IllinoisHealthcare Taking healthcare’s temperature: Early concerns give way as the sector grows more active Matt Baker October 13, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email In the fall of 2019, healthcare was one of the strongest real estate classes around, with new developments popping up, rents on the rise and properties trading hands with alacrity. So what is the situation in the fall of 2020, as we continue to struggle with the effects of COVID-19? That is precisely what the experts on hand at the 7th Annual Healthcare & Medical Office Virtual Summit were gathered to answer. Suzet McKinney, DrPH, MPH, CEO, executive director of the Illinois Medical District delivered the keynote address and Lisa Skolnik of Intralink Global moderated the opening panel. According to Amy Sovine, CPM, CCIM, regional asset manager and training specialist at Physicians Realty Trust, there may be some increased merger and acquisition activity in the near and long term. “A lot of health systems are strategizing right now. You’re going to see that fallout for a couple of years as no one has confidence that COVID will go away soon,” Sovine said. “They are trying to find ways to get in and stay in the black. I think there will be increased M&A activity and a lot of health systems holding onto real estate may look to offload those assets.” The migration away from hospital campuses and out into the neighborhoods where patients actually live is a trend that has been ongoing for several years now. According to Joe Magliochetti, CIO, Remedy Medical Properties (formerly MBRE Healthcare), the pandemic will likely exacerbate this movement as cost-conscious providers look for ways to increase revenue and reduce overhead. “It’s expensive to operate a health system and provide care. They are on the continual hunt to deliver care in a lower-cost setting, driving them off campus,” said Magliochetti. “It’s a balancing act as all health systems want to grow their patient base and provide primary care services that lead to additional needs.” Brian Howard, president of Stage Equity Partners, agreed with this sentiment. “Years ago, you wanted to be adjacent to or on a medical campus,” he said. “That was gold standard but that has changed.” Howard said that the move to off-campus locations is why the healthcare real estate sector has largely remained sustainable in the face of COVID-19. Looking ahead, he wondered what long-term impacts the pandemic may have on the asset class. Will a greater use of telehealth mean smaller footprints, or will providers need dedicated space for this technology? Will waiting rooms grow smaller or disappear altogether? Only time will tell. On the subject of healthcare construction and development, Curt Pascoe, director of real estate development at Ryan Companies, said that an expected crunch in the supply chain during the second quarter never materialized, though he acknowledged that construction is a lagging indicator of the overall economy. As far as speculating on trends in the pre-pandemic world and where they may head in a post-pandemic scenario, Pascoe pointed out that behavioral health was a growing segment leading into 2020 and the events of this year have only caused further stress on individuals that be a future demand driver. He said that Ryan Companies has built micro hospitals in other markets, but Illinois legislation limits the minimum size of hospitals, currently preventing their development here. Jeffrey Janicek, vice president at Skender, moderated the second panel. Joining him were Steve Blye, creative director, associate director of healthcare, Legat Architects; Valerie Cook, director, Cook Commercial Healthcare Partners; Katelyn Girod, vice president, Capital One Healthcare and Jonathan Swindle, founder and president, Waveland Property Group. The panel touched on a number of subjects, including what the boots-on-the-ground realities are for those who manage healthcare properties during this pandemic. On the topic of common areas, Swindle said that his firm has not instituted overarching space limitations so as not to limit patients’ abilities to see their provider. There definitely is financing available for healthcare projects, according to Girod. “There was a period when everyone was trying to figure out what would happen next, which caused a temporary pause,” she said. “Since then, things have gotten close to business as usual.” According to Bly, developers may take a fresh look at redeveloping existing properties for healthcare uses in a post-pandemic world. He cautions that the floor-to-floor height is a particular feature to consider, so that the space will have room for a robust mechanical system. In his view, big box industrial properties are easier to redevelop into healthcare, whereas the increasingly vacant retail spaces that owners would like to find new tenants for are often harder to retrofit due to their generally lower ceiling heights. Were you unable to join us for this conference? We have dozens more planned for the year—all with virtual options for those who would rather tune in remotely. 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