News
To Your Health...care Breakfast Yesterday
November 11, 2010
| 400 of you joined us yesterday for our Healthcare Real Estate Summit at the Copley Marriott in Back Bay, where majorindustry players agreed that healthcare anchors one of the strongest real estate markets in the nation. Of course, they focused on Longwood Medical Area and the Massachusetts General Hospital cluster. |
 |
| We snapped Goulston & Storrs Dan Sullivan (2nd from left) who moderated the first panel of healthcare real estate chiefs: Partners Health Care's Kathy West, Children's Hospital's Charles Weinstein, and Dana-Farber Cancer Institute's Maria Papola. Dan says there's a tension between the high-quality care called for in President Obama?s healthcare initiative and the nation's economic malaise. The explosion of new technology has raised the cost of delivering care beyond the growth of the CPI at a time that insurers are pressuring hospitals to lower costs. Meanwhile, new private capital is investing in the healthcare sector as illustrated just days ago by Cerberus Capital's $495M purchase of Caritas Christi hospital system. |
 |
| Maria, here with National Development's Tom Alperin and Dan, says that despite the economic turmoil, Dana-Farber continues to see more patients. It's completing construction of its largest patient-care facility, the $320M, 500k SF Yawkey Center for Cancer Care. Although, she says they built as much as they were allowed, Maria expects the Institute to outgrow Yawkey in three years. Meanwhile, it has changed the ratio of real estate used for research vs. patient care to 40/60, from 50/50. Looking ahead, she says, she's assessing the viability of a development at Longwood and Brookline avenues. |
 |
| Partners' Kathy West says that her integrated healthcare system occupies 16M SF, of which 30% is leased space due to the ?tight urban situation.? About the president?s healthcare law, she says, ask 30 people what impact it will have on the industry and you'll get 30 different answers. Nevertheless, she says over the next 10 years outpatient demand will grow 10% a year while inpatient demand will grow 3% due to the wave of aging Baby Boomers and technological advances like electronic record-keeping that can untether some patients from hospitals. Also, patient preference for convenience may call for more facilities in outlying communities in a ?hub and spoke model.? Even for in-patient care, technology, with the more robust infrastructure it requires, will change the design of future facilities. |
 |
| Charles tells us that Children's has annual revenue of $1.5B but an operating margin of merely 3%. With no room for error, Children's has been efficient and growing the endowment, he says, or ?we?d be out of business.? The hospital treats everyone who walks through the door regardless of ability to pay. As more community hospitals are shuttered, Children's patient-care volume has gone up. To more efficiently use the space it has, it collaborates with competitors in the LMA. Going forward, he says, Children's will consider bringing more care to the suburbs and continue to try to avoid hospitalizations for preventable conditions like asthma and obesity. Still, with $257M in current construction projects, Charles says the hospital thinks real estate in a very important investment and ?we don't intend to stop.? |
 |
| The second panel: Samuels Associates? Steve Samuels, Biomed?s Bill Kane, Goulston & Storrs? Darin Baird, Cushman & Wakefield's Frank Nelson, and RBJ?s Bob Richards. They drilled down into the real estate fundamentals and trends in the LMA and MGH cluster of 32 buildings with the newest nearly $600M facility to open next year. |
 |
| Frank says these markets are ?like none other.? Since ?08,development activity has slowed but hasn?t stopped. The LMA has 1% vacancy and rents that haven?t fallen since ?01, and his clients are fighting for inches of space. Demand is intense for the unique ?bench to bed? experience it offers for doctors to walk from research labs to medical school and hospitals to treat adults and children. Even if some office space is moved off the LMA campus, Frank says LMA staff doesn?t want to be far from the area's high-energy level. That's why, he tells us, short- and long-term real estate plans are always on people?s minds. |
 |
| Bob, flanked by RBJ's Brendan Carroll and Chris McCaluley says that at about 18M SF, the LMA has more SF than many CBD?s. Still, supply hasn?t outstripped demand and it's routine to have rents range from $60 to $80 SF NNN. The LMA offers some of the world?s top hospitals with Harvard Medical School at its core. So, creative use of space is essential. At one 50k SF research center, Bob tells us, 600 people share the labs rather than the 175 people that may have once been customary. Many thanks to Richards, Barry, Joyce, the firm Bob co-founded in ?01, a sponsor of yesterday's event. |
 |
| Biomed?s Bill Kane (center) put out word to any institutional users in the audience that his REIT has ?oodles and oodles of cash? should they want space in a Biomed property such as the Center for Life Science in the LMA. From his perspective as an owner of research space, there isn't a hotter market in the country. One reason is that in its 213 acres, about 1,000 jobs are added every year; a simple supply and demand equation for space. Another reason is the super star researchers who attract other talents. The translation to real estate: before one Biomed building was completed, it was 80% leased. |
 |
| We snapped Steve Samuels (right) after the discussion. He added the perspective of a long-time owner/developer in the Fenway, adjacent to the LMA, a neighborhood he helped transform from undervalued to sought after. In his portfolio, which includes properties elsewhere, as the banking industry and economy reeled, Fenway assets stood out for loans and rents that were not adjusted. Subsequently, Steve says he sold other properties to invest in the Fenway and has outside investors knocking on his door. Next year, he thinks the Fenway will be the only place he'll start construction. |
 |
| We wanted to give a shout out to another event sponsor: the New England Council of Carpenters. Here's executive secretary and treasurer Mark Erlich. The Council, which represents 22k members in 22 locals in the six New England states, told us about a special training program they have to teach tradespeople how to work in sterile environments like labs and hospitals. Whether for new construction or maintenance, the NERCC has worked with experts from the CDC and more to share best practices. |
