the financial upheaval in 10 years, Charles says. But this isn’t doomsday, according to Bill; it’s a mechanism for change.
Reznick (CohnDebut) MBOS
Langan Engineering & Environmental Services’ John Plante , Greene Construction Bob Greene
Langan Engineering & Environmental Services’ John Plante served as moderator (here with Greene Construction’s Bob Greene). Langan, also an event sponsor, is working in Connecticut on a 300k SF ambulatory care center for UConn, starting construction in February and opening in early ’15. The company is also doing an MOB expansion for Yale New Haven Hospital (part of its effort to move into surrounding communities) that’s going through permitting.
Children’s Hospital Boston’s VP, Real Estate Planning and Development Charles Weinstein
In the Longwood Medical Area, which has 19M SF of healthcare facilities crammed into one square mile, Charles (with Bond’s Denise Marien) says the problem is under-demolition, not over-development; old buildings should be torn down. Construction is 80% complete on Children’s 130k SF “Skinney Binney” addition. Now, CHB is planning for the next $1B, 1M SF development wave in Boston and an outpatient building in Waltham. In ’12 and ’13, CHB balanced a $150M decline in revenue by taking $150M out of its $1.5B annual operating budget. The profit margin, Charles says, is 2% to 3%.
For-profit Steward Healthcare, which does about $100M/year in capital improvement projects, cut expenses by selling 17 MOBs in a year, says Patrick. Many improvement projects aim to enhance Steward’s ability to reach consumers in their local communities. For example, Steward is building a $25M, 24k SF addition to St Elizabeth’s Medical Center in Brighton that will deliver 23 more private inpatient beds and a future expansion floor. The project broke ground in September and is one of many that the company will launch in the next 12 to 18 months.
BioMed Realty's Bill Kane (center) says the publicly traded REIT has $5B in life science assets in seven core markets that are considered R&D super clusters, including, of course, Boston/ Cambridge where it owns 4M SF. He's not worried about Vertex’ plan to leave 300k SF of BioMed space when it decamps to the Boston Seaport. It’s an opportunity to redevelop the space and enhance Cambridgeport's appeal. A Seattle life science company called him Monday to learn about the region’s incentives. One is Gov. Patrick’s $1B life science initiative. It allows Massachusetts to compete with NC and Texas. But, Bill adds, nothing compares to the allure of the local brands: MIT and Harvard.
Walsh Construction CEO Richard Walsh
Walsh Construction CEO Richard Walsh, the construction manager for “Skinney Binney,” says that the tight site makes it the most complex project imaginable. It will take two and a half years to produce 30 private beds. With downtown hospital expansion so tricky, Richards says hospitals are scrambling to expand in the ‘burbs, especially those around Rt 128. The company, our event sponsor, is also working on the new Spaulding Rehabilitation Hospital in the Charlestown Naval Shipyard. The job is coming in at a cost much lower than estimated two years ago; $390/SF compared to $490/SF. But going forward, Richard says, costs will rise.
Bill Whelan of Whelan Associates
Bill Whelan of Whelan Associates, a value-add development company vertically integrated with management services, says that as hospital revenue streams dip, healthcare clients are learning to do more with less. That means highly efficient buildings in easy- to-reach places like shopping centers on major highways. (Not be confused with Dollar Stores, also efficient buildings in shopping centers.) Construction costs have gone from about $80/SF three years ago to $108/SF now. Tenants concerned with preserving their capital are willing to pay higher rents for turnkey space and they’re getting more. The average TI  package tab went from about $40/SF in ’09 to $80/SF today.