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Fewer MOBs in the Future?

Murphy Austin Adams Schoenfeld real estate partner Catherine Oh, who moderated Bisnow's 3rd annual Healthcare Real Estate Summit at Hotel Nikko yesterday, asked panelists to give a recap of the past year. Some of the highlights included the federal shutdown in an attempt to repeal the ACA, she says, and CVS making a newsworthy announcement to stop selling tobacco products to solidify its stance as a serious healthcare provider via in-store clinics. (Nobody mentioned that we beat that sinus infection a couple weeks ago, we thought that was pretty big news.) She also asked panelists to list their priorities for the next 12 months. She was curious about the pressures being placed on health systems when it comes to real estate and challenges related to healthcare exchanges.

Sutter Health director of real estate Ed Erwin has a new $2B hospital replacement project at Van Ness and Geary, which he started acquiring land approximately 10 years ago. One cost-savings trend he's seeing is patients being able to self seat themselves in waiting rooms, and Sutter is cutting expenses via a large consolidation project of finance staff in Roseville. When he joined 16 years ago, Sutter had just finished a big disposition project. Now Sutter's back at it again, looking to sell some MOBs and a few houses in Berkeley they don't need. (Maybe a garage sale?) With the amount of capital they're spending on projects, he says it's time to start getting money back from the market and reallocate those dollars.

Newmark Grubb Knight Frank executive managing director of global healthcare services Garth Hogan says in the past year he's never seen a higher priority placed on real estate from health systems' C-suite level in his 25 years in the industry. Hospitals can save money by cutting costs of real estate, disposing non-core assets, and better utilizing the real estate they have; helping systems implement those action items has created a lot of biz for Newmark, he says. Last year his team leased a 30k SF former Borders in Long Beach to Memorial Care, who wanted a lean, mean, state-of-the art super clinic. Next to CVS, Bristol Farms, and LA Fitness, it was a well-rounded project, he says.

Kaiser Permanente VP of Northern California capital projects Hollis Harris says she gets the best and brightest minds out of medical school every year, and Kaiser is looking to please those tech-savvy young doctors by leveraging technology to increase its footprint--without bricks and mortar. Buildings Kaiser is getting off the ground have to be incredibly flexible because the medical landscape is changing so fast. (We're starting hot yoga classes for any interested office buildings. We'll really stretch out those window frames.) The first word of the ACA (affordable) is the most important, she says, and Kaiser is looking at all aspects of its costs--people, infrastructure, and innovation--to deliver care at a more affordable rate. She counts some 200 MOBs that need some improvements and cosmetic work, and Kaiser has a robust capital plan to get that done.

Dignity Health VP of corporate real estate Jeff Land says the future of healthcare is going to be treating patients in their homes—a better solution for "them and us," he says. (It's full circle back to the days of the local town doctor, Norman Rockwell would be thrilled.) That means the elimination of bricks and sticks is the future, he says. An 85-year-old woman, for instance, doesn't need to drive to a hospital for a 15-minute meeting; remote monitoring data can track how many pills she takes. When Dignity changed its name two years ago, they asked people around the US what was wrong with healthcare. Their response? That human kindness has disappeared. He's found that the right architecture and design can make the patient experience kinder and feel more human--even though it's being done in a cost-effective environment.

Cushman & Wakefield executive managing director and leader of the healthcare practice group Scott Mason says one of the great criticisms of healthcare is its fragmentation. There's lots of health system acquisitions happening, and combining into better and more efficient spaces can take years to achieve. A lot of systems have yet to go into that phase, he says. Administrative consolidation is a big trend right now. He referenced this week's 450k SF lease across the street from the Chrysler Building in NYC to consolidate admin services for Mount Sinai and Continuum Health Partners. As systems get larger and develop critical mass, redesigning workspaces is key.