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Every Major Hospital Is Building. Here's What It Means.

The mood was festive at Bisnow’s State of Boston Healthcare Real Estate event Thursday at the Boston Harbor Hotel. You already know healthcare is a major economic driver in our region. The question is: Is there enough space?

Every major hospital is building, planning or recently completed the construction of new facilities. As the US population ages and the industry makes new medical and scientific advances, the demand for services in some sectors is outstripping the industry’s ability to fulfill it. But, hospitals are meeting the challenge head on and continuously upgrading their standards of care to keep Boston institutions in the world’s top tier.

Senior housing financially outperforms all other commercial property asset classes, says Benchmark Senior Living founder and CEO Tom Grape, who delivered the opening remarks. In healthcare, seniors consume the greatest amount of services at $18k/year, compared to $6k/year for working age adults. Tom's company is building four senior living communities in the Northeast to add to its portfolio of 51 communities.  

On the first panel was Partners Continuing Care & Spaulding Rehabilitation Network president David Storto, Trammell Crow's SVP Cheri Clarke Doyle, Lean Project Consulting's Hal Macomber, and Sterling Planning Alliance/Steffian Bradley Architects managing principal Roberta "Bobbe" Young. Hal Macomber was the moderator.

Healthcare services are being delivered closer to where patients live and work. Several years ago, after companies like CVS started walk-in clinics, hospitals jumped into that emerging sector, David says. But hospitals have advantages, such as being able to provide lab services and imaging facilities. Rehab facilities like the hospital that Spaulding opened in the Charlestown Naval Shipyard in 2013 face increasing demand for outpatient services, leading it to expand—especially on the South Shore, he says. In the past, outpatient rehab services accounted for about 5% of Spaulding’s revenues. It’s now approaching 50%, David tells us. 

The demand for healthcare is so strong that for the first time, Trammell Crow is moving into both the senior housing and healthcare sector, Cheri tells us. This well-established real estate company can provide capital and development services to maximize cost efficiency and ensure speed to market in a competitive environment, she says.

Despite the new models for healthcare delivery, large healthcare networks are seeking a balance between community-based and inpatient hospital care, Bobbe says. Inpatient hospitals will always be needed and many—if not most—have aging infrastructure. Hospitals that have the capital will tear down more of their older facilities because it’s the only way to meet new standards of care. Hospitals without sufficient capital for replacements and/or major renewals are seeking development partners who can provide funding. Some are evaluating how to raise capital for expansions and replacements. Development of private practice spaces are becoming more expensive because doctors must meet more rigorous new standards of design and construction for the in-office care they deliver.

Construction costs are rising, not because materials are in short supply but because construction companies in the Boston area are so busy, says Suffolk Construction VP and COO Shawn Seaman. His company has done approximately $1B in healthcare projects since 2010. Suffolk is finding savings by using lean construction principles. The entire team sets up shop in one office near the site well before construction starts and uses one BIM app to cut down on mistakes. For clients like Boston Children’s Hospital, which is doing three construction projects, Suffolk is helping to bulk purchase major mechanical and electrical equipment to achieve economies of scale. Our second panel was moderated by AKF Group's Dennis Dyer.

Boston Children’s Hospital is in the early pre-construction stage with its $1.3B project in the Longwood Medical Area to build a new clinical tower and then renovate some existing LMA facilities. The project will cost $1,500/SF without the cost of land (the hospital already owns the site). It’s also building in Brookline and planning its first inpatient suburban facility in Waltham, says chief real estate officer and VP Charles Weinstein. While the hospital must enhance its presence in the Longwood Medical Area, some patients can be treated in a lower cost, suburban setting, he says. 

The Dana Farber Cancer Institute is not building new facilities in the LMA like the Yawkey Center that it opened in 2011. Instead, it's fitting out the 200k SF of space it's leasing in the new Longwood Center that opened earlier this year. Much of this rented space is for chemistry labs and basic science research, says VP Wendy Gettlemen. DFCI doesn’t own any more buildable land in the LMA where the biggest challenge is transportation, she says. To expand geographically, one DFCI strategy is to forge affiliate agreements with other existing institutions.

With 20M SF of healthcare institutions on 214 acres, the LMA is crowded. For several years, the major hospitals in Boston and nationwide have developed satellite systems to bring them closer to where patients live and work and to increase their market share, says Frank Nelson, executive managing director at Newmark Grubb Knight Frank. New buildings that cost $1,200/SF to $1,500/SF to develop are smaller than those of prior generations, with efficient energy systems and state-of-the-art technology. Old dreams of healthcare facilities expanding to I-495 have been dashed. The young new talent they seek are fans of city living.

A big shout-out to our event sponsors: AKF, Suffolk Construction, Cushman & Wakefield, Vidaris, Trammell Crow Co, Microdesk, Lean Project Consulting, Newmark Grubb Knight Frank, and Cannistraro.