INTERFACE MEDICAL OFFICE DALLAS A HUGE SUCCESS
InterFace Medical Office kicked off Thursday at the Adolphus Hotel in Dallas with an overview of the changes to healthcare real estate driven by the Healthcare Reform Bill. Warren Skea, director of the health enterprise growth practice at PriceWaterhouseCoopers, the conference's keynote speaker, made note that, “2010 to 2020 will be the decade of health reform.” His presentation discussed many of the impacts that the healthcare overhaul bill will have on medical real estate. Many of these are gains in square footage, no doubt due to the 32 million people who will gain insurance as a result of the bill — more than the population of Canada, according to Skea.
Under the new healthcare model, hosptials will no longer be revenue generators, but cost centers. “The change will significantly impact their thinking in building new infrastucture,” Skea said. The panel following the keynote, featuring executives from healthcare REITs, hospital systems and private healthcare developers, was a big picture look at the market for medical office buildings, and echoed many of Skea's points.
Panelists noted that the credit crisis has put many projects on hold, while the healthcare bill is causing many hospital systems to be very cautious about their decisions to expand; the bill also has an impact on the types of facilities that they will build. For private developers, the concern is more focused on fewer doctors in private practice. Since a change in the medicare rules earlier this year, one panelist estimated that there will be 50 percent fewer cardiologists in private practice next year than in 2010. This is due to the increase in investment by hospital systems in cardiac care centers and research centers.
Panelists noted that this sector is incredibly healthy for development. Capital is readily available for REITs and private developers. Private developers noted that they are mostly seeing financing available through community banks and that deals must have 60 to 70 percent loan-to-value with strong pre-leasing. Life companies are also back in the market looking for MOB deals. “Medical office is a preferred product for buyers,” said Al Pontius, managing director of the national office and industrial properties group for Marcus & Millichap. “Quality plays a large role in the price and structure of deals.”
Michael Arvin, senior vice president and chief development officer of Dallas' Methodist Health System, noted that health systems have weathered the recession well, and with the impending health care bill, they are trying to be prudent about expansion and are trying to develop more efficient facilities that have flexible layouts. Also playing a role in many decisions, said Tommy Tift, president and CEO of Health America Realty Group, are politics and the nation's high unemployment.
— Randall Shearin