CHICAGO and DALLAS, Feb. 10, 2022 – Kayne Anderson Real Estate, Remedy Medical Properties and MedProperties Realty Advisors LLC are pleased to announce that the firms have formed a $350 million-plus joint venture to recapitalize an 11-state, 23-asset healthcare real estate (HRE) portfolio owned by MedProperties.
The portfolio, which includes primarily medical office buildings (MOBs), totals more than 1 million square feet. The transaction closed Jan. 14.
For Boca Raton-based Kayne Anderson Real Estate and Chicago-based Remedy, the nation’s largest owners of medical properties, the joint venture enables the firm to acquire a majority interest in another high-quality portfolio that complements its already extensive holdings.
For Dallas-based MedProperties, an HRE private equity firm with assets in 23 states, the transaction enabled the firm to monetize some of its real estate holdings for its investors while the firm retains an ownership interest in the new venture, and continues to serve as asset manager.
Darryl E. Freling, Managing Principal of MedProperties, said his company has aggregated a large number of HRE assets over the years through its various funds and investment partnerships. In the fall 2020, the firm’s leadership decided to offer a portfolio of about two-dozen of those properties as a recapitalization investment opportunity rather than an outright sale. The offering was taken to market in early 2021, and Remedy emerged as the chosen joint venture partner in the summer of that year.
“Aside from pricing, one of the primary reasons we elected to transact with Kayne Anderson and Remedy,” Mr. Freling explains, “was the positive, long-term working relationship we had with the firms and its principals. It was that relationship, and the mutual trust, that proved instrumental in navigating the complexities of a transaction of this size to a successful conclusion.”
Joe Magliochetti, Chief Investment Officer for Remedy, agreed that the positive working relationship between the firms was what made the joint venture possible.
“We love the make-up of the portfolio – good quality MOBs,” Mr. Magliochetti says. “The portfolio also has lots of common ground with our existing assets in terms of geography and tenancy, making it a logical addition to our holdings. But MedProperties is also a great fit. We had done some smaller deals with them, but this was a great opportunity.”
A transaction involving almost two-dozen properties owned by six different entities had its complexities, Mr. Magliochetti notes, “But we worked through them together, and it couldn’t have been better. Hopefully this joint venture will lead to more opportunities together in the future.”
“You learn a lot about people when you’re in the foxhole together,” Mr. Freling adds. “The Kayne Anderson and Remedy teams were great, pragmatic and we worked through the inevitable issues that arise in a large, complex transaction. We couldn’t have asked for more.”
The properties are located in some of the top metropolitan markets in the country, as well as in strategic secondary markets. In aggregate, the properties are 94 percent occupied and 71 percent leased by high-caliber, leading hospitals, health systems and other investment grade tenants.
The portfolio consists primarily of MOBs, but also includes some post-acute facilities such as a rehabilitation hospital and ambulatory surgery center in Texas, and a rehabilitation hospital in Ohio. Some of its well-known, investment grade healthcare tenants include Baylor Scott & White, Children’s Hospital of Los Angeles, CommonSpirit, Rady Children’s Hospital, U.S. Department of Veterans Affairs, University of Southern California, UF (University of Florida) Health and WVU (West Virginia University) Medicine.
The properties are located in the following states: Texas (eight facilities), Pennsylvania (two), Florida (two), Ohio (two), Kentucky (two), California (one), Indiana (one), West Virginia (one), Tennessee (one), New York (one), North Carolina (one) and Missouri (one).
Capital One provided senior debt for the transaction, and the CBRE Healthcare & Life Sciences Capital Markets team marketed the portfolio.
About Kayne Anderson Real Estate
Kayne Anderson Real Estate (“KA Real Estate”) is a leading real estate private equity investor in medical office, seniors housing, off-campus student housing, multifamily housing and self-storage. KA Real Estate manages $13 billion of real estate AUM (as of 12/31/21) across opportunistic equity, core equity and real estate debt. KA Real Estate is part of Kayne Anderson Capital Advisors, L.P., a $30 billion alternative investment management firm (AUM as of 12/31/21) with more than 37 years of successful experience in the real estate, renewable and energy infrastructure, energy, credit, and growth capital sectors. For more information, visit https://kaynecapital.com/real-estate.
About MedProperties Realty Advisors LLC
MedProperties Realty Advisors LLC is a Dallas-based healthcare real estate private equity firm that invests on a direct and an indirect basis (through joint venture relationships) in the development of new, value-add, and stabilized healthcare real estate, including multitenant medical office buildings and single-tenant, specialty healthcare facilities throughout the U.S. MedProperties invests through its discretionary funds, and through stand-alone investment vehicles. MedProperties is dedicated solely to investments in healthcare real estate. For further information on MedProperties, please visit www.MedPropertiesLP.com.
CHICAGO and BASALT, Colo., Dec. 16, 2021 – Chicago-based Remedy Medical Properties has won the 2021 HREI Insights Award for the Best New Medical Office Building of 50,000 to 99,999 square feet. The annual, national awards recognize excellence in healthcare real estate development and executive leadership.
Remedy’s winning project was The Steadman Clinic, a 62,768-square-foot orthopedic care clinic and ambulatory surgery center (ASC) in Basalt, in western Colorado’s Roaring Fork Valley.
Peter Westmeyer, CEO of Remedy, notes, “At Remedy we are very proud to be honored by the highly respected HREI media organization for The Steadman Clinic. Our team faced many challenges in developing this facility, but they used innovative, creative strategies to overcome those challenges and to deliver a state-of-the-art orthopedic center that is ideally suited for the beautiful Rocky Mountain environment.”
He adds, “The Steadman Clinic in Basalt also will fill an important community need, making it easier and more convenient for patients to receive care close to home and the nearby ski slopes.”
The world-renowned TSC, with three offices in Vail Valley and Summit County, has a multi-year plan to expand in Colorado to improve access to cutting-edge orthopedic care, research and clinical trials. With its latest expansion in Basalt, TSC chose a high-traffic but small and challenging site in the beautiful Willits Town Center, a bustling, mixed-use, master-planned development with multiple requirements and restrictions.
To fit the required parking and robust orthopedic clinic and ASC on the .75-acre site, the development team designed the facility with three stories sitting on top of two levels of underground parking with 80 spaces and an additional 48 on-street spaces. The smaller site also meant it would have smaller floor plates, with less space for easily concealing building systems and off-stage activities, especially in the ASC. Remedy dealt with these challenges by locating building systems in the parking garage and giving considerable thought to how corridors were configured and located to maximize usable space and minimize patient exposure.
With the city requiring street-level retail space in the facility, Remedy had to avoid cannibalizing existing town center services, such as a coffee shop and spa, as well as impinging on valuable program space. Remedy solved this by convincing the city to approve MRI imaging services as a retail use.
In addition, the city required TSC to develop a community park adjacent to the new orthopedic center. To fulfill TSC’s vision of a facility that promotes wellness and an active lifestyle, Remedy designed the park as an outdoor extension of the lobby, providing a seamless transition between indoors and out. The facility also features glass curtain walls that bring in natural light and capitalize on the 360-degree mountain views, a rare feature for an MOB.
Remedy also installed solar panels on the roof to take advantage of Colorado’s 300 days of sun and create a more sustainable facility with lower operating costs. Finally, Remedy’s flexible platform allowed TSC to invest in the real estate via a joint venture.
Remedy expects to deliver the project on-time and under budget in early January, despite Rocky Mountain winter conditions, COVID-19 protocols, disrupted supply chains and a constrained town center site that complicated construction logistics.
ANDOVER, Mass., and CHICAGO, Aug. 11, 2021 – Remedy Medical Properties, the nation’s largest private owner of healthcare real estate, announced today the acquisition of the three-structure, 69,992-square-foot Andover Medical Center. The acquisition, considered to be one of Greater Boston’s premier medical office properties, is located in the highly desirable community of Andover, a suburb 25 miles north of Boston.
“Remedy is excited to announce the addition of this excellent Class A healthcare facility to our growing medical properties portfolio,” says Joe Magliochetti, Chief Investment Officer for Chicago-based Remedy. “Not only is it a beautiful, high-quality building, it is superbly located in a highly desirable submarket of Boston, and is fully occupied by very highly regarded healthcare tenants, including main anchor tenant Lawrence General Hospital and subtenants Mass General Brigham/Pentucket Medical, Orthopaedics Northeast and Boston Eye Group/Boston Laser, Andover Medical Center.”
The regional multi-specialty care center serves as a flagship off-campus outpatient facility for Lawrence General Hospital, a 186-bed community hospital located less than 10 miles away. In addition, Pentucket Medical, a member of Mass General Brigham, the largest healthcare system in Massachusetts, contributes to the impressive tenant mix. On-site services and specialties include urgent care; adult primary care; pediatrics and young adult care; gastroenterology; orthopaedics; ophthalmology; cardiology; imaging center/MRI; full-service diagnostic laboratory; Andover Surgical Associates; weight management; and physical, occupational and speech therapy.
Located at 323 Lowell St. in Andover, in the demographically attractive Boston MSA, Andover Medical Center is conveniently located directly off Interstate 93 at its intersection with Route 133, providing seamless access to patients throughout the Merrimack Valley. The medical center was constructed in two phases in 2015 and 2017 and comprises three structures: the 69,992-square foot medical office building, a 102-space structured parking garage and a freestanding 1,800 square-foot coffee shop.
“We at Remedy could not be more excited about this acquisition,” Mr. Magliochetti continues. “We were particularly attracted by the quality of the buildings and the highly esteemed tenants. The Greater Boston market is also exceptionally strong in terms of healthcare and healthcare real estate, and we are actively seeking additional opportunities in the MSA.”
Remedy’s acquisition of Cornwall Medical Pavilion closed May 4. Michael Greeley, Senior Managing Director of Newmark’s Medical-Academic Practice Group in Boston acted as the seller’s advisor.
This article originally appeared in the July 2021 edition of Health Care & Senior Housing Quarterly: A Colorado Real Estate Journal Publication.
Business leaders know that to be successful they need to thoroughly understand their target markets and submarkets and tailor their services, amenities and facilities to those markets.
Health care is no exception. Just ask the executives at UCHealth, an innovative, nonprofit health system with 12 acute care, full-service hospitals and hundreds of physicians across Colorado, southern Wyoming and western Nebraska.
UCHealth executives knew there was a tremendous need for more orthopedic and sports medicine services in the growing, affluent and athletic submarket of Pikes Peak Park in north Colorado Springs. The neighborhood offers favorable demographics for health care consumption with a population slightly older than the national average and an over-65 population expected to increase at nearly double the national rate. Median household income also tops the national average.
UCHealth had a clear vision and strategy for significantly expanding its orthopedic and sports medicine services in this submarket. To cater to the market’s specific demographics, UCHealth partnered with our full-service health care real estate firm to develop an orthopedic focused medical campus.
A site was selected that is highly visible and conveniently located on Interstate 25, which connects Colorado Springs and Denver. It also offers convenient proximity to the U.S. Olympic & Paralympic Training Center, the University of Colorado at Colorado Springs, Pikes Peak, Garden of the Gods and other recreational amenities that make it all the more welcome in this sports minded, physically active community.
The first step toward addressing the unique needs of the market was taken in summer 2016 when we completed the 22-bed, 58,000 square foot Grandview Hospital. The hospital, which features 18 deluxe private patient rooms and a four-bed intensive care unit, provides the highest quality, most advanced orthopedic and sports-medicine care in the area. It includes three advanced operating suites and a comprehensive outpatient surgery center, and is the only hospital in Southern Colorado certified by the Joint Commission for total hip and knee replacement.
Grandview Hospital’s services, location and amenities have proved to be popular with Colorado Springs residents. Since its inception, the hospital’s medical and surgical admission volume has doubled. In addition, UCHealth has been able to successfully align and integrate both employed and community based orthopedic surgeons at this location.
More recently, based on the success of the orthopedic hospital, UCHealth once again partnered with Remedy to add an orthopedic- and sports medicine-focused medical office building to the campus. Ground was broken in August 2019 and the three-story, 65,000 square foot Grandview Medical Center was completed in October 2020. The new MOB accommodates the high demand for orthopedic services in the market and complements services provided in the hospital. In addition, treatment is bolstered by a strong research partnership with the UC School of Medicine’s Department of Orthopedics. We own the MOB and provide property management services.
The new MOB houses a seven-physician orthopedics clinic, sports medicine-focused primary care, a multidisciplinary clinic featuring a variety of specialties, a physical therapy clinic and 7,500 square foot rehabilitation gym. A special feature of the physical therapy department is that it faces Pikes Peak, which provides dramatic imagery of the medical building’s mission.
The new Grandview Medical Center is giving UCHealth’s orthopedic surgeons a new site of practice with improved access to the operating room, and it’s also improving community access to care. The MOB features a full-service imaging center with the latest imaging technology. The imaging center provides much-needed capacity to provide pre-admission testing services for patients prior to surgery – not just at Grandview Hospital but systemwide, for employed physicians as well as private practices that rely on UCHealth for pre-admission testing processing.
While we always look for ways to minimize wasted space and increase efficiency, this is one of the most efficient MOBs we’ve developed. For example, an early floor plan for the first floor included a hallway leading from the elevator lobby to a side vestibule. However, this configuration split the orthopedic clinic into two sections. The corridor wasn’t required for emergency egress, and eliminating it resulted in a contiguous layout for the orthopedic clinic as well as a 464 square foot reduction in common area load. By lowering the common area factor to 13.6% from 14.6%, we created a rent savings for UCHealth of $156,000 over the course of its 12-year lease.
In addition, we worked to include design elements that create continuity with the health system’s other locations. This includes finishes, color palette and its signature arch, which appears on the Grandview Medical Center as an entrance canopy.
While the MOB has been open for only about seven months, it already has strongly validated UCHealth’s market research by far exceeding the system’s projected patient volumes.
“The addition of the Grandview Medical Center is enabling our patients to receive a coordinated, patient-centric experience at a single beautiful, convenient location that includes primary and specialty care, advanced imaging capabilities and therapy services. Most importantly, it’s helping us expand our capacity, improve community access and grow our region,” said Andrew Ritchie, chief administrative officer for Grandview Hospital, in a news release. “This is a great example of being in the right submarkets with the right services.”
This article originally appeared in the April 2021 edition of Health Care & Senior Housing Quarterly: A Colorado Real Estate Journal Publication.
“Provider partnerships” and “physician alignment” have been hot topics in the health care industry in recent years – not surprisingly because both strategies respond to growing market pressure to deliver better, more convenient care.
Colorado health care providers were some of the first to successfully embrace these trends and, although many elements are necessary for success, they also recognized that real estate is a key component. By creating a growing network of facilities in previously underserved markets, they’re better serving a growing patient base and providing a comprehensive range of services.
Four of these visionary providers are The Steadman Clinic and Vail-Summit Orthopaedics & Neurosurgery, both world-renowned orthopedic clinics headquartered in Vail; Vail Health, a nonprofit community health system with 13 locations across Eagle and Summit counties, including a 56-bed hospital in Vail; and Aspen Valley Hospital, a 25-bed community hospital and network of care with multiple locations in the upper Roaring Fork Valley.
During the past three decades, Vail Health, along with The Steadman Clinic and its research arm Steadman Philippon Research Institute and VSON, have co-located in ambulatory care facilities in Vail and Edwards to meet the growing demand for rehabilitation and sports medicine services. The clinics, located near popular skiing destinations, have been instrumental in meeting the needs of the region’s active residents and visitors.
Remedy Medical Properties (formerly MBRE Healthcare), the nation’s largest private owner and service provider of health care real estate, is currently developing facilities in Dillon and Basalt.
The first project is a new clinic in the high-growth Dillon market, about 32 miles east of Vail. The area was underserved for primary care, urgent care and other specialty services, requiring patients to travel 60 to 90 miles to Denver for medical care.
In 2019, The Steadman Clinic, VSON and Vail Health commissioned Remedy and its in-house strategic planning unit Percival Health Advisors to research the feasibility of a new clinic in Dillon. Based on anticipated five-year growth in outpatient visits and skier patient volumes, Percival projected that a new clinic could support four operating rooms, plus space for two additional ORs to meet projected 2025 demand.
Vail Health worked closely to align with the goals of three key independent physician practices: The Steadman Clinic, VSON and Colorado Mountain Medical. The orthopedic groups wanted to grow in additional markets, and Vail Health was able to offer a large site in Dillon in a highly visible location. Vail Health began partnering with Colorado Mountain Medical in 2019 to offer primary care and specialty care services within the Vail Health system in Eagle County, and the Dillon clinic provided a new market for Colorado Mountain Medical’s services.
The result of this collaboration will be the new three-story, 85,000-square-foot Dillon clinic, which is scheduled to be completed in the fall at 365 Dillon Ridge Road. The building will include primary and specialty care, urgent care, medical oncology, a breast center, imaging center, orthopedics, sports medicine and rehabilitation, and a joint-venture ambulatory surgery center. The project team includes architect Davis Partnership, which is headquartered in Denver, and the contractor is Minneapolis-based Adolfson & Peterson Construction.
In a continuation of its expansion plans, The Steadman Clinic announced a new strategic partnership last September with Aspen Valley Hospital, Vail Health and Orthopedic Care Partners, the leading partner for high-performing, patient-focused orthopedic surgery practices.
This agreement enables the partners to deliver a full complement of unsurpassed orthopedic and sports medicine services, imaging, physical and occupational therapy, and a joint-venture ambulatory surgery center to the Roaring Fork Valley. The new three-story, 65,000-sf ambulatory surgery center and clinic is located in Basalt, about 18 miles northwest of Aspen. Basalt is home to the growing Willits Town Center mixed-use development. The new facility will make it easier for patients to receive care close to home and the nearby ski slopes, serving the needs of professional and aspiring athletes from across the country and around the world.
The building is slated for completion in early 2022. It will house four ORs with two additional shells for future growth, nine pre-op and post-op rooms, 14 total recovery rooms, a procedure room and a biologics lab. The Steadman Clinic Aspen physicians and their teams will staff the new facility, and The Steadman Clinic Vail physicians will rotate to the facility as well. Orthopedic Care Partners is providing management expertise and access to investor capital.
In addition, groundbreaking research and education through SPRI will be central to the partnership with plans for a regenerative medicine laboratory focusing on healthy aging and musculoskeletal health, and enrolling patients in clinical trials.
As part of the Basalt project, Remedy, The Steadman Clinic and the project team also are incorporating a community park that is designed to provide an outdoor extension of the lobby, offering a seamless transition between indoors and out. The architect for the project is Boulder Associates, and the general contractor is Haselden Construction of Centennial.
The Steadman Clinic, VSON, Vail Health, Aspen Valley Hospital and OCP executives are confident that the new facilities will be the latest examples of successful provider partnerships and physician alignment strategies, resulting in better-quality, more convenient care in those markets.
The Today Show’s Carson Daly recently shared the story of retired Staff Sgt. Spencer Milo and his experience with a traumatic brain injury, his mental health battles, and turning to the nonprofit Headstrong for help. As a proud supporter of Headstrong, Remedy Medical Properties is pleased to see the organization’s mission to provide veterans with barrier-free mental healthcare gain national attention.
Founded in 2012, Headstrong offers confidential, cost-free, and bureaucracy-free mental healthcare treatment for military veterans and their families. Working in partnership with Weill Cornell Medical College, one of the nation’s leading mental healthcare centers, Headstrong developed a first-of-its-kind program tailored to each patient’s needs. The customized treatments address post-traumatic stress disorder (PTSD), addiction, anxiety and depression, trauma, grief, and anger management. Headstrong currently offers in-person and telehealth treatment programs for Post-Traumatic Stress Disorder and other related military trauma in 12 states. Since its founding the organization has provided nearly 70,000 hours of free mental healthcare.
Remedy CEO Peter Westmeyer has served on the board of directors of Headstrong since 2015, and Remedy has sponsored several fundraising events for the organization, including charity golf tournaments in 2018 and 2019.
“We are proud to support Headstrong and direct attention to its important mission,” Mr. Westmeyer says. “The trauma, both mental and physical, that our veterans have experienced is unimaginable, and it’s vital that they receive the support and services to recover and live fulfilling lives.”
On the Today Show, former Staff Sgt. Milo described how traumatic brain injury and other injuries due to combat experiences in Iraq and Afghanistan left him with hearing loss, chronic pain and suicidal depression. Then he found Headstrong’s mental health program.
“I get asked a lot, did Headstrong save your life? It gives me the tools to make sure I never feel like I don’t want to be on this earth again,” he said. He now advocates for other veterans with brain injuries, and in 2019 he was awarded the organization’s Moral Courage Award at a ceremony in New York City.
“I tell folks, ‘Look, you’re going to fall down again at some point. But now you know how to get up,’” Milo said. “I’ll tell every single veteran out there — and every single non-veteran — you’re not alone.” Watch the segment below.
In today’s healthcare environment, it’s more important than ever to have a well-streamlined ambulatory care network. Patients continue to favor outpatient service environments as insurance costs steer them away from hospital-based care.
And the pandemic has added an additional layer of aversion to hospital stays due to the risk of infection. Why risk COVID-19 for a simple knee scope?
While hospitals may continue to be the main economic engine for health systems for the foreseeable future, an optimized ambulatory network that functions in tandem with the main campus provides greater flexibility as community needs evolve as well as financial diversification for leaner times. It’s important to have both offensive and defensive elements in your strategy to secure market share, determine the right service offerings, and target a profitable payor mix.
Here are some best practices to make sure your ambulatory care plan is flexible enough to take advantage of opportunities as they arise.
As a health system or physician group expands through acquisition or planned growth, often inheriting duplicative sites, they may find that their network is not optimal for serving the community. Smaller locations with only a handful of physicians may no longer be strategically or economically viable, while population and demographic shifts may mean an older location no longer fits the demands of the market.
“Use this as an opportunity to step back and evaluate the entire network,” advises Sam Sears, EVP of Percival Health Advisors, Remedy’s in-house strategic innovation and advisory firm.
“Look at market conditions around each facility and the spectrum of services offered, as well as what the competition has done and what they plan to do, and perform a gap analysis to determine how best to adjust your network.”Sam Sears
EVP, Percival Health Advisors
As you conduct your review, consider how each location fits into your overall strategic plan and what its strategic driver is. For instance, does it fill a defensive or growth role? Is the location serving a key new submarket or designed to block competition? In addition, think about your service line strategy and opportunities for competitive positioning of your offerings.
Sears recommends putting each of your locations into one of four buckets:
It’s also important to consider whether there is room at a given location for expansion, either by leasing adjacent space or increasing the building footprint—and, conversely, what the options are if you need to reduce your footprint down the road. Depending on your strategic needs, leasing space may be preferable to development in a particular submarket.
A real estate partner like Remedy can help you act on this analysis by purchasing properties to provide liquidity or alleviate the burden of repositioning; developing new buildings; assisting with site selection; aiding in shifting strategic square feet from one property to another; offering generous TI allowances to expand and enhance leased locations; and other accommodations.
Quantitative market prioritization analysis identifies which target zip codes offer the highest growth opportunity within the market in a fact-based, mathematical manner. The results highlight which markets are most attractive while providing the best opportunity for a health system to be successful competitively. Priority ranking can guide organizations to consider investment in a market, and the relative ranking reveals the potential opportunity of each zip code to give decision makers an objective look at prospective sites.
Percival uses a mix of criteria in its market prioritization analyses, including a number of quantitative and qualitative factors such as socio-economic rankings, population health indicators, estimated patient medical volumes, and the overall competitive landscape. The specific factors used for a particular project, as well as their associated weightings, are selected based on the unique market dynamics of the region—such as provider relationships, regulatory considerations, and community involvement and perception—as well as the priorities of the client.
“We’re taking a very thoughtful, healthcare-centric look at a market and attempting to understand where the healthcare hot spots are,” Sears says. “For instance, how much are outpatient visits expected to grow over the next five years in this zip code? Do certain service lines present better opportunities than others? Is your market share in a strong, promotable position or will it just lead to cannibalization?
“To determine optimal placement, consider access, community size, competitive and physician dynamics, and growth potential for each facility through a market prioritization analysis. Also consider where consolidation will create better efficiencies, financial value, and critical mass to support referrals and ancillary services. With the pandemic, we may see an acceleration of consolidation in order to fit the needs of the market and create the most efficient network possible,” Sears notes.
Because every submarket is unique, it’s important to avoid a cookie-cutter approach and customize your strategy to reflect the conditions on the ground. “No submarket exists in a vacuum. You need to not only be looking at your services and continuum of care, but also at the entire submarket holistically,” says Ted Carson, EVP of Percival Health Advisors. “If you put all the providers together, including your competitors, where is the submarket being adequately served, where is it underserved, and where is it overapplied? Because that affects profitability and what payors are willing to cover.”
For example, in a self-contained market, an ambulatory care center may pull in patients from farther away. A competitor may see an opportunity to steal market share by placing a new facility with similar services in the middle of the community, where drive times would be shorter. In such a scenario, a flanking strategy could be an effective countermeasure. Place a second location on the opposite side of a town with complimentary services, and you’re able to serve the middle as well as capture more business from outlying areas—all while outmaneuvering and reducing opportunities for competitors.
In other situations, there may be an opportunity to co-locate with an existing healthcare provider in order to penetrate a new market. For example, a health system in the Washington, D.C., area was interested in creating a presence in a nearby bedroom community, but would not have a large enough patient base initially to make a standalone office viable. Percival facilitated conversations with a large independent primary care group in the market that was interested in expanding with a new medical office building.
“Co-locating with the biggest primary care group in the area allowed them to establish a beachhead in a part of their market they otherwise wouldn’t be able to support.”Ted Carson
EVP, Percival Health Advisors
“The benefit for the health system was a robust pipeline for referrals, and the physician group gained access to specialists and ancillary services like imaging and diagnostics.”
A variation on this strategy is to partner with a high-profile specialty group that is looking to enter or expand in your market. For the high-profile group, a joint venture may be attractive because they’ll gain access to a referral base as well as service lines outside of their specialty, while the health system benefits from the greater critical mass, a bigger site, and higher visibility and prestige of the association. Learn more about these and other physician alignment strategies.
Another creative approach is to cultivate a deeper connection with the market by offering amenities and services that extend into the community. Through a deep-dive qualitative assessment for a new ambulatory care center (ACC) in Florida, Percival learned that the prospective site of a new ACC was very family oriented and interested in sports and fitness. We therefore recommended a new vision for the ACC and collaborated with the client to develop an innovative new concept that integrates traditional health care services with wellness activities including fitness classes, nutrition education, and like-minded retailers to promote healthy living. The green, open campus also includes a half-mile walking trail, a serenity garden, and free parking and valet—and the facility hosts a monthly farmer’s market, further cementing it as a focal point for the community.
Covid-19 is transforming nearly every aspect of life, from how we work to how we eat and play — and especially how we seek care. As the pandemic wears on, the ways in which medical offices will evolve to limit infection and set patients’ minds at ease are starting to become clear.
Access, flexibility, and transmission reduction are key concepts to bear in mind as we move into this new era. Here are trends Remedy Medical Properties and integrated design firm BSA LifeStructures are tracking as the healthcare community adapts working environments to reduce the spread of the coronavirus and future novel viruses:
By implementing these changes, you’ll create a safer, more functional, and welcoming facility that fully supports the needs of both your patients and staff.
As the entry point for patients into the medical office environment, the waiting room will be the most immediate and prominent indication of how the office has changed in response to the pandemic.
“In Maslow’s hierarchy of needs, physical safety ranks above shelter in terms of personal importance. The built environment needs to support the safety of people, and the experience must outweigh the risk of uncertainty.”Jennifer Worley
Director of Design Research, BSA LifeStructures
Healthcare providers are taking several approaches to ensuring the safety of both patients and staff.
For some offices, an expanded waiting room that allows for greater distancing between patients makes the most sense. Dividing the room into zones — indicated through visual cues such as different colors or material choices on floors and furnishings — or even installing enclosed pods or cubicles for patients to wait in can produce a sense of comfort, help staff manage traffic flow, and simplify sanitization between visitors.
Establishing separate waiting rooms for sick patients and those who are just in for routine checkups may be another option. Where weather permits, practices could also move the waiting room outside, in tents or covered patios that allow for better air flow and increased distancing.
Other providers, like Washington state’s MultiCare, are doing away with waiting rooms altogether in favor of direct access to exam rooms. This is facilitated by an app-based check-in or a kiosk in the lobby, which notifies staff that the patient has arrived and directs them to an available room.
Apps and other technology can help practices manage patient volume in the waiting room and coordinate traffic flow both inside the clinic and in common areas.
“One way to shrink or do away with the waiting room is to be more in sync with the patient and the plan for their visit, and then use technology to time and manage their arrival, whether that’s through an app-based check-in, a kiosk, or just tracking the patient with their phone as they arrive.”Sam Sears
EVP of Percival Health Advisors,
Remedy’s In-house Strategic Innovation and Advisory Firm
For example, Baton Rouge General implemented a self-rooming check-in system at its recently opened Ascension Neighborhood Hospital that results in less exposure risk for both patients and staff. Patients receive a QR code by email or a mobile app, which is then scanned at one of four self-service kiosks upon arrival and are assigned a room. Patients don’t have to touch the kiosk except to edit details. Similar check-in kiosks in use at UCFS Health in San Francisco are equipped with a sensor that detects when the patient has left and automatically disinfects the kiosk between uses.
“For patients who aren’t tech-savvy, there may be a navigator who meets the person at the front door and directs them to where they need to go,” says Worley. This approach reduces each patient’s contact with other patients and with practice staff, reducing opportunities for potential exposure.
“These are all methods we’re seeing more of, and there’s probably a shift where that sort of tech is going to come into play even more often thanks to Covid,” Sears says.
Beyond the waiting room, medical offices are becoming more flexible to meet the shifting demands of the pandemic era. In addition to pre-screening patients before they arrive and more efficient registration processes, either in person or online, many clinics are separating patient and staff work zones with physical barriers to reduce contamination.
Buildings and office suites are being reconfigured with wider hallways to accommodate social distancing. Modular walls and floorplans that allow rooms to be converted or expanded quickly and easily can help facilities handle a patient surge.
“Modular construction accelerates speed to market and provides the opportunity to reconfigure the space as needs change over time, without the disruption of traditional construction.”Jennifer Worley
Director of Design Research, BSA LifeStructures
At the height of the pandemic, modular building components maker Falkbuilt worked with Anna Laberge Hospital in suburban Montreal to rapidly design, manufacture, and assemble 18 new patient care rooms and two washrooms in one week. The components meet stringent infection protection and control guidelines as well as Covid-19 sterilization protocols, and each is equipped with electrical drops, lighting and switch boxes, and connectors for medical gases. The rooms may be reconfigured or dismantled and rebuilt elsewhere as needed, providing the hospital with flexibility to match its current needs.
While telemedicine has risen to meet the demand for contact-free examinations, the result is that more space must be devoted to telehealth and the technologies that support it. This means apportioning space for servers and broadband connections, and ensuring rooms used for telehealth appointments meet HIPAA guidelines for patient privacy.
Some organizations are taking the step of grouping employees into “work bubbles” or “pods” that always work together in order to reduce opportunities for infections to spread and simplify contact tracing when they do. The strategy may extend to the spaces occupied by different pods when in the office, necessitating cleaning regimens or even separate workspaces.
In the early days of the pandemic it was unclear how Covid-19 was transmitted, which led to significant research into how long the virus survives on various surfaces. Although aerosols and airborne droplets are the most likely vector for the disease, healthcare facilities are still switching to antiviral and antimicrobial materials for door handles, sink fixtures, and other surfaces wherever possible to help limit exposure.
This means stainless steel, plastic, and glass are out, while copper, aluminum, and cardboard are in. Using virus-resistant and -reducing surfaces can also help your practice prepare for future disease outbreaks, whether it’s similar to Covid-19 or something new.
Effective HVAC design and air cleaning technologies are also key to reducing airborne transmission. Ventilation systems should be designed or reconfigured to increase fresh air intake and incorporate proper HEPA filtration or needlepoint bipolar ionization to help trap and destroy pathogens. Portable HEPA filters or UV air cleaners may also be used to help clean the air in exam rooms and other high-risk areas.
“Remedy is always looking out for the long-term health of its properties. We take a proactive approach to medical office improvements, and are willing to work with tenants to make necessary updates. We understand that these updates require expertise and capital to implement. Remedy is well capitalized and empathetic to the rapidly shifting needs of medical practices at this time, and are ready to help meet your needs as a tenant.”Gary Denenberg
EVP of Asset Management, Remedy Medical Properties
In addition to air quality, healthcare facilities have instituted more frequent cleaning and waste disposal schedules, and the CDC has recommended guidance for cleaning and disinfecting offices and common areas after potential contamination.
Janitorial staff should use products that contain bleach solutions, alcohol at concentrations of 70% or higher, and other EPA approved disinfectants to ensure safe and thorough cleaning. Logging apps can help keep track of when a room or station was last cleaned.
Medical offices are also placing washing and PPE stations in prominent locations in waiting rooms, exam rooms, and visitor areas for patient and staff use. As the pandemic stretches on, PPE vending machines like those now seen in some airports may even become commonplace. These conveniences should be paired with trash receptacles to reduce litter and avoid cross-contamination.”We understand that these changes require expertise and capital to implement. Remedy is well capitalized and empathetic to the rapidly shifting needs of medical practices at this time, and are ready to help meet your needs as a tenant.”
© 2021 Remedy Medical Properties, Inc. and BSA LifeStructures. All rights reserved.
Healthcare has been traditionally viewed as beyond consumer trends, more focused on patient health and new treatments than on consumer strategies. But today Americans of every generation are proving themselves to be savvy consumers increasingly accustomed to technology, convenience, information access, and affordability.
Their expectations of healthcare delivery and treatment are no different, which means patients of all ages are now driving the decisions that providers must make about their services and costs.
In addition, the COVID-19 pandemic is accelerating the healthcare consumerism trend as safety and prevention take on greater importance with patients and providers alike. Consumers are more engaged in their healthcare as a result of the pandemic, and are paying attention to the cost, safety, and level of care they receive. The most responsive providers will win the competitive edge in this changing landscape.
In this article, we’ll discuss four trends driving healthcare consumerism: 1) changing patient demographics and demands, 2) the new competitor landscape, 3) technological advancements, and 4) patient information access, which substantiate the need for healthcare providers to optimize their ambulatory networks, to rely less on hospital-based care and more on highly visible and accessible community-based outpatient centers.
We’ll also highlight the most prominent retail tactics being used to eliminate friction points in the patient experience as well as examples of healthcare providers at the forefront of adoption—both during the pandemic and beyond.
In the US, approximately 200 million people were born between 1946 and 1998–these Baby Boomers, Generation X, and Millennial populations are now setting nearly identical expectations for healthcare providers as they do for retailers. According to US Census Bureau data, by 2030 older people will outnumber children for the first time in US history, with one in five Americans reaching retirement age that year. By 2035, approximately 78 million Americans will be over 65, versus 76.7 million who will be 18 or under.
The aging population is not only poised to swell, but Baby Boomers are bringing tech chops and consumerism-era demands that health systems will be smart to embrace. According to AARP, 86% of adults aged 50-59 and 82% of those 60-69 now own a smartphone. More than half of those surveyed said they’d prefer their medical needs to be managed by a combination of healthcare professionals and technology.
Digital capabilities—from booking appointments to requesting prescription refills—are now expected, and increasingly influence who patients choose as their provider. For instance, in a 2019 survey by Accenture, 70% of patients are more likely to choose a provider that offers reminders for follow-up care via email or text, compared to 57% in 2016. Also, in 2019, more than half (53%) of patients are more likely to use a provider offering remote or telemonitoring devices, compared to 39% in 2016.
For the majority of consumers, convenient and easy access to care is the most important factor in selecting a provider.
And although primary care referrals still drive the majority of specialty visits, self-referrers now comprise up to 47% of patients in some specialties.
Whereas health systems and physician groups once primarily competed against each other, traditional healthcare providers now face a whole new landscape of competitors.
The growth of competition from big box retailers, pharmacy chains, and even grocery stores offering convenient, low-cost walk-in services for common and/or non-life-threatening illnesses is expected to continue to put pressure on traditional healthcare providers. According to Accenture, nearly half (47%) of consumers have visited a retail or walk-in clinic for minor health concerns. Retail clinics currently fill nearly 75% of market demand for vaccinations and point-of-care diagnostics, and the retail clinic market is predicted to surpass $8 billion by 2028, potentially growing at an annual rate of 21%.
Private equity and venture capital firms are consolidating specialty practices such as dermatology, orthopedics, ophthalmology, and other specialties, and also backing retail urgent care startups. Private equity ownership of physician practices more than doubled between 2012 and 2017, and the trend shows no sign of stopping. Insurance companies are also joining in, inking relationships with existing health systems and physician groups—and even creating healthcare providers of their own—in order to control costs and manage care more closely.
Reduced consumer reliance on primary care for referrals creates opportunities for VC firms and other competitors to capture patients through new entry points, such as urgent care clinics, orthopedic injury clinics, athletic trainer consults—even virtually.
Artificial intelligence (AI) is beginning to impact clinical care by assisting with initial diagnosis, reducing administrative overhead and improving workflow, and performing repetitive tasks. AI also may allow clinicians and staff to do their jobs more quickly and efficiently using text-to-talk to produce chart notes, ordering tests, and transmitting prescriptions. These innovations lead to a work time savings of 17% for doctors and 51% for registered nurses, allowing more opportunity for quality patient care. It’s estimated that AI could address 20% of unmet clinical demand, allowing outpatient care to grow.
The use of remote patient monitoring continues to rise. Remote patient monitoring is now covered by Medicare and 23 state Medicaid programs, and 13 states require commercial health plans to cover monitoring services.
The COVID-19 pandemic has seen the rapid growth of telehealth service offerings. Health providers report conducting 50 to 175 times the telehealth visits pre-COVID. However, telehealth is more likely to supplement onsite care rather than replace it. Virtual consultations frequently result in in-person follow-up appointments and specialist referrals. Meanwhile, health systems will need to devote more space within hospitals and MOBs for telehealth provider suites, as well as the data lines and server rooms to support them.
Patients are no longer passive participants in their health care: they are demanding transparency, convenience, access, and more personalized products and services that they know technology can deliver.
The demand for online information and digital communication with health providers demonstrates that consumers are taking a greater interest in and technology-supported approach to their health services.
But consumers are frustrated with their ability to find and access general and personal health information. According to a recent study, only 38.5% of US adults are able to access health information online without frustration. Making matters worse, studies find that fewer than 20% of patients on average have logged on and used their healthcare provider’s health portal.
Transparency about cost is equally important to both older and younger consumers—65% believe it to be critical or very important, according to Accenture. However, while older consumers place greater importance on transparency about care, younger patients are more concerned about convenience of appointment times and wait time and speed of appointment.
Now let’s take a look at some of the most prominent retail tactics and innovations being used to eliminate points of friction in the patient experience as well as some of the traditional and non-traditional healthcare providers at the forefront of adoption.
Partners HealthCare, AI-based COVID-19 Screener. As the pandemic grew in the US, Partners HealthCare in Boston began researching AI-based self-triage tools for patients, including interactive voice response systems for phone calls and online chatbots. Partners now offers a COVID-19 screener, an automated online tool that assesses patients via a simple chat interface that asks them a series of questions based on diagnostic information from the CDC and Partners experts. A similar system developed by Seattle’s Providence St. Joseph Health system and Microsoft served more than 40,000 patients in its first week of operation. Alibaba and other companies are developing AI algorithms to aid in epidemiology, analytics, and genome sequencing of the coronavirus.
Swedish Covenant Health, Boutique Clinic with On-Demand Scheduling. The Clark is a boutique primary care and women’s health clinic owned by Swedish Covenant Health on Chicago’s north side. Designed to provide an upscale, spa-like experience, The Clark offers same-day appointments by phone or online, and a concierge check-in process. In addition, it offers evening and Saturday appointments in order to accommodate the busy schedules of its city-dwelling patients.
MedStar Health/Uber Health, Patient Transportation Service. MedStar Health struggled with high no-show and cancellation rates for patient appointments, most occurring within one hour of their appointment. Access to transportation was one of the primary causes. MedStar turned to Uber Health, a service that uses Uber’s existing driver network to transport patients to appointments. Since offering Uber Health to patients, MedStar has increased schedule fill rates in three of its practices by 5% to 10%, creating a significant increase in revenue.
Providence/Walgreens, ExpressCare Clinics. In the face of the retail walk-in clinic trend, Providence St. Joseph Health is fighting fire with fire. The health system launched Providence ExpressCare, a rapidly growing network of walk-in clinics in Washington, Oregon, and California. Designed to bridge the gap between a primary care visit and the emergency room, ExpressCare clinics provide diagnosis and treatment for common illnesses, treat minor injuries, and offer basic testing and screening. Many of the locations are located in Providence buildings, but the company has also partnered with Walgreens to operate retail health clinics at dozens of stores—and also offers virtual consultations.
MultiCare Children’s Hospital, Geofencing and Auto Check-In. Breaking ground in 2021, the new MultiCare Children’s Hospital in Tacoma, WA, will include eight to ten operating rooms, a mental health crisis center, and a cancer center—as well as an innovative geofenced patient check-in system. Families arriving in the hospital’s garage will get a parking stall assignment via a smartphone app. Once the vehicle is in the stall, the patient is automatically checked in and medical staff is notified of their arrival. The new system will reduce the need for large waiting rooms in the post-COVID era.
Think Whole Person Healthcare, Concierge Care Coordinators. Think Whole Person Healthcare facilitates a collaborative approach to patient care by borrowing several design cues from retail innovators such as Apple and Target in its Omaha, NE, health center. The building includes features such as an in-house pharmacy, café, and a gift shop in a modern, mall-like environment. In the system’s integrative care model, concierge care coordinators provide patients with one-on-one service that goes beyond traditional office visits. Care coordinators educate patients about their personal conditions, develop personalized care plans and coordinate doctor visits and preventative health screenings, find community resources to maintain health, and assist with referrals when necessary. Think’s high level of customer care has resulted in a 98.94% overall quality ranking, the highest in Nebraska and 8th highest nationally.
Halifax Health, Care Team e-Communication. Since 2009, Halifax Health, the largest medical provider in east-central Florida, physicians and staff have worn a wearable, wireless, hands-free, voice-controlled device that enables instant two-way or one-to-many conversations. Prior to implementation, EDs were cacophonous with overhead pages, and consulting a physician in another location required calling a central operator. Halifax Health has since implemented HIPAA-compliance-enabling secure texting between clinicians and physicians, which improved patient safety and cut down on response time dramatically—what used to take 30–45 minutes now takes seconds. As a result, the oncology unit reported an 8 percent decrease in the time it takes to discharge a patient, equivalent to 80 patients in a four-month time span.
Mayo Clinic, Remote Monitoring of Patients with COVID-19 and Chronic Illnesses. In many countries where novel coronavirus cases increased rapidly, hospitals became an inadvertent hot spot for disease transmission. US health systems have sought to avoid the same fate by minimizing unnecessary hospital visits and finding ways to care for and monitor patients at home. For instance, Mayo Clinic has canceled elective surgeries and is using telehealth to handle outpatient visits where possible. It’s also working with device manufacturers such as AliveCore and Eko to enable remote monitoring of patients with COVID-19 who don’t require intensive care, as well as patients with chronic conditions. The companies’ ECG and stethoscope products transmit data to an app accessible by physicians and integrate with telehealth services.
WakeMed Health, Drone Delivery of Medical Samples. In Raleigh, NC, WakeMed is partnering with UPS Flight Forward on a pilot program to use a drone to deliver medical samples from the hospital to a nearby lab for testing. UPS’s Matternet M2 quadcopter drones fly at speeds up to 43 mph, reducing a trip that takes up to 45 minutes on foot to less than 5 minutes by air. The drone is expected to make runs six to eight times a day, delivering more than 200 samples daily and cutting hours off of turnaround times for tests.
CVS Health, Drone Delivery of Medications. CVS Health has also partnered with UPS Flight Forward to test prescription delivery via drone. A pilot is being conducted in The Villages, FL, to quickly deliver time-sensitive medicine, while also maintaining social distancing. The first flights will be less than half a mile, and prescriptions will be dropped off to a nearby location for a ground vehicle to make the final delivery.
“After years of consolidation and acquisition of private practices, the availability of remaining independent physician groups is dwindling in many markets,” says Sam Sears, EVP of Percival Health Advisors, an independent healthcare strategy advisory group within Remedy.
“The easy deals have been done. When the well runs dry, physician alignment becomes even more important—but how do you align with physicians if there’s no way to grow the base through acquisition or even recruitment?” Sears says. “Health systems need to think about creative ways to align with physician groups beyond the traditional approaches.”
A common stumbling block to alignment is real estate, with its complex issues of investment, ownership, and lease terms that can sometimes kill a deal. But real estate doesn’t have to be an impediment if you have the right real estate partner to help you see it through. Here are five real estate vehicles that can help pave the way to physician alignment.
Co-location in a newly developed medical office building or newly leased space is a frequently used strategy to align with a physician group that wishes to remain independent. Historically, health systems have often taken a “build it and they will come” approach to facility development and physician alignment. However, it’s rarer for a health system to proactively track potential strategic partners and present them with opportunities to co-locate—and this strategy can prove valuable, especially when the goal is to penetrate a new market or further lock up an existing one.
A regional health system in the Mid-Atlantic was interested in establishing a presence in a growing community on the periphery of its primary service area, but was having difficulty finding a foothold. Percival facilitated an introduction to the largest primary care group in the submarket, which the health system had been tracking for some time. The organizations were able to partner on the development of a joint-venture medical office building that houses a larger clinic for the primary care group as well as OB/GYN and cardiology specialty clinics for the health system.
For the primary care group, the decision to co-locate gives them access to a large referral base and connections to service lines outside of their specialty, while the health system benefits from the greater critical mass and higher visibility through association with an established brand in the community.
Another effective strategy for aligning with an independent physician group uninterested in acquisition or merger is to offer an opportunity for investment in a medical office building.
“Another option is to give a physician group ownership in an ancillary service, such as an MRI, either wholly or in a joint venture. It can be an attractive enticement,” Sears says.
“If you look at it from a service or equipment ownership perspective and not just a building ownership perspective, the building ends up being the method for achieving alignment. The business itself becomes the operational platform.”Sam Sears
EVP, Percival Health Advisors
In 2019, Remedy was selected by Piedmont Healthcare to develop a new on-campus medical office building adjacent to Piedmont Newnan Hospital in Newnan, GA, a fast-growing suburb of Atlanta. Part of Piedmont’s strategic intent for the new building was to incorporate a full range of oncology and hematology services, including advanced medical and radiation therapies in a cancer care center of excellence.
A critical component of this strategy’s success was to recruit a leading independent oncology group to lease space in the building, in order to work closely with Piedmont Healthcare in the delivery of oncology care. To facilitate this physician alignment for Piedmont, Remedy created a customized co-investment structure that enabled the independent physicians to invest alongside Remedy.
There are any number of reasons why a health system may not be interested in the real estate owned by a physician group it’s attempting to align with, such as capital outlay, Stark Law concerns, location, or the age and condition of the property. A sale-leaseback deal can be effective in overcoming these obstacles.
“Don’t let the fact that a medical group owns real estate dissuade you from pursuing them. Remedy can step in as the real estate capital partner to facilitate the alignment.”Ted Carson
EVP of Percival Health Advisors
Centegra Health System (now part of Northwestern Medicine) was in the process of acquiring a leading regional orthopedic practice to further its physician alignment goals. However, the physicians owned their medical office building, and Centegra was not interested in acquiring the property. The health system preferred for the property to be owned and managed by an institutional investment partner with professional real estate management experience.
Remedy executed the acquisition of the medical office building and negotiated a new long-term lease from the health system. The sale-leaseback achieved the physician owners’ desired investment goals in the sale of the property, while enabling Centegra to complete the strategic acquisition of the practice.
Consolidation is usually driven by the goal of aggregating providers to achieve operational efficiencies and/or to support high-margin ancillary services, or by a need to vacate buildings that are outdated or ill-positioned in the market.
“The trouble is that frequently with consolidation, it’s not a smooth exit,” Carson says. “Lease termination dates don’t line up, and you’re faced with the choice of moving out of a building and paying dark rent for three years, or staying in place and missing out on the efficiencies that can come with consolidating. A real estate or capital partner can help devise an exit strategy that gives a health system the flexibility to achieve its goals.”
The Southeastern Spine Institute (SSI) is the largest medical practice in South Carolina specializing in spinal and orthopedic care. SSI needed a new facility to consolidate and grow its ambulatory surgery, imaging, and diagnostic services in the Mount Pleasant submarket of Charleston. However, it owned two custom-built, Class A medical buildings that limited its ability to act. Remedy offered to develop the new facility and provide an inventive sale-leaseback transaction that created flexibility for SSI to vacate its existing buildings upon completion of the new development.
As part of the leaseback transaction, Remedy agreed to release SSI from its leases on the buildings once Remedy was able to find new tenants. Through its existing relationship with the Medical University of South Carolina (MUSC), Remedy knew the health system was looking to expand its ambulatory network in the Mount Pleasant submarket and was able to recruit MUSC to lease one of the buildings.
“Remedy gave SSI an exit strategy by buying the buildings and letting them out of their leases in order to move into the new facility. Our knowledge of the local market and our ability to be flexible and creative enabled the deal to move forward.”Joe Magliochetti
Tenet Healthcare’s East Cooper Medical Center had been tracking SSI’s growth, and wanted to align with them by locating the physician group’s new facility on its hospital campus. Remedy negotiated the acquisition of the development site on the campus and made it possible for SSI, its surgical partner USPI, and the hospital to each design and execute their own leases within the building. In addition, Remedy helped SSI transfer its Certificate of Need (CON) from one of its prior locations to the new building. The end result is a dynamic facility that combines the expertise of three leading healthcare providers with modern office space, procedure rooms, MRI and imaging room, physical therapy suite, sterile processing center, and ambulatory surgery center.
When attempting to align with a physician group that owns a building, the individual physicians within the group may have differing needs if the building needs to be vacated or sold. Some may wish to continue ownership in some fashion, while others may wish to sell and move on. By structuring a sale in a creative way that satisfies each physician’s goals for the transaction—whether it’s tax efficiencies, reinvestment, or simply income—health systems can create goodwill and smooth out wrinkles.
Rainier Orthopedics in Puyallup, Washington, was acquired in 2012 by Proliance Surgeons, one of the country’s largest surgical practices. Rainier performs over 2,400 surgeries per year in its ambulatory surgery center, which was owned by a partnership of seven Rainier physicians now employed by Proliance. After the acquisition, some of the physician owners wished to divest, while others were interested in retaining ownership of the property.
Remedy offered to acquire the building in a joint-venture transaction that enabled each of the physician investors to select their desired individual outcome. Some took their sale proceeds and moved on, some became co-investors in the new joint venture, and some did a little of both. The structure of the joint venture included follow-on liquidity options that gave the co-investors the ability to sell Remedy their interests at a time dependent on their personal financial or retirement planning goals. In executing this acquisition, Remedy negotiated new long-term leases with both tenants and achieved the physician owners’ desired investment goals in the purchase/sale of the property.
Learn more about how Remedy can help health systems and physician groups convert illiquid assets to maximize ROI.
As a healthcare real estate owner and developer, Remedy wants its buildings full of happy tenants. One way we make that happen during design and construction is by working hard to reduce tenant costs by making efficient use of space within the new buildings.
“Remedy aspires to deliver as efficient a building as possible while taking into consideration our tenants’ programming and adjacency requirements, functional requirements, branding and aesthetic goals, and any other specific needs required for the health system or physician group to successfully deliver healthcare,” said Jim Moylan, Senior Vice President of Design & Construction at Remedy.
“The most successful projects are methodically planned before a shovel ever hits the ground,” Moylan says. “By working collaboratively with design consultants and clients to optimize the use of space in the initial design, we can ensure that the final product is as efficient as possible.” Because increased common areas correlate to increased rent, we aim to maximize usable space in new developments by limiting common areas to the amount of space needed to properly service the building while still adhering to our client’s vision.
In the first section of this article, we’ll illustrate how the Common Area Factor impacts your rent by using a hypothetical three-story medical office building, and in the second section, we’ll illustrate four ways to reduce common area space with real-world examples from Remedy’s various development projects.
In order to explain why the space efficiency of a building affects how much rent you’ll pay, first we need to look at the difference between Usable Square Feet and Rentable Square Feet.
Usable Square Feet (USF) is the actual space rented, wall to wall, within the tenant’s space, and doesn’t include any of the common areas such as lobbies, restrooms, storage rooms, and shared corridors. (For tenants leasing an entire floor or multiple floors, the USF would also include any hallways and restrooms that exclusively serve their space.)
Rentable Square Feet (RSF) is your USF plus a pro rata share of the building’s common areas. As a tenant, your rent is calculated based on the RSF. This pro rata share of common areas is known as the Common Area Factor, also referred to as the Load Factor.
Here’s an illustration of total USF versus total RSF in a hypothetical three-story, multi-tenant medical office building.
When evaluating real estate options, you’ll want to be aware of the Common Area Factor so you know exactly what you’re paying for. The methods for calculating a building’s Rentable Square Feet, Usable Square Feet, and Common Area Factor are governed by BOMA International. Remedy requires the architect of record on each project to provide these calculations throughout the design process, which are then shared with the client.
The Common Area Factor is calculated by dividing the building’s total Rentable Square Feet by the building’s total Usable Square Feet. The result is then converted into a percentage and applied to the tenant’s Usable Square Footage.
Remedy aims for a Common Area Factor under 17% in its medical office buildings to keep rents reasonable. To achieve this, we facilitate a very structured design process in which our pre-construction experts oversee the conceptual design of the building floor plans and common area layouts. As the design advances, BOMA calculations are updated and refinements to the layout are made to achieve the desired Common Area Factor.
Our hypothetical medical office building has been designed efficiently with a Common Area Factor of 15.2%. But what if this same building was designed with larger common areas resulting in a Common Area Factor of 18.7%?
While a 3.5% difference in the Common Area Factor may seem trivial, over a 10- to 15-year lease term the total cost savings can be significant. Let’s say you decide to lease a suite on floor 2 of our medical office building and your occupiable space is 10,000 Usable Square Feet.
With a 15.2% Common Area Factor, your Rentable Square Feet would be 11,520 (10,000 USF X 1.152). With an 18.7% Common Area Factor, your Rentable Square Feet would be 11,870 (10,000 USF X 1.187).
Using a hypothetical $25/RSF NNN rental rate, your 10,000 USF suite would cost $288,000 ($25 X 11,520 RSF) per year in the building with optimized common areas. This same amount of occupiable space would cost $296,750 ($25 X 11,870 RSF) per year in the building with larger common areas. Over the course of a 12-year lease, you would save a total of $105,000.
While Remedy strives to deliver efficient buildings by driving down the Common Area Factor, we recognize there are instances where increasing common areas to incorporate certain shared amenities may be a high priority for our clients.
For example, the boutique UCHealth Grandview Hospital we developed in north Colorado Springs was designed with a two-story atrium lobby, grand staircase, cafeteria, and children’s play area to achieve the health system’s patient experience/healthcare consumerism objectives for that particular submarket. At Remedy, we analyze the impacts of common area design and provide our clients with the data needed to make informed decisions that balance building economics with desired amenities.
Now let’s take a look at specific ways to reduce common area space using real-world examples from Remedy’s development portfolio.
Flourishes like rounded façades or irregular floor plates can create inefficient space and cause interior planning challenges. Remedy favors simple geometric shapes whenever possible within the constraints of the building site. A rectilinear design makes interior spaces easier to plan and maximizes usable space.
On a recent on-campus development project, we revised the design to transform a convex building footprint into a rectilinear one, which increased the usable space by 10.3% and reduced the Common Area Factor from 18.4% to 14.7%.
“One of the easiest targets for greater efficiency is the building lobby,” says Kurt Meyer, senior pre-construction manager with Remedy. “A grand lobby can be beautiful and inspiring, and there may be reasons to include one, but our role in the design process is to challenge our design teams and clients as to why it’s wanted and whether the budget supports it.”
A multi-story glass atrium means carving a large volume out of the building’s total square footage that isn’t usable space. Furthermore, the additional glass increases heating/cooling loads to the HVAC system, adding additional cost for tenants to absorb. Similarly, the cost of a monumental staircase may contribute to a rental rate beyond what’s acceptable to the market.
“It’s our job to help our clients understand the impact of these architectural features, and try to balance their vision with the most optimal delivery we can.”Kurt Meyer
Remedy Senior Pre-Construction Manager
In addition to simplifying the shape of the building footprint in the above example, we infilled the voluminous two-story lobby with floor slab and omitted the monumental stairs, which increased the usable area of the floor by 2,000 square feet.
Corridors are often overlooked as a space-saving opportunity. Thoughtful design, proper sizing, configuration, and location of corridors can maximize usable space while maintaining adequate circulation and access to all areas of the building.
In another recent Remedy project, the layout of the first floor included a hallway leading from the elevator lobby to a side vestibule. However, the placement of the hallway meant that an orthopedic clinic planned for the first floor wouldn’t be contiguous.
“We reviewed the designs and determined that the corridor wasn’t required for emergency egress, so it was eliminated, resulting not only in a better layout for the orthopedic clinic but also a 1% reduction in the common area factor,” Meyer explains.
Lobbies and corridors aren’t the only common areas that contribute to the Common Area Factor—electrical rooms, mechanical rooms, telephone/data rooms, janitorial closets and delivery receiving areas count, too. Even though you may never go into these spaces as a tenant, you’re still paying for them.
While these “behind the scenes” spaces are necessary, Remedy works with the architect and building engineers to minimize excess space while remaining code compliant. If the equipment planned for a 15 ft x 20 ft electrical room can fit into a 12 ft x 15 ft space, that’s a 40% reduction and gives back 120 square feet of usable space. Repeating the exercise with the mechanical rooms, telephone/data rooms, and other utility spaces can result in a significant reduction of the Common Area Factor.
“Mechanical and electrical engineers often insist that their equipment needs lots of space, but we have consistently been able to reduce that footprint and others, saving tenants thousands of dollars over the course of their lease.”Jim Moylan
Remedy EVP | Design & Construction
“Every little bit helps, and sometimes a creative solution presents itself,” adds Meyer. “On a recent medical office building project, we were able to eliminate a mechanical room and stairwell on the second floor by placing the mechanical equipment on the roof. As a result, the corridor providing access to those areas was also eliminated, reducing our common area by 650 square feet and reducing the Common Area Factor by 2%. Furthermore, we changed an open stair in the lobby into an enclosed stairwell and reconfigured the restrooms and other service rooms, which greatly improved the efficiency and circulation of the floor plan.”
So we’ve delved into efficiency strategies for new construction. You may wonder how this can apply to existing buildings where everything is already set in place. Depending on the size and shape of your tenancy, there may still be opportunities to reconfigure corridors and other common areas to eliminate excess space. However, it wouldn’t be practical to change the overall shape of a building or fill in a grand lobby. Fortunately, Remedy’s market rates in its existing portfolio of properties are determined by taking all characteristics of a building into account, which is more than just age and location. It reflects the efficiency and all the amenities and services that come standard with a Remedy property.