Why NY’s Largest Healthcare System Is Betting Big On Real Estate
Unstoppable force, meet immovable object.
By 2020, healthcare’s on pace to account for 20% of US GDP. And as Northwell Health (formerly North Shore LIJ) chief physical assets officer Phil Silverman pointed out to the 450-plus who attended Bisnow's 5th annual NY Healthcare event, occupancy costs aren’t going down, and margins are razor-thin.
It’s a serious problem for the industry, and Northwell has a bold way to address it, which Phil shared as the event’s keynote speaker. The system sinks $125M into rent every year—an expense that Northwell’s finance department isn't shy about the need to rein in.
As recently as 2012, Phil says, less than a third of Northwell’s assets—21 hospitals and over 5M SF—were owned or long-term controlled. Now that number is around 70% and climbing.
Phil says an improving economy and interest rates that’ll eventually go up mean now is the time for healthcare systems—not just his—to become bigger owners of property. The savings and added revnue, Phil notes, could go right back into medical facilities doing what they’re there to do: research, treatment and teaching.
Snapped: Welltower VP Kevin Kirn, Durst Organization's David Neil, Simone Healthcare Development president Guy Leibler, Trammell Crow SVP Cheri Clarke Doyle.
Giving his prediction at the end of the panel on creative healthcare development, which he moderated, Welltower VP Kevin Kirn indicated that the wind’s blowing in the opposite direction. He says looking ahead, more healthcare systems are likely to lease space rather than own it.
Snapped: Skanska VP Jeff Rosser, Ewing Cole principal Andrew Jarvis, Winthrop University Hospital VP Joseph Burke, Macro Consultants senior partner Nisan Gertz, who moderated, AKF Group partner Dino DeFeo, Stantec principal Michael Kempin.
Medical facilities used to be built for a 30- or 40-year life cycle. But Kevin points out, nowadays, because of rapid and unpredictable changes in the way care is delivered, a facility could be obsolete within 10 to 15 years.
More and more ambulatory services are going off-site, and the Baby Boomers who’ll need increasing care soon don’t exactly ease the strain. Kevin says capital demands stemming from these changes mean we can expect more providers to pass off the risk of ownership like a hot potato.
Snapped: Faithful + Gould program director Glenn Grube, who moderated, Columbia University Medical Center AVP Patrick Burke, Northwell SVP Joseph Lenuso, NY Presbyterian SVP Maurice LaBonnne, Memorial Sloan-Kettering VP Gary Acord, Children's University of Philadelphia SVP Douglas Carney.
Panelists also dug into other aspects of the theme of the morning: an industry in transition. AKF Group partner Dino DeFeo and others pointed out that adaptive reuse is a relatively new frontier that often saves time and money in getting a facility up and running. But it can come with its own challenges, like trying to squeeze advanced equipment into converted parking garages that’ll become medical facilities.
Ewing Cole principal Andrew Jarvis—who pointed out he’s been around long enough to have two buildings he designed get a date with the wrecking ball—says he's learned the value of going back to clients and asking what about a design works or doesn’t. He says now his firm takes a three-pronged approach to client feedback: post-occupancy surveys, staff interviews, and fly-on-the-wall field observation.
Columbia University Medical Center AVP Patrick Burke puts things in perspective by reminding us that 25 years ago, the fax machine was all the rage, and 25 years from now all the gasoline-powered cars on the road now will probably seem bizarre. Things change, and people adapt. Why would the healthcare industry be any different?