Real Estate Forum - December 2013

SAN FRANCISCO—Asked recently if money today is smarter, Greg Vilkin, managing principal and president of MarcFarlane Partners, said that “Money today is more nervous than it has ever been.” Vilkin was a panelist at a recent Marcus & Millichap Real Estate Investment Services event held in San Francisco, and served on a private equity and multifamily-investment strategy panel moderated by William Hughes, SVP and managing director of Marcus & Millichap Capital Corp.

“Everybody got burned from the last cycle
of putting more money out than was
needed,” said Vilkin. “I think that part of
this cycle is that the institutional capital
that’s putting in the equity money is a lot
more careful this time—I don’t know if
they’re smarter—but they still go into herd
mentality.” And they go into markets that
have already proven themselves, he added,
“and are now heading up and it’s impossible
to get them into markets when it’s at the
nadir—and they can actually make a lot of
money.”
The day’s event also included thoughts
from John Sebree, VP and national director-
NMHG, who kicked off the day-long event
with an overview of the local Bay Area econ-
omy and multifamily trends. When it comes
to investment sales, he noted that he is often
asked if now is the time to buy or sell. “Yes is
my answer.”
Sebree said there will be 2. 2 million more
20-34 year-olds by 2020, and he expects the
apartment building boom to continue for
the next few years.—Natalie Dolce ◆

American Realty Capital Properties Automotive Real Estate Services Inc., a specialty finance company for automotive retail real estate. He had co-founded its predecessor, Capital Automotive REIT, in October

1997, and directed its IPO the following year.

Moves

Healthcare in the US is entering a brave new world where rapid change is the norm.

Older hospitals have become obsolete, physically and operationally, and many have become distressed to the point of bankruptcy. Moreover, populations have shifted away from centralized hospitals, most of which were built shortly after World War II. At the same time, demographic and political trends are creating tremendous pressure on the healthcare system by sharply increasing the overall need for medical care. Partly due to better health education and early detection of disease, life expectancy is increasing—the number of people living to age 65 has increased dramatically.

Obamacare is creating new demand simply by increasing the number of insured patients. How are hospitals and other providers responding to this unique combination of circumstances? Clearly the environment is ripe with both challenges and opportunities.

The New York City metropolitan area healthcare market has become a laboratory where the most competitive hospitals are developing new models for delivery of healthcare. One of the key questions for those in charge of hospitals and large physician group practices is: what new facilities do we need in order to accommodate the changes in demand for, and delivery of, healthcare?

Most medical executives will acknowledge that building more traditional hospitals won’t get the job done. Rather, in order to remain competitive, medical providers are moving toward more outpatient (ambulatory) care facilities. We can expect to see outpatient care centers continue popping up all over the New York City area, which will include various mixes of urgent care, primary care, multiple specialty practices, and ambulatory surgical facilities.

Different hospitals and medical groups will tailor the array of services to the specific location and needs of the local population. One common theme will be housing specialty practices and labs under one roof in an outpatient environment, which is more convenient for patients. Other facilities may combine urgent care, a supplement to or replacement of the traditional emergency room, with primary and specialty care. The physical result, in essence, will combine elements of a modernized, updated hospital and a state-of-the-art medical office building, creating a less institutional feel and providing for greater efficiency.

Once the need for a new facility, and its basic slate of services, has been identified, it’s time for strategic planning and execution of the new outpatient center. This is where medical providers today have the best opportunity to secure a competitive advantage by establishing a long-term relationship with a full-service real estate development and management company. Building and running facilities is not within the traditional core competency of hospitals. Moreover, long-term ownership of real estate reduces a medical provider’s liquidity. The reality is that their facilities are fixed in place and almost never sold, so they cannot reap the benefits of appreciation.

For new facilities, when it comes to the nuts and bolts of site selection (including special parking and transportation needs), permitting, design (including special infrastructure needs), financing, construction management, and medical facility management, a strategic real estate development partner can custom-design a solution for the medical provider while also saving them time and money. External partners can also provide new insights into market trends and generally educate medical providers regarding best practices for handling real estate.

Joseph Simone is president of Simone Development Cos., headquartered in Bronx, NY. He may be contacted at jsimone@simdev.com. The views expressed here are the author’s own.