Healthcare Systems Looking for Real Estate Funding
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The healthcare real estate climate is changing, with hospital systems juggling the need for seismic retrofitting, all while trying to develop new space to deal with the influx of patients from the ACA. The big question is: Where is the money going to come from?
The only thing not up for debate is that business is booming. That's what our panelists (Degenkolb principal Anuj Bansal, Health Care REIT VP Kevin Kirn, Partner Engineering & Science president Joseph Derhake) had to say at Bisnow's 4th Annual Los Angeles Healthcare Real Estate Summit Thursday at the JW Marriott at LA Live. Kevin says hospital systems are now looking at outside capital to help with real estate development because hospital CFOs have other financial priorities, such as M&A and hiring the best talent.
Children's Hospital, which is undergoing a $2B campaign for unprecedented expansion, is a case study in the change, says VP Liz Cochran. Much is due to the ACA and all of the new patients coming in. That means the hospital has had to consider outside financing for the first time in its more than 100-year history. Liz told the more than 150 attendees that philanthropy, while robust for the pediatric hospital, just isn't enough. And it just moves too slow.
Everything was different with healthcare development just a few years ago, when a hospital system might finance its own expansion, Kevin says. Now hospitals are realizing commercial developers can build better, faster and cheaper. Health Care REIT has about 14M SF nationwide and is one of the biggest players in the institutional space.
Dignity Health president Margaret Peterson told the crowd seismic retrofitting is a major issue for her facility, which has some buildings from the '60s. And with mayor Eric Garcetti's push for retrofits, Dignity will have some substantial capital investments to make in the coming years.
Around the country, healthcare also is being heavily influence by retail. Orthopedic Institute COO Matt Niedzwiecki says the hospital is just starting the process of laying out a master plan that would include adding retail business to the company's Downtown campus. Matt envisions a parent being able to run to CVS or get lunch at Panera Bread while a child is in surgery--all on campus. Still, he's feeling the squeeze like everyone else and says the institute has seen 29% growth in patient visits and just this week submitted plans to the City to build a surgery center in the basement. He's that maxed out.