Hospitals Partnering Up, Densifying TMC
2015 will be a strong year for healthcare, with systems across the Houston metro building new facilities and new partnerships. With a weakened energy industry, healthcare’s boom has taken on even greater importance for Houston, which is one reason we’re thrilled to host Bisnow’s Healthcare Real Estate Summit April 23 starting at 7am at the Westin Oaks. (Sign up here.)
There’s been a lot of talk about suburban healthcare development, but there’s a great deal going on within the Texas Medical Center, says TMC SVP Shawn Cloonan (a panelist at our event). The Affordable Care Act (ACA) strongly emphasizes medical centers, which is great for Houston—other metros had been moving away from the model. There’s 3.5M SF under construction on the clinical side alone, including large projects from Memorial Hermann, Methodist and Texas Children’s—CHI St. Luke's-Baylor St. Luke's Medical Center has a big development planned that hasn’t kicked off yet. Pictured, we snapped Shawn at last year's event between CBRE's Jason Presley and Nelson Udstuen.
Perhaps the biggest change for the Med Center is the move to commercializing research into products like pharmaceuticals. Adding what is essentially a new industry to Houston has a huge impact on the city and especially commercial real estate. The TMC’s 100k SF Innovation Institute completes this year, but Shawn expects that as companies involved grow, they'll move into manufacturing and office space around town. Another potential new source of real estate demand is TMC CEO Dr. Robert Robbins’ (right, with COO Bill McKeon) emphasis on cross-system collaboration, which has inspired the TMC to look at building a collaborative life sciences research campus. Shawn and his team are working on sizing it appropriately and getting systems on board. He expects that to wrap up this year, so they can start the design process in 2016.
Upcoming development is focused on increasing density, a change from the TMC’s historical approach . Shawn says five years ago, Pearland was the most popular ZIP code for TMC employees. But people moving here from other areas (which is happening more often with the TMC's new developments) want an urban setting. As Shawn looks at future projects, he’s upping amenities and considering new ventures. That opens the door for collaboration with developers. While we can expect some redevelopment to increase density, Shawn says they’ll also expand what we consider the TMC. (For example, “remote parking” at OST is quickly becoming the center of the Med Center.)
Hospital systems that have weathered the storm of healthcare reform are actively seeking acquisitions opportunities to add market share, says Transwestern national director of healthcare Eric Johnson (another panelist). Those that are capital constrained are securing affiliation agreements and alliances with other hospital systems that serve different patient populations. This is especially true of post-acute care—the ACA now holds hospitals accountable for readmission because of complications, cutting reimbursements for systems that don’t resolve patients’ problems the first time. This is causing institutions to focus more heavily on post-acute care, long-term acute care, inpatient rehab and behavioral health…or to acquire/align with someone who does it best.
Because of this, there are a lot of post-acute care space requirements on the market, Eric tells us. Those groups are backfilling space (like Pin Oak filling the old HCA Bellaire hospital with two post-acute groups and then selling the facility for a huge profit) and developing new space. Katy and The Woodlands are getting the bulk of new construction—Eric has ID’d 1M SF of MOB space underway in those two markets alone. Meanwhile, he expects leasing absorption to increase for the third consecutive year, plus a 2% rent growth this year.
