Healthcare properties present a tremendous opportunity for real estate developers in the Milwaukee market and the upper Midwest. The national and regional healthcare real estate sectors remain on solid footing, according to the 2018 Healthcare Marketplace Report from Colliers International. The sector remains attractive in terms of both stability and diversification. There will always be a demand for healthcare services as the U.S. population continues to age at an unprecedented rate.
A growing number of Milwaukee-based health systems have announced plans to expand in bids to gain or maintain market share. The merger of Aurora Healthcare with Advocate Health Care Network to create a single health system known as Advocate Aurora Health is a recent example. There’s been a significant expansion of and increased focus on the outpatient ambulatory environment. Health systems face significant capital expenditures in order to maintain aging hospitals. Alternative developments such as specialty outpatient facilities and micro hospitals have gained momentum and allow for expansion to remain competitive while efficient.
Dave Arnold, Irgens
With the emerging trend toward population health management, hospitals and health systems take on the financial risk of providing care for a certain population across a certain geography. Having to take on the additional risk of being responsible for the cost of care can create a financial burden, creating the need to shift the focus of care to the lowest possible cost of care setting in order to maintain or enhance margin.
Both for-profit and nonprofit health systems face newly formed, large competitive entities to compete within the outpatient setting. Previously, health systems could focus on one main location of care in a central hospital chassis. Now, the focus is on off-campus settings, stressing their ability to complete infrastructure expansion, as well as increased costs for both technology and acquiring physicians and other mid-level providers.
A qualified healthcare developer has the opportunity to help navigate these multiple locational requirements. Hospitals typically don’t have the internal resources to evaluate these many different locations and priorities. A developer can bring a high level of market-based expertise to the table, earning trust with clients in order to operate as a strategic extension of a health system’s leadership team.
Developers can engage with a health system to understand its primary and secondary service areas and identify opportunities in those areas. By researching and identifying competitive and service gaps, a developer can propose specific development opportunities where those gaps exist and suggest a project to fill that need or gap. Once that gap is filled, the developer can build around it with allied services, creating even more opportunities for developers.
Project examples
Working in its Milwaukee market, Irgens has developed several projects, placing the Medical College of Wisconsin ahead of the curve as it developed its brand through significant outpatient settings. Irgens outlined a proactive approach to off-campus development, determined which markets and locations to focus on and laid the groundwork for future clinic implementation.
The result was a highly refined growth plan that has resulted in additional consulting assignments for Irgens, as well as the development of 11 off-campus facilities that Irgens has developed and leased to the hospital to further strengthen the provider’s brand and grow new market share.
On another project, Irgens worked with a core group of physicians over several months on the concept of a physician-owned medical office building. After researching the idea and meeting with key stakeholders, Irgens identified a greater opportunity for the project and successfully approached ProHealth Care Inc. with the concept of developing an ambulatory care center on its outpatient campus.
Irgens worked closely with ProHealth Care to identify additional physicians and specialty groups to strategically locate the proposed building.
Several key tenants and a critical mass of pre-leasing were obtained, including a large orthopedic group that originally served as the anchor to a musculoskeletal institute. The property offers orthopedic services, physical and occupational therapy and pain management. Other tenants include a diagnostic imaging center, a joint venture endoscopy procedure center and medical office space for private-practice physicians.
As national trends in healthcare transcend Milwaukee and surrounding markets continue toward health system mergers and affiliations, along with the increased shift toward outpatient ambulatory care, real estate developers will see new opportunities to provide comprehensive services. They can also create revenue-enhancing solutions, while helping to achieve short- and long-term business objectives.
— By Dave Arnold, Executive Vice President, Irgens. This article originally appeared in the July 2018 issue of Heartland Real Estate Business magazine.