Healthcare expenditures have exploded since the Affordable Care Act became law—expenditures under Obamacare topped $3 trillion in 2014 and are expected to reach $5.5 trillion by 2024. With that spike in expenditures comes an increased demand for healthcare real estate.
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HSA PrimeCare SVP of Acquisitions and Development Jon Boley, whose firm recently entered into a JV with USAA Real Estate to acquire and develop outpatient healthcare real estate assets in 11 states throughout the Midwest, says he looks at three key factors before making a deal.
1. Provider Consolidation
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HSA PrimeCare looks carefully at acquisitions to understand the needs of each provider and determine where the properties fit in their overall service platforms.
Jon says the ongoing trend of hospitals or large physician groups acquiring smaller providers could result in a duplication of locations. Over the next several years, providers may look to consolidate practices into a single strategic location. This is an important consideration to help assess the risk of a potential healthcare acquisition.
2. Fundamental Real Estate Practices
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When the ACA took effect, many healthcare providers focused on expanding patient bases and their strength in the market through mergers and acquisitions.
Now, real estate is taking a larger role as provider networks seek to be off-campus and closer to the patient. A common destination: retail centers. As more providers enter these locations, which typically offer high visibility and traffic counts, issues such as parking and floor plate size come into play. Healthcare is a parking-heavy real estate sector, with ratios of five parking spots per 1k SF. This is a ratio most some traditional retail centers can’t meet. With floor plates, the challenge is creating an efficient layout in a narrow, deep space with a limited window line.
Another issue involves local taxation. While landlords are content to sign a lease with a creditworthy healthcare tenant because it generates rent and other revenues, local jurisdictions may not be as happy with the loss of tax revenue that occurs when a medical user sets up shop in a former retail space.
3. The Actual Real Estate
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The trend of healthcare providers moving to patient-centered care where convenience and close proximity to patient bases is essential has resulted in opportunities to redevelop or reposition hospitals.
Networks are converting hospital rooms within patient towers to single occupancy, while select outpatient services such as ambulatory surgery and cancer treatment centers are moving on campus and receiving state-of-the-art upgrades. Ultimately, convenience is paramount for both the provider and patient and that trend will dictate healthcare real estate decisions for the foreseeable future.
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