Exciting, Profitable, Chaotic: OC Healthcare RE

At the beginning of Bisnows Orange County Healthcare Real Estate Summit recently, all the panelists were asked to describe the state of the healthcare business in one word:changing, flexible, chaotic, exciting, expanding. (It's sounds like the Wild West, except with MRIs.)

Orange Countys a mirror of the wider changes going on in healthcare: rapid consolidation of hospitals and physician groups, Obamacarechanges, and an increasedaging population. For developers, brokers, and investors who understand the business--and thats a tall order--theres a lot of money to be made. More than 250 attendees came to the Balboa Bay Resort to hear two panels on deal outlook and and the shape of development. We even had them sitin-the-round for added gravitas.

American Healthcare Investors principal Danny Prosky sees consolidation and the aging population driving demand more than government policy, though that will be a factor as well. (Another factor: plagues? Wash your hands, you never know.) Hesays that on a short-term basis,demand for healthcare spacewill be up, but he's less certain aboutlong-term increases. Danny was on the Deal Outlook panel, which was moderated by Arent Fox partner Tom Jeffrey, who reps hospital systems and other providers in development of facilities, M&A, contracts, and more.

Colliers International VP and director, healthcare services John Wadsworth points out that uncertainty about the Affordable Care Act is finally dissipating. So a logjam has been opened up for healthcare providers and space users. Consolidation is now picking up steam, and with the closing of Anaheim General Hospital, there are no freestanding hospitals in OC, only large systems and some independent chains. Health systems are jockeying for position and insisting on flexibility in their real estate, in anticipation of M&A deals.

Lillibridge asset management SVP Wendie Newman notes hospitals are becoming more sophisticated about making their real estate strategy a part of their overall strategy to bump up revenue by marketing their brands in the communities they serve. (Make friends with your neighborhood beat cop and neighborhood neurosurgeon.) Astute real estate provides can partner with them throughout the growth and reconfiguration of facilities.

Archway Holdings prez Sean Moghaven says that as many as a third of acute-care hospitals will close in the next five years, according to the Hospital Association of Southern California. Their best use, he adds, might not be as healthcare property. Some OC hospitals and their surrounding properties will be repositioned, especially as former in-patient functions continue to become outpatient functions--he knows of a case in which student housing replaced MOB(so now the building will help cure hangovers).

Hospitals are being reborn, physically and financially, into new models, explains Providence Health & Services regional manager of property management Andy Hoover.Andy was on the State of Development panel, which was moderated by Sheppard Mullin Richter & Hampton attorney Rick Needham, a real estate attorney, but also a dealmaker who spent seven years as a principal in a real estate development company, specializing in MOB and other healthcare real estate.

DPR Construction director of healthcare in SoCal Ron Rendina says that MOB design is undergoing major shifts. The new thinking integrates patient services much more closely in single floors, or even whole buildings. Some designs dont even include hallways but feature more open space with centralization of physician practices, waiting rooms, and other facilities that complement each andfittingly in an age of patient-central healthcareenable a patient to access healthcare in a more timely and efficient manner.

Newmark Grubb Knight Frank executive managing director-global healthcare service Garth Hogan sayshealthcare leasingis on the rise in California, with hospital groups taking as much 100k SF at a time. (After the 25k SF deductible.) Thats in anticipation of consolidation of hospitals and new constellations of affiliations with physicians groups. Theres an element of chaos to the changes in healthcare, he says, but that also means opportunity for real estate specialists who can get hospitals the space they need to compete.

Hoag Memorial Hospital Presbyterian real estate and facilities SVP Sandy Smith puts it succinctly: if it doesnt need to be done at the hospital, it isnt going to be done at the hospital. (So much for our freelance hospital sculpture business.) The new healthcare paradigm means that hospitals will be part of an organized galaxy of services, most of which wont be done at a hospital. Healthcare strategy will involve services at acute-care facilities--but mainly affiliated outpatient and medical office properties in a tightly and efficiently coordinated system of care.

We snapped the Colliers crew, with John smack in the middle. In 2004, John was responsible for founding the Healthcare Services Group in the SoCal region, a specialty practice group within Colliers International, which focuses on the healthcare industry, locally and nationwide.​

Although Nobelists tend to be fascinating, Niels was a Bohr, and Linus was a Pauling. Send ideas and suggestions to dees.stribling@bisnow.com