Turning Market Disruption into Opportunities in Healthcare Real Estate

(10/2/2024)

If you’re a leader in healthcare, you’re likely feeling the landscape shift under your feet. We’re undergoing significant market disruption, which translates into opportunities for growth and for delivering more value to the audiences we serve—if we know how to leverage them. Real estate, in particular, is one of the competencies undergoing a massive transformation in healthcare.

If you’re a leader in healthcare, you’re likely feeling the landscape shift under your feet. We’re undergoing significant market disruption, which translates into opportunities for growth and for delivering more value to the audiences we serve—if we know how to leverage them. Real estate, in particular, is one of the competencies undergoing a massive transformation in healthcare.
 
Last month, Medxcel leaders took part in an expert panel on “Unlocking Healthcare Opportunities” at the Colliers National Healthcare Conference, discussing what emerging healthcare shifts mean for real estate strategies. We’ve asked those leaders to share what they gleaned from the conference, and insights that can benefit fellow healthcare facilities and real estate leaders.
 
Joining us are:

• Mark Yagerlener, National Director, Real Estate Transactions
• Jay Jones, National Director, Real Estate

What 2-3 takeaways stood out to you at the Colliers Conference?    

Mark: We anticipate that falling interest rates should help offset the cost of construction, which has limited demand for new buildings. The demand for behavioral health continues to grow but remains under-serviced. In response, providers are evaluating inpatient (more expensive) and outpatient (less expensive) models.
 
Jay: Healthcare systems’ margins are struggling due to a higher cost of capital, staffing shortages, higher staff wage requirements, reimbursement regulation shifts, etc. As a result, health systems are turning to their real estate team(s) to make timely and quantifiable recommendations to significantly improve operational efficiencies. Emerging best practices that make this possible include:

• Dedicated technology to support all property management functions, including lease administration, critical date oversight, property accounting, and vendor management.
• Structured, consistent reporting and recommendations.
• Enhanced oversight of operational expenses (leakage) and capital expenses (tenant improvement, building).
• Underutilized space oversight and leasing (transaction management).
• Lease administration/ critical date oversight.

What did you learn that excited you about the future of our industry?    

Mark: More and more, partnerships with healthcare systems, physicians/providers, and real estate developers/investors are critical to meet the growing demand for ambulatory, outpatient space.
 
Jay: Medical outpatient buildings (MOBs) continue to outpace the flat U.S. office market. Rent is rising and interest rates will continue to tick down, freeing up much needed capital dollars. Increasingly, healthcare leaders are engaged and motivated to collaborate with healthcare real estate professionals to ensure their real estate portfolio is well positioned to exceed financial projections.

You both took part in a panel discussion on leading issues impacting healthcare. Can you share a couple of highlights?   

Mark: Panelists brought various perspectives, with representation from healthcare real estate service providers (Medxcel), academic healthcare (University of California), healthcare real estate director (Common Spirit), and private (True North). Key takeaways from that discussion included:

• Focus on space planning, utilization, and efficiency to optimize clinics and the work of clinicians.
• Strategic leasing within medical office buildings to create a sustainable referral network that is convenient for patients (one-stop visits), for clinicians, and the health system.

 
Jay: A sound real estate strategy with collaboration between health system and real estate leaders should be part of the long-term solution. Real estate costs make up a significant portion of any health system’s budget, so adjusting real estate portfolios and optimizing property and facilities management can free up capital to be redeployed to patient care and related system priorities. Healthcare systems, providers, and investors who thoroughly scrutinize their real estate team and focus on cost optimization and revenue generation will gain a competitive advantage. 
 
Healthcare leaders are managing operations within tight financial margins and growing scrutiny on capital planning. Identifying key metrics and providing accurate reporting on a regular cadence allows the real estate team to make timely and quantifiable recommendations to healthcare system leaders, identifying paths to optimal property operations through prudent financial decisions.

What other trending topics provoke insightful discussions? 

Mark: Coming out of COVID-19, many healthcare systems are still capital-constrained, which has limited investment in expanding the ambulatory network. Providers are now focusing on expanding their ambulatory portfolio and looking at all options for developing new buildings: self-performing (owned and developed by the health system), engaging a developer to finance and develop the building, or hybrid models with a developer using tax-exempt financing.
 
Jay: Other discussion topics included:

• Economy/inflation: how to manage costs through an effective real estate strategy
• Capital access
• High interest rates (money is expensive!)
• Staffing challenges
• Reimbursement models
• Patient care
• Real estate impact and long-term strategies
• Industry evolution and future outlook

Lastly, can you share your favorite part of attending the Colliers Conference? 

Mark: I appreciate the broad representation of attendees and panel topics at the conference, including the advisory board, healthcare real estate market data, behavioral health, investor panel, and provider panel. In a relatively short period, I was able to network with a broad spectrum of participants in the healthcare real estate space.
 
Jay: The collaboration and energy were infectious, and the information shared from industry leaders across the country was invaluable. I feel very fortunate to have participated.