Medical and healthcare facilities are becoming broader real estate classes undergoing dramatic changes in design and capital structures.
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Much like student housing, MOBs are becoming more widely sought-after assets. Three years ago, medical was a niche within a niche, according to Everest Medical Properties CEO David Lynn, who spoke at a recent Bisnow event in San Francisco. Now financial institutions have expanded into the class because of its great tenancy, low volatility and desirable cap rates.
MOBs are increasingly attractive because tenancy is stickier and doctors have high renewal rates of 85%, Lynn said. The long-term status of these tenants also outweighs the desire to increase rents.
Raising a doctor's rent increases the financial strain on doctors facing decreased reimbursements and increased administrative costs, while it is easier for health systems to absorb the cost.
“Smaller tenants are sensitive to price increases, and health systems are not as sensitive,” Meridian Property Co. CEO John Pollock said.
The Rise Of Patient-Centered Design
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The design of medical office buildings has evolved to get more out of a space. Waiting rooms are getting smaller and medical offices are becoming more efficient, according to McCarthy Builders Director of Integrated Design and Delivery Corrie Messinger. While the outpatient model has grown to keep people out of the hospital, the medical office building model is shifting to increase efficiencies and using more technology to get people in and out of the MOB.
Hospitals in California also are undergoing transformations, especially with 2030 fast approaching. Under California Senate Bill 1953, buildings constructed before 1973 need to be updated to current codes. Taking any portion of an existing building out of commission hurts owners because they cannot provide services in those buildings, according to Thornton Tomasetti senior associate, healthcare sector leadership Theresa Curtis.
A regulation from the Office of Statewide Health and Planning and Development, SPC-4D, allows buildings to be upgraded to 1980 standards by 2030. Hospitals and other buildings can instead consider renovations and retrofits instead of complete rebuilds with this less-stringent regulation.
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Dignity Health hospitals recently underwent renovations to change the look and feel and the overall patient experience. Over 13 miles of hallways were completely changed with different surfaces and artwork, Dignity Health Senior Vice President of Corporate Development Jeff Land said. About 10,000 pieces of messaging and signage were changed to create a feel of population health with the idea of getting patients more involved in their own health.
The health system also created an app that can provide directions inside the hospital and suggestions of things for family members to do as they wait for a loved one to return from surgery. Grand pianos also were placed in a few of the hospitals.
University of California San Francisco is using integrative centers for design and construction to get the builders and designers thinking about the patients they are ultimately helping and to improve productivity and quality of the build, UCSF Vice President of Major Capital Construction Projects Stuart Eckblad said.
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