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Commercial Department: Q&A: Mary Beth Kuzmanovich, Colliers International: May 2017

 

Q&A: Mary Beth Kuzmanovich, Colliers International

Medical-office market faces changes but remains a growth sector

Health care properties, such as medical office buildings (MOBs), are an important and growing segment of the commercial real estate industry. Colliers International, a global real estate company with expertise in health care facilities large and small, analyzed vacancy rates, rental prices, construction and sales from the previous year in its 2017 Health Care Marketplace Report. Mary Beth Kuzmanovich, the national director of health care services for Colliers, spoke with Scotsman Guide about the current environment for health care properties.

Your list of 10 U.S. markets with the most investor interest in 2016 includes places like Los Angeles, San Diego and Seattle. What is driving success for these markets?

I think those particular markets … they’re booming markets across all real estate classes. They’ve had growth in their residential draw to the market as well as the business draw. And health care is very much riding that wave. As those communities really start to spread out, it’s pushing medical offices into locations that are close to the consumer, that are readily accessible and allow them to avoid some of the traffic challenges within those markets.

Your report states that health care expenses are expected to rise annually, on average, by 5.8 percent through 2025. Will the commercial real estate market suffer if that happens?

I think that number is really speculation with the best information we have [right now]. But to translate that to real estate … there will still be growth in markets, so I expect we will still see a strong attraction from investors into the health care and medical-office sector. When health care systems look at their outpatient practices, their single biggest expense is salaries. Second is rent. … There will be a real challenge around that dance between the health care provider who’s getting pushed further and further on their expenses, and the investor who wants to get more and more on their return.

Where they have an opportunity to consolidate and bring together three or four locations in one larger location that can still be accessible, they will be able to save on staffing expenses. I think we will see this demand for new space continuing as health systems look at some of the older Class B and C products that they’re in.

The analysis of construction numbers shows builders are shifting away from hospital projects and toward MOBs. Are we going to see that trend continue for the next several years?

As health care providers move from fee-for-service to a value-based reimbursement, they are moving out of their most expensive setting, that in-patient bedded facility, into lower-cost outpatient settings, trying to get closer to the patient, intervene earlier in that patient’s health.

Not only what happens with the Affordable Care Act, but [also] with Medicare and Medicaid and other big-payer sources … is going to drive growth in the outpatient medical-office setting.

One caveat to that: Health systems have to keep their bedded facilities for emergency care, surgery and necessary overnight treatment. Those assets are aging. When you look at the construction trends for hospital locations, a lot of those dollars are being spent on infrastructure — roofs, air conditioning, parking decks, aesthetic improvements.

MOB projects located outside hospital campuses were expected to be nearly triple the number of on-campus projects in 2016. Are these projects located in places convenient for suburban and rural populations?

In an urban setting, these outpatient facilities are being built in population centers. Those medical-office locations are going with the population growth, very much like the retail models where patients can easily get in, get out, and you’ll often find medical-office assets being grouped in with those retail settings.

In the more rural settings, you’re seeing some different things. Rural hospitals are particularly challenged financially with all of the changes in reimbursement. … Those rural hospitals, where they have lower and lower occupancy on their inpatient side, are trying to come up with creative ways to hold onto their market and make it convenient. … Sometimes it’s more lucrative for them to just have a newer facility that they can [use to] attract and keep their rural population.

Mary Beth Kuzmanovich is the national director of health care services at Colliers International, heading up national business development and relationship management with health care industry clients. She holds master’s and bachelor’s degrees from the University of Wisconsin and is a fellow in the American College of Healthcare Executives. She has some 25 years of experience in health care real estate, including serving previously as vice president in the facilities management group at Carolinas HealthCare System.


 

Neil Pierson is editor in chief of Scotsman Guide Media. Reach him at neilp@scotsmanguide.com or (800) 297-6061.

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