BLOGS: Womble Commercial Real Estate

Thursday, September 20, 2012, 3:01 PM

Size Matters

No surprise here!  The trend in MOB development is "bigger is better" ... and North Carolina is no exception, as this article from discusses.


Medical office buildings grow in girth

By Ashok Selvam
Posted: September 15, 2012 - 12:01 am ET
While new medical office buildings have been added to the landscape across the country, the ongoing trend toward larger multispecialty practices is driving the need for supersized physician spaces.

These new facilities need to be big enough to house far more than a single physician group, yet still inviting enough to make patients feel comfortable, and functional enough for clinicians and staff. Poorly designed space can discourage the very collaboration necessary in the post-reform environment of patient-centered care, observers say.

Northwestern Memorial Healthcare is among the systems pushing the trend. The Chicago-based system last year purchased a 130,000-square-foot office building in the northern suburb of Glenview, Ill., with plans to convert it into medical offices. The facility, slated to open in March, represents Northwestern's commitment to better coordinate care, says Dr. Daniel Derman, president of Northwestern Memorial Physicians Group. He sees having everything under one roof as advantageous, offering “the most efficient way” to take care of a patient population.

Derman says he's not surprised by the escalation in medical office building size, given the increasing focus on ambulatory care. Outpatient care continues to account for a larger portion of hospital revenue, surging from about 10% in the early 1990s to currently about 60%. Older, smaller facilities typically can't accommodate the growing number of services offered on an outpatient basis, especially an expanding menu of surgical procedures and diagnostic imaging such as CT and MRI. Renovation or retrofitting such space often is cost-prohibitive, experts say.

And still larger facilities are being developed. For example, the Capital Health Medical Center-Hopewell, Pennington, N.J., includes a 329,200-square-foot medical office facility. The building opened in November 2011 and features imaging services, an oncology center and a center for digestive health.

“You're seeing a lot more centers built around specialties,” says Andrew Quirk, senior vice president and national director at Skanska USA, the construction management firm for the Capital Health facility. “You're going to start seeing more dedicated outpatient treatment centers for cancer that are huge into proton therapy.”

Quirk also expects to see more free-standing emergency departments. “I think it's a good way for hospitals to introduce themselves into the community and to take immediate care of the people they are serving,” he says.

Some of Skanska's larger medical office projects include Carilion Clinic's 210,000-square-foot Riverside Center in Roanoke, Va., which had its latest wing open in 2009. It includes internal medicine, orthopedic and neurology practices.

“I can tell you that our average size of MOB that we have seen more often than not is in the 30,000- to 60,000-square-foot range,” Quirk says. “We are now seeing them routinely greater than 100,000 square feet.”

Another project is the 60,000-square-foot University of North Carolina Health System's physician's office building in Hillsborough, which is expected to open in the spring of 2013. The number of physician practices has yet to be determined, officials say, but services are likely to include oncology, urgent care and diagnostic imaging.

Another factor leading to the need for expanded medical practice spaces is the surge in physician employment by hospitals and health systems. And those providers are likely to continue to hire more doctors, says Keith Konkoli, a senior vice president for healthcare at Indianapolis-based developer Duke Realty. Given the growing numbers, bigger office buildings just make sense, he says.

“They need places to work and they need to get all the physicians together,” Konkoli says. “You need the services behind them to support their practices.”

Duke Realty's projects include the 114,000-square-foot physician office building that is connected to the Baylor Medical Center at McKinney (Texas). The new medical office building opened in July and houses more than 10 physician practices.

Konkoli also cites St. Joseph Regional Medical Center in Mishawaka, Ind., which includes a four-story, 205,600-square-foot multispecialty facility that features an MRI facility, wound-care center and a pediatric clinic. The medical office building, which Duke developed and built, opened in 2009 and houses five of St. Joseph's physician practices.

St. Joseph Regional Medical Center in Mishawaka, Ind.
St. Joseph Regional Medical Center in Mishawaka, Ind.
These larger buildings are going up across the county, not confined to specific regions where strong population growth might be a major factor. “With all of the CEOs and CFOs that I've talked to about this across the country, it's neat to see it's not just a regional thing, it's a national response.” Quirk says.

Konkoli says it has taken some time, but during the past decade, physician integration has continued to improve with a increased focus on collaboration. The patient experience also improves through the convenience of having multiple specialties in the same building, which often provides more cost-effective settings. That's especially important with shrinking reimbursements, he says.

Even though buildings are trending larger, it's often the case that the work spaces are getting smaller as providers push for efficiency. Physicians from different practices share more waiting rooms, back-office space and nursing stations: “It just operates more efficiently. It's an open collaboration,” Konkoli says.

Building larger offices also represents a more efficient way of spending money, since the cost of managing real estate continues to rank as a major expense for hospitals. Based on data from Chicago-based real estate management firm Jones Lang LaSalle, real estate represents 40% to 50% of hospital systems' assets, making it the third-largest expense, behind payroll and supplies.

The combination of a decline in provider reimbursement and rising demand for capital makes strategic planning more important for hospitals and health systems, says Shawn Janus, the firm's managing director. Larger medical office buildings are typically more cost-effective versus construction of new full-service hospitals, he says.

One way construction costs differ between types of facilities is with HVAC systems, as hospital filtration requirements are more stringent compared with office buildings, Janus says. Medical office buildings don't have to adhere to those higher standards, which means lowered costs, he says.

Hospitals and health systems are also employing the new “one-stop shopping” medical office venues to cater to patients' on-demand lifestyles.

“As a consumer, I would much rather be able to see my doctor, have my ambulatory surgery and have my rehab—everything—at one facility very close to where I live,” Janus says.

Those interviewed for this story struggled to come up with negatives to the larger medical office space. Konkoli believes that eventually building size could be capped once they approach the size of larger hospitals. Some medical office buildings are already eclipsing the size of smaller hospitals.

“You could say that with being big you lose efficiency, and you look much like a hospital again,” Konkoli says. “Typically, you're not going to have any bed component. I just think it's a matter of what's being delivered and the number of physicians and what can be efficient in the space.”

The availability of capital also dictates fewer hospitals and more office buildings, Janus says, pointing to an increase in the number of mergers and acquisitions. Smaller hospitals are seeking the stability and increased capital of larger systems.

Declining reimbursements mean physicians are also affected by the availability of capital. It's more difficult to find financing to build their own office facilities versus working in a larger spaces owned and operated by hospitals and health systems, Skanska's Quirk says.

Building in flexibility has always been key to designing offices, and the larger buildings offer even more adaptability, Quirk says. Compared with building a hospital, larger outpatient office space is a cheaper alternative that's more inviting for patients, he adds.

And they might offer amenities not found at your typical community hospital. Quirk says more office buildings will include health clubs or spas, citing one example of a retail component that's also becoming more familiar in medical offices to keep the customers happy.

While it's easy to see the trend toward larger buildings, the focus shouldn't just be on size, Derman says. The fate of the patient experience lies with how building designers use the space to help clinicians deliver a higher quality of care and services. “The size of the building, the size of the hospital does not dictate the experience,” he says.

Labels: , , , , , , , , ,

Friday, September 14, 2012, 3:24 PM

Paperwork Pile Threatens Structural Integrity of VA Building

Healthcare developers – encourage your clients to go paperless!  The Associated Press reports that mounds of paperwork threaten the integrity of a VA facility in Winston-Salem, N.C.
(From the AP article:)
VA paperwork could crush N.C. office building
The Department of Veterans Affairs is notorious for red tape, but the piles of paperwork at a facility in North Carolina have grown so high that their weight had bowed the floor, prompting worries the building might collapse.
A recent report issued by the VA's Inspector General found the agency's regional office in Winston-Salem had huge numbers of folders containing veterans' benefits claims stacked on the floor and on top of filing cabinets.
The report advised that so much paperwork had accumulated that it "appeared to have the potential to compromise the integrity of the building," thereby creating an unsafe workplace for the federal employees.
According to the report, the VA has since begun moving the files to other sections of the building until a long-term solution is found.

Labels: , , ,

Sunday, September 9, 2012, 3:11 PM

Good news on the Medical Office Real Estate Front

We love to hear news like this, don’t we?  Note the mention of healthcare at retail sites – something covered in a previous post on this blog by Phil Runkel.

Medical Office Building Market Heating Up

Will medical office building (MOB) sales soon return to the levels of the boom years of 2006-08?

It’s too soon to tell. But recent MOB sales activity has clearly taken a step in that direction, according to the most recent edition of Healthcare Real Estate Insights™.

HREI™, the only national publication that reports on and analyzes healthcare real estate news and trends, cited new data from the commercial real estate research firm Real Capital Analytics Inc. indicating that the total dollar volume of MOB sales increased sharply during the second quarter (Q2) of 2012. During Q2, there were 183 properties sold with a total value of more than $1.63 billion, according to RCA.

“That is the highest quarterly sales level recorded since the fourth quarter of 2010 and the fourth highest ever – at least since RCA began tracking MOBs sales in the first quarter of 2001,” HREI™ Editor John B. Mugford says. “Even during the MOB sales heyday of 2006-08, only two quarters saw greater sales volume than was recorded last quarter.”

And the rebound might continue, Mr. Mugford adds. “We don’t make predictions. But I can tell you that we are already tracking several large transactions that have either closed or are likely to close before Sept. 30 that could make Q3 another high-volume quarter for MOB sales,” he says.

“One or two quarters are not definitive proof of a sustained market recovery,” Mr. Mugford cautions. “But Q2 was the third consecutive quarter during which MOBs sales topped $1 billion, and that hasn’t happened since Q4 2007 and the first two quarters of 2008. So the recent increase in MOB sales activity certainly suggests that healthcare real estate investment and development have picked up steam.”

Other healthcare real estate trends: ambulatory strategies, repurposing and healthcare at retail sites.

 (Read on at

Labels: , , ,

Friday, September 7, 2012, 6:21 PM

Medical Groups Increasingly Turning to Real Estate Ownership

I’m seeing great deal of this lately—business owners and medical groups taking advantage of favorable factors to diversify their investments to include real estate ownership. Often, this includes the very building that they currently occupy.  The article below highlights two recent examples from California (from the Sacramento Business Journal):

Owners/users snap up office buildings

“Real estate agents say more small business owners are capitalizing on relatively low real estate prices, motivated sellers and low interest rates to buy property rather than lease.

Such is the case in Roseville, where a medical group bought a 3,650-square-foot office building at 902 Cirby Way for $614,000. The buyer intends to operate a pediatrician office, said Tom Bacci, a Voit Real Estate agent who, along with colleague Jon Walker, represented the seller, Wells Fargo Bank. Another example is on Sun Center Drive in Sacramento, where a medical-billing company bought a 31,680-square-foot building for almost $2 million. Cushman & Wakefield handled that deal.

‘Owner/users are especially active in the buying market as they take advantage of competitive pricing on higher-quality properties,’ Walker said.

Health-related businesses are particularly active, and are leading the way, especially in Roseville and Rocklin, Walker added.”

(Taken in part from Sanford Nax’s article “Owners/users snap up office buildings” in the Sacramento Business Journal, August 31, 2012.)

Labels: , ,

Thursday, September 6, 2012, 3:11 PM

Healthcare Project Manager, Architect Reimagine Medical Office Building for New Economic Normal

We’ve been hearing this for years now:  healthcare has to reduce costs and be more efficient.  Smart healthcare real estate players will note this need and proceed accordingly, offering reduced costs and economies of scale. A recent article in Healthcare Design provides a compelling look on how this can be done:
Reimagining the Medical Office Building

Recent shifts in culture, labor, workflow, and design are challenging many of the long-held roles and criteria that dictate how healthcare facilities are developed, designed, and managed. One of the most prevalent trends taking shape as a result of these changes to the nation’s care delivery model is thoughtful reevaluation of the design of medical office buildings (MOBs) and other outpatient facilities.

Not long ago—before these sweeping changes began taking place—most MOBs were designed as multitenant facilities organized to house numerous independent physicians or medical practice groups. Typically, that meant floor plans calling for long public hallways linking numerous separate suites, each with its own entrance, reception area, waiting room, exam rooms, restrooms, physicians and business offices, records storage, staff break room, imaging center, and lab.

However, the transformation of the healthcare industry is forcing providers, designers, and developers to reconsider this sort of isolation and duplication.

In a marked change from just a few years ago, hospitals and health systems now employ more than half of all physicians—and the proportion continues to grow. The impact of this trend alone on MOB design has been remarkable.

This new reality demands that providers, architects, and developers look at MOB design in a new way. Rather than multitenant MOBs, what’s needed are multispecialty MOBs designed to better support physician integration and collaboration, while boosting productivity and efficiency.
Instead of collections of independent doctors’ offices, each with their own infrastructure, future MOBs must be designed to house complementary practices, co-located services, shared support staff, and centralized common areas.

This new breed of multispecialty MOBs will require floor plans that include fewer public hallways—or perhaps no public hallways at all. Main entrances will open into larger, shared reception areas and waiting rooms for all patients, serving as central gateways to all doctors within the facility. Waiting areas will be focal points, and will be designed to provide a soothing, aesthetically pleasing experience while they handle the functions of registration and administration.

Not all spaces can be shared, due to local regulations, American Institute of Architects (AIA) guidelines, or both. However, assuming co-location of the types of medicine being practiced is permitted, many types of shared spaces can be created.

Exam rooms will be organized into groups of standardized pods that can adapt to the ebb and flow of patient demand for particular specialties at any given time. Restrooms, storage, imaging centers, and labs will be shared. Offices for physicians practicing different but complementary specialties will be grouped, facilitating easier interaction and consultation. Break rooms and conference rooms will also be shared, offering additional opportunities for both planned and serendipitous interaction.

Business offices will be centralized—perhaps even eliminated altogether, if those functions are absorbed by employer-hospitals. Even some medical personnel and support staff will be shared, cross-trained, and cross-utilized. MOBs will increasingly incorporate shared conference centers and auditoriums, in both common areas and suites, for staff training and patient education.

Labels: , ,

back to top