Across from a retail center in Columbia, Goodier Properties has found a vibrant new role for a cluster of suburban office buildings. This summer, Goodier purchased a six-building, 250,000-square-foot property with a 35 percent vacancy rate on Old Dobbin Lane and embarked on a plan to transform it into a medical services hub.
“Ultimately, we see this becoming a one-stop shop where you could see your primary care physician and complete your initial traunch of referrals, such as imaging, ophthalmology, urology, radiology, even lab work on site,” said John Selfridge, Vice President. “We have already heard interest in this property from almost every type of medical practice. Having a critical mass of other medical tenants on site is important to them because it creates a referral base for everybody.”
The typically strong medical office market has become more robust since the beginning of the pandemic. In its third-quarter market analysis, Revista Med reported that medical office building (MOB) occupancy rates in the Baltimore-Columbia-Towson metropolitan market were 94.6 percent. Transaction volume for area MOB space jumped 65.6 percent during the quarter while the average price per square foot climbed 7.1 percent.
At the same time, the medical office market has also become more nimble – better able to position healthcare providers near target populations and attractive amenities, help practice groups expand, address changes and challenges in physicians’ business arrangements, find higher uses for existing properties and even leverage real estate to help healthcare providers improve their efficiency and their talent recruitment efforts.
In May, those abundant and dynamic opportunities to work with healthcare providers prompted MCB Real Estate to partner with Wilkingson (Will) Germain, an experienced healthcare and life sciences real estate executive, to co-found MCB Science + Health. Experts in medical office space, Germain says, can help providers address some of the most pervasive challenges facing America’s healthcare system, beginning with demographics.
“People are getting older, people are living longer and, unfortunately, people are sicker,” he said. “The percentage of chronically ill is rising, so easy and convenient access to care is becoming more important.”
To meet that need, healthcare providers increasingly have located in highly accessible buildings in or near retail or mixed-use developments. Practices have added rooms specially equipped to conduct telemedicine as well as expanded mental health services, wellness programs and holistic medical services, such as osteopathy. CRE professionals are also helping some providers reach pockets of uninsured or underinsured patients.
For example, the Wellness Center at Yard 56 in Greektown “is going to provide a lot of needed services to a localized community that is underserved,” Germain said. “It is expensive to take care of people who are uninsured or don’t have access to regular healthcare. If a hospital system can plant a flag in a community or a retail setting that is closer to patients and offer some preventative and outpatient healthcare, it’s more convenient for the patients, it costs less to provide care and you can get better health outcomes.”
When it opens in 2023, The Wellness Center will include 54 patient care rooms operated by the Baltimore Medical System and provide family practice, internal medicine, pediatrics, OB/GYN, dental care, behavioral health and pharmacy services. MCB expects other healthcare providers to also locate in the building, Germain said,An expert and creative approach to medical office properties can also help both medical professionals and property owners overcome current business challenges.
“Providers are feeling tremendous pressure from reductions in reimbursement revenue and from the labor shortage,” Germain said.
Expert designs which are tailored to specific practices and patient populations, can deliver “highly efficient spaces that allow practices to see more patients in less time and potentially do that with fewer staff,” Germain said.
Particularly convenient and attractive spaces can also help healthcare providers attract and retain talent in a challenging labor market.
“Some folks who have already moved into [the Old Dobbin Lane property], have told us they went from cold, long, linoleum hallways in hospital settings to our complex where there are ponds and bridges, outdoor seating and giant sun umbrellas, and they feel like they have entered the Apple headquarters,” Selfridge said. “We’re definitely not Apple, but nice space with amenities can help companies attract talent.”
Creative real estate deals are also helping some healthcare practitioners master complex and unfamiliar financial challenges.
A common challenge facing medical practices currently is how to facilitate the departure of a doctor who wants to retire but is a part-owner of the group’s office space. Thomas Park Investments has crafted several sale-leaseback deals to resolve such circumstances.
“Sale-leasebacks are a great liquidity mechanism for doctors who want to exit the practice,” said EJ Rumpke, CEO. “We buy the property, enter a long-term lease with the group which allows them to complete the transition among doctors. You have to get creative in how you structure those deals because each situation has its unique twists and turns.”
Thomas Park has also facilitated the business goals of medical practice groups who have invested heavily in a leased space and want to own the real estate but aren’t prepared to manage and operate an entire medical office building. At Riverhill Station in Clarksville, Thomas Park partnered with just such a tenant to jointly purchase the property.
Increasingly, CRE professionals need the specialized knowledge of how to meet the financial requirements of small medical practices and solo practitioners, said Colin McGonigal, Vice President of Medical Leasing and Sales with KLNB. More doctors are opting to go out on their own and more physicians are forming small, boutique or concierge medical practices.
“Solo practitioners, in particular, are more cost-conscious. They don’t have the pool of money that some bigger groups and healthcare systems have. They also don’t have any business training,” he said.
Consequently, the CRE professional needs to “walk them through the nuts and bolts of leasing,” he said. “They don’t understand terms like triple net, modified gross and full service. A lot of them assume it’s like renting an apartment. You have to get creative to make sure they get the buildout and equipment they need. You have to surround them with the right team – contractors, accountants, lawyers – to make their project successful. And sometimes, you need to get help from the landlord to make up the delta and make the deal work.”
Agents for landlords, who have shown growing interest in blending more medical tenants into traditional office or retail spaces, also need deep knowledge of medical tenants’ operations and financials, McGonigal said. “A lot of landlords don’t understand the needs of medical tenants so there can be misunderstandings. Having agents on the landlord side who understand what has to happen to make the deal work is important. Otherwise, some deals die when maybe they didn’t need to.”