Just What the Doctor Ordered: Building a Strong MOB Landlord/Tenant Relationship

A strong, ongoing landlord/tenant relationship benefits everyone in the medical office context, as this article from Medical Office Today discusses ...

Building a Strong Relationship with Your Landlord

By Jennifer Duell Popovec

A strong relationship between a medical office tenant and a landlord/owner can be beneficial to both parties. But all too often, the relationship between the two is almost non-existent. At worst, it may be strained because of distrust and miscommunication.

Establishing a good relationship takes time and effort, but the payoff is worth it, according to both healthcare and real estate professionals.

"During these tough economic times, I think it’s essential to have a good relationship with your landlord because things could change very quickly and drastically," says Dr. Steven Moss, a vice president with Malo Health Group in Rutherford, N.J.

Here, Medical Office Today outlines the benefits of a good tenant/landlord relationship and how to go about building one.

Mutually beneficial

At the very basic level, the relationship between the landlord/owner and medical office tenant is financial. You, as a medical office tenant, pay rent to your landlord on a monthly basis. But the relationship can go beyond that and be much deeper, Moss says. "At the heart of the relationship is a payor and payee, but when viewed from both sides as mutually beneficial, it becomes synergistic," he notes.

Moss speaks from personal experience: Malo Health Group signed a 15-year lease for more than 52,238 square feet in a 12-story building owned by Onyx Equities LLC. The group uses the space for one-stop health and wellness center that includes an oral surgery clinic and an ambulatory surgery center.

"For us, it’s important to have a good relationship with Onyx," Moss says. "We’re going to be here for 15 years, and a 15-year relationship is one that we want to be mutually beneficial and productive. We’ve always viewed the relationship as a partnership."

Making the relationship a priority

The relationship between medical office tenants and landlords/owners begins well before the lease is even signed. But, once that lease is signed, many medical office tenants choose not to pursue a relationship with their landlord or invest in the one that has barely had time to take root.

Most physicians don’t make it a priority to build a relationship with the landlord or the property manager. Likewise, administrative professionals such as practice managers take their cues from physicians and tend to neglect the relationship.

"I don’t think it’s very common for physicians to seek out the landlord – they don’t see the benefits of having a good relationship," Moss notes. "When the landlord approaches the tenant to have a friendly relationship, a lot of physicians probably think ’What do they want now?’ They’re suspicious, and they just don’t get that it’s not a one-way street."

Beyond lack of interest, the lack of time is perhaps the biggest hurdle to building a relationship. Moss acknowledges that healthcare professionals, like everyone else, have limited time to spend on non-healthcare-related issues. Nonetheless, he doesn’t think being pressed for time should preclude the development of a deeper, stronger relationship.

In fact, investing time in relationship building is a good investment, according to Sarah Teel, principal of MSL Investments, a San Antonio-based firm that represents medical office buildings owners.

Think about it this way, Teel encourages: "At home, you have one neighbor who goes out of her way to get to know you – you feel comfortable with her – and you have another neighbor who has never even said hello. When you make cupcakes, you’re going to want to share them with the neighbor who has built a relationship with you."

Cupcakes aside, the analogy applies to the tenant/landlord relationship, Teel contends. "I think you’ll find that landlords and their representatives are going to go out of their way to help those tenants that have made an effort to have a relationship with them," she says. "That’s not to say that landlords are not responsive to the needs of other tenant’s, but when there is a special situation, the relationship makes a difference."

When relationships make a difference

Dr. John Whitfield, a gynecologist in Fort Worth, Texas, goes out of his way to maintain a good relationship with his landlord, Healthcare Realty Trust, a Nashville, Tenn.-based company that owns millions of square feet of medical office space across the nation. He occupies about 2,500 square feet in Healthcare Realty’s medical office building on the Baylor All Saints Medical Center campus on 8th Avenue.

Jacque Flanagan and Licia Matute handle the leasing and property management for the building in which Whitfield is a tenant. "We make a point to get to know our tenants," Flanagan says. "We stop by their offices on a regular basis just to check in and to see if they need anything. I think a tenant loses out if they don’t get to know us because there are a lot of ways that we can help."

Whitfield knows that relationships make all the difference when it comes to resolving problems that pop up in the course of daily business. Before moving into his current medical office space, his relationship with a prior landlord was iffy, and that impacted his practice.

"When you have a relationship, and you’re comfortable with the people running the building, and you know you can approach them, everything is so much easier and things run more smoothly," says Whitfield, who has been a tenant in Healthcare Realty’s building since January 2009. "The relationship means that if you need a little favor, they’re more likely to help you out."

It’s important to establish a relationship with your landlord before you need something, experts agree. "Spend the time getting to know them, so that when you do need something, you’re comfortable asking for it," Teel recommends.

Above all, communication is the most important element when building a relationship between tenant and landlord, according to Matute of Healthcare Realty. "If you’re communicating regularly, being honest with each other and building trust, your relationship will grow stronger," she says. "That’s what we try to do every day, and fortunately, our physicians and their practice managers are receptive to our efforts."

How the Affordable Care Act Affects Healthcare Construction

We all know that the Affordable Care Act will have a huge impact on healthcare generally ... here's an excellent article from Becker's Hospital Review that discusses how it will affect healthcare construction specifically.


How the Affordable Care Act Affects Healthcare Construction

Written by Mike Leopardo, Senior Vice President, Leopardo Companies | May 29, 2013

   

The pace of healthcare development is on the rise again after two years of declining construction starts. The long-term trend — hospitals and healthcare networks expanding to meet the needs of an aging U.S. population — was disrupted in recent years in part by uncertainty over the fate of the Patient Protection and Affordable Care Act.  

Now that there is more clarity on the direction of healthcare delivery, hospitals and networks are back in expansion mode. But their development plans are likely to be much different than those of five to 10 years ago, when hospital design often followed hospitality industry trends. Now, as construction ramps up again, the focus is on efficiency and cost-containment.

Construction starts in the healthcare sector totaled just 63 million square feet in 2012, down from a peak of 109 million square feet in 2008, according to McGraw Hill Construction's annual outlook in November. Big developments were largely put on hold, with only 15 projects over $100 million breaking ground in the first nine months of 2012. Overall, the level of construction starts was 16 percent lower last year than in 2011, which in turn was lower than in 2010.

The poor economy was a major factor in the slowdown, but demand for healthcare services did not decline as much as for many other sectors. Another factor, arguably as important as the overall economy, was the question of what healthcare delivery would look like in the future. Even after passing Congress, the Patient Protection and Affordable Care Act — also known as Obamacare — faced political hurdles, including dozens of attempts to overturn it in Congress, a Supreme Court challenge and, ultimately, the presidential election.

With its namesake winning a second term, there was at last a general consensus that Obamacare would be implemented. Healthcare organizations now knew which strategies to put into play, and some had plans ready to go. McGraw-Hill noted that construction activity in the sector jumped 12 percent in December 2012.

For hospitals, healthcare reform is a mixed blessing. Some 30 million additional Americans will have the insurance to pay for check-ups and preventive care rather than having to resort to the emergency room. Also, insurance companies won't be able to deny coverage due to pre-existing conditions. So the upside for hospital systems is a greatly expanded customer base and fewer uncollectible bills to patients.

On the downside, PPACA sets limits on the amount that can be charged in various situations and ties Medicare reimbursement levels to performance. In addition, healthcare organizations will be increasingly responsible for encouraging wellness across the entire population of the communities it serves — programs that may cost more than they yield in direct revenue. When the pros and cons are combined, hospitals stand to make more money, but with fewer opportunities for strong profit margins.

To get their slice of the expanding pie, healthcare organizations need to offer more beds, more operating rooms, more outpatient and ambulatory facilities and more medical office space. But to protect profit margins, they need to keep costs to a minimum. For many, the way to balance the opposing goals of growth and constraint is to renovate existing facilities to be more efficient whenever possible, and when expansion is necessary, to carry it out in ways that minimize expense and maximize the efficiency of physicians, nurses and medical staff.

If that sounds like a tall order, it is. But it's not an entirely new mandate for the healthcare sector. In fact, the most significant effects that Obamacare will have on the market amount to acceleration of trends that were already in play.

Focus on cost controls

Minimizing expense has been a rising focus for healthcare organizations for several years. A decade or more ago, the trend was toward palatial new hospitals designed by star architects as a way to make the healthcare experience more like a luxury hospital stay. But that trend was seeing a reversal even before the economic downturn. By limiting what hospitals can charge for procedures, the PPACA merely turns up the heat on hospitals to manage expenses.

The reality is that healthcare operating margins are very low — 2 to 3 percent is considered an industry average, but many hospitals lose money. When margins are so thin, a program to boost revenue may not do much to improve an institution's financial condition, while strategies that reduce cost drop directly to the bottom line as profit.

The need to minimize cost means that hospitals want to renovate and retrofit existing buildings whenever possible. Often a hospital can be reconfigured for greater efficiency, reducing the number of steps physicians and nurses must take in getting around. Infrastructure can also be upgraded, for greater energy efficiency and new technology.

Renovations don't serve every situation, however. Hospitals that were built before digital technology changed the medical landscape often lack the ceiling clear heights to accommodate cabling and new features in today’s facilities. For example, some new hospitals include ceiling-mounted lifts over patient beds to enable nurses to lift patients without straining their own backs and potentially endangering the patient's health. Sixty-two percent of nurses report suffering from musculoskeletal pain primarily from lifting patients, and patient falls are not uncommon. Retrofitting an older hospital with overhead lifts may not be feasible.

When new construction is needed, there are many ways to minimize cost, maximize functionality and efficiency, and still end up with an appealing place for patients, their families and medical staff. The healthcare sector has taken a strong interest in new construction practices such as building information modeling, integrated project delivery and design-build processes that have generally resulted in better designed facilities completed faster and with fewer obstacles along the way. By getting project managers and contractors more involved in design specifications at the front end, IPD and design-build procurement also enable the team to identify less expensive construction materials.

Although hospital systems can save millions of dollars on new construction costs with the right team and process in place, the greater savings opportunity over time may be in the day-to-day efficiencies of new facilities. An increasing trend is for design and construction teams to talk with physicians and nurses about ways that facilities can help them to perform better, often by spending less time walking from place to place and more time serving patients. The opportunity to improve energy efficiency can also result in large-scale savings over time, while boosting the hospital's efforts toward sustainability.

Increase in outpatient centers

Another healthcare construction trend that is being fueled by Obamacare is the shift of more physician visits and surgical procedures away from major hospitals to ambulatory and outpatient centers, and even to medical office buildings.
Outpatient procedures can be done at a much lower cost than in-hospital stays, and use physicians' time more effectively. Patients often prefer outpatient facilities for procedures that need to be performed multiple times, such as cancer radiation and kidney dialysis, because these centers are often more accessible in terms of parking and walking; and there are often centers closer to the patient's home or work than the hospital is.

Today, more than 60 percent of elective surgical procedures in the U.S. are performed at ambulatory facilities, and experts expect this percentage will increase to nearly 75 percent by the end of this decade. Laser therapies and other less-invasive procedures have fueled this trend; the percentage of all surgeries that did not require an overnight stay increased from just 16 percent in 1980 to 63 percent in 2005.

This trend supports the goals of PPACA by delivering lower-cost procedures to an expanding range of patients. It makes physicians more productive by enabling them to perform procedures at times when operating rooms may not be available. And by moving more healthcare delivery away from central hospitals to more accessible centers throughout a hospital's service area, the decentralization trend also supports PPACA's mandate for population wellness. Experts agree that construction of outpatient and ambulatory centers will grow faster than the base of large, expensive hospitals in the coming years.

Effects of change

Although the emphasis on cost containment and efficiency is the main trend that will drive healthcare construction under Obamacare, other issues are likely to affect the shape of new development. For example, the ability to attract top-notch physicians is an important factor in hospitals' decisions to include state-of-the-art features in new or renovated facilities.

While reform may add up to 30 million new patients by 2015, the number of new physicians in the U.S. is expected to increase by only 50,000 in that same time. Moreover, hospitals that can attract the country's top-rated physicians in a particular area of medicine can attract patients from across the country, and can charge premium rates that result in higher profit margins.

Often, new hospitals under development are able to announce that high-profile physicians will join the hospital upon completion of the new facility, due to better equipment and an overall superior work environment. As the implementation of PPACA increases the patient-physician imbalance and ups the ante on attracting star surgeons, expect to see more physician-driven design features in new developments.

Another healthcare construction trend that's fueled by PPACA is the importance of information technology in design and development. Effective data management and 'smart' systems technology make hospitals more efficient by preventing opportunities for errors and by reducing the number of trips that nurses and orderlies must make between patients and areas where medicines and linens are kept.

Obamacare increases the importance of data management by introducing additional layers of record-keeping and, more important, by increasing the number of patients to keep track of. One result is that IT infrastructure and equipment is an increasingly important element in the design and development of new and renovated hospitals. The downside of this trend for architects and contractors is that construction initiatives and processes face greater competition from IT features and functions for limited capital improvement dollars.

Overall, the PPACA brings change to healthcare delivery that necessitates new and expanded facilities, emphasizing cost-effective construction that enables efficient operations. Firms in the construction business  that serve the healthcare sector will see strong growth opportunities in the coming years, but we must also continually raise our game to ensure low-cost delivery that meets the present and future needs of a fast-changing industry.

Michael T. Leopardo is senior vice president at Hoffman Estates, Ill.-based Leopardo Companies, Inc., one of the nation's largest construction firms and the trusted builder for 40 hospitals.

Renovate or Build New? Factors Healthcare Providers Need to Consider

Here's an excellent article from Medical Office Today on things to consider when evaluating whether you should renovate existing space or build new.

To Renovate or Build New: Factors to Consider

May 29, 2013

By Carrie Rossenfeld
Whether you’re just starting out as a healthcare provider or are a seasoned professional, at some point the question of whether to renovate a space or build a brand-new office may arise. The bad news: there is rarely a cut-and-dried answer to this question. The good news: there are many factors to consider that will help you decide what to do.

“The renovate vs. build new question is a base starting point for any practice to consider,” says Andrew Quirk, senior vice president and national director of Skanska USA Building’s Healthcare Center of Excellence in Nashville, Tenn. “The space a practice operates within can mean the difference between a business’s healthy margins and losing money. Additionally, the physical environment has a direct impact on the practice’s brand, patient attraction and retention, employee attraction and retention and operational efficiency.”

Quirk says that if these topics are not on a practice’s radar, they need to be. “A practice really needs to ask the question of what are we trying to achieve, what are we trying to do as a practice? Sometimes the response is simply a freshening of the brand that can be achieved through new finishes and furniture; others may identify a growing practice or a need to be more efficient as the reasons for change. In either scenario, the needs will point in the right direction for either a renovation project or new construction.”

Quirk adds that larger issues like a changing patient demographic base or adding partners to a practice can also point a group in a particular direction.

Any decision to renovate an office or build a new building provides an opportunity to reinvent your practice internally and externally, says Fred Wolters, planning and design principal at EYP/BJAC, an architecture firm specializing in academic, medical, research and government clients in Raleigh and Charlotte, N.C. “These opportunities do not come along often and, given the changing world of healthcare we live in, it is more important than ever that medical practices take advantage of them.”

"Your decision also matters since it could affect the financial health of your practice for years to come," says Ken Kaplan, president of Kaplan Construction in Boston. “Depending on the work program decided upon, the project could become a major distraction for the practice for an extended period.”

Typically, practices contemplate construction to accommodate growth, which is solved with additional square footage, says Bradley Cardoso, a senior associate at Margulies Perruzzi Architects in Boston. This could be achieved with either option, but “the decision should be based on construction cost, disruption caused by construction and the quality of the final layout. Ask the question: Does the solution provide value to the patients for the cost?”
 

The benefits of each choice

Renovation
 
Renovation can at times provide a “best of both worlds” result, says Quirk—lesser costs, coupled with varying degrees of solutions to basic efficiency issues and physical upgrades. He adds that renovation projects are also scalable and scope can be adjusted to meet a practice’s budget, which offers you a variety of options. With renovation, users can more easily reach the correct decisions for their practice, adds Kaplan.

“If minor changes are needed due to patient-care delivery changes, then renovation may solve the issues,” Cardoso points out. “However, that’s only if there is enough space to make the changes or there are rooms that can be converted for the new use.”

According to Tim Gaumond and Rich McClelland, architects with Larson & Darby Group in Rockford, Ill., other benefits of a renovation include:

·        Quicker build out and move-in time
·        If leasing, your landlord will take care of the common areas, exterior, etc.
·        You already are familiar with complementary practices and services in the or area
·        More flexibility in moving to a larger or smaller space when a lease expires
·        Quicker permitting, less zoning and site reviews

And Cardoso adds:

·        There’s no need to move.
·        You can save what works, therefore saving money on construction.


Building new

Building new allows a practice to correct wrongs or basically create a fresh start, says Quirk. Kaplan adds that with a new build, new technologies, growth and staffing issues in general can more easily be addressed. “A ‘new’ office might present an image of better professional and patient outcomes to the community.”

Gaumond and McClelland say the benefits of building new include:

·        Ultimate flexibility in layout and design
·        The exterior projects the image the practice wants to convey.
·        You have control of the common areas (i.e., lobby, restrooms, etc.).
·        You could lease areas of the new building that you’re not using to generate revenue.
·        You gain the benefits of a long-term real estate investment.

And Cardoso adds:

·        A shorter schedule with fewer phases
·        A new space will meet current health and building codes
·        No disruption to the current practice (i.e., noise, vibration, system shut-offs)
·        Greater efficiency because builders don’t have to work around an operating office
·        New space is more efficient and gives the practice an opportunity to evaluate and change current patient/staff flow

Wolters sums up that while in most circumstances the same goals can be achieved either through new construction or renovation, new construction typically comes with fewer built-in constraints than those related to existing building systems and structure. “Additionally, it offers the potential benefit of more or better location possibilities, which results in the ability to more publicly display or reflect the brand. More potential locations could help get the practice closer to a demographic market or professional affiliates.”

Disadvantages to each choice

Renovation

One of the biggest disadvantages to renovation is the disruption it causes to a practice’s normal work flow, say the experts. Also, design solutions can be limited due to existing building details such as structure, building systems and complex phasing, says Cardoso. More-expensive after-hours construction may be needed to maintain a comfortable patient environment during business hours.

Renovation projects can also be messy, says Quirk, and Wolters says flexibility is lessened in a renovation. “If you have a custom design that does not fit the space or is needed in a different location, renovation will not be an option for you.”

Renovation may also bring up the issue of outdated wiring and structuring, or failing to meet dated code and zoning regulations—problems that building new will not have, Wolters points out.

Gaumond and McClelland list the following disadvantages to renovation:

·        Limits on the layout
·        Handicap accessibility may not be totally up to code in an older building
·        Building services, electrical, heating and cooling, and ventilation capacities may limit the function of the space
·        Retrofitting spaces to your needs may be expensive or limited
·        You may have costly removal of hazardous materials

Building new

New buildings, on the other hand, often require more square footage because of increased building- and health-code requirements, Cardoso says. Because of this, room sizes are often increased, increasing travel distance for staff and patients.

Also, construction of a new building usually comes with many more decisions, says Kaplan. “The design and construction process can be protracted getting the correct balance of design and budget.”

And, an entirely new structure means that everything used in construction will have to be purchased, and those costs can add up quickly, Wolters says. In addition, there can be costs associated with new construction that you may not be aware of, such as legal fees, transactional real estate fees and related expenses, says Quirk.

“New construction can completely respond to operational inefficiencies, but often requires a bigger cost to implement,” Quirk points out. “Starting with a blank sheet of paper can also be daunting as there can be so many variables and requires a team to help lead a practice through the process of planning and executing.”

Other disadvantages to building new that Gaumond and McClelland list include:

·        Land will have to be acquired, which may limit location
·        Construction time will typically be longer
·        Unforeseen conditions may cause additional costs to the project
·        More time and input from providers may be needed
·        Overall cost may be greater
·        You may be taking on additional responsibilities as a building owner and landlord with regard to maintenance and upkeep.

Final thoughts

Both renovations and new building projects typically take longer and cost more than what was initially estimated, say the experts. Establish a detailed and realistic budget and schedule early in the planning stages of your project, Wolters advises. “Do not fall into the trap of thinking that because you are renovating or creating a new building that you need all new furniture and equipment. Chances are that what you are using currently will continue to serve a good purpose in your new space, as well as saving the money it would cost to purchase new items and the time it would take to order and receive them.

Also, carefully and accurately estimate the time and cost of relocation for your staff and operations, as well as the time and cost associated with relocation or installation of data and communications, Wolters says. “These are easy things to underestimate and a common mistake.”

And involve your staff in the decision-making process, since it will directly affect them on a daily basis, Wolters suggests. “They can be invaluable resources and have great insight and perspective into what will be helpful and best for your business because of their firsthand knowledge of the way your organization works.”

"If I'm the CFO of a hospital today, this is the best time to sell"

More good news on the MOB deal front!!!  Check out this short article from Becker's Hospital Review


Hospitals Expected to Sell $2B in Medical Office Buildings This Year

Written by Bob Herman | May 30, 2013

 

Medical office building sales have increased steadily in recent years, from $1 billion in 2007 to a record $2 billion in 2012, and MOB sales should hit $2 billion again by the end of 2013, according to a Jones Lang LaSalle study cited in National Real Estate Investor.

Healthcare real estate investment trusts, or REITs, are on the prowl to buy MOB properties because supply is low and MOB tenants usually lead to stable lease revenue.

"The buyers with access to capital, mostly the REITs, are locking up more and more of the supply, and their practice is to buy and hold. The property isn't going to turn again on the market," Mindy Berman, managing director of JLL's healthcare capital markets, told National Real Estate Investor. "If I'm the CFO of a hospital today, this is the best time to sell."