CHICAGO-The current uncertainty throughout the economy, the fate of health care reform and even the expected contentious election year will likely push medical real estate into a series of transformations in 2012. Jones Lang LaSalle said in a recent report that more system mergers, larger medical office development and increased outsourcing should mark efforts next year.
Mindy Berman, managing director of JLL’s Healthcare Capital Markets group, tells GlobeSt.com that hospital merger and acquisition activity will be a major theme in the industry in 2012. She says the reform movement is forcing hospitals to reign in non-medical costs such as real estate. “Providers that get larger also get more leverage in negotiating contracts,” she says.
There are a lot of investors circling the medical markets, considered a high-credit industry. Health care real estate investment trusts have a market capitalization of about $50 billion, or 13% of the market capitalization of all real estate product types. More than $18.1 billion in debt and equity capital was raised by public health REITs from 2010 through Nov. 1, 2011.
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The industry is also one of the only sectors besides multifamily that is seeing development, though the requirements by health care systems have changed. Hospitals now look to send as much patient work as possible to medical office buildings, which are getting larger to accommodate the increased traffic. “If you compare the average hospital bed costs about $1 million each, compared to a MOB that costs about $250 to $300 per square foot, you can see where systems are trying to optimize their portfolio,” Berman says.
She also says cost concerns should start to push health systems to catch up with corporate America on outsourcing property management. “Out of the roughly 5,000 health care systems, there’s probably only a dozen that outsource, compared to 50% of large corporations, Berman says. “Hospitals are just waking up to the cost of real estate, how it reduces operating costs and margins.”
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