Real Estate Forum - October 2013

Healthcare Review

Burleson, TX, located 20 miles south of Fort Worth just off Interstate 35 West, is a town of approximately 37,000 souls. On the east side of the interstate, just north of Farm-to-Market Road 1187, stands Texas Health Huguley Hospital Fort Worth South, a 223-bed acute-care facility complete with two intensive care units, an emergency department and an open-heart surgery center. Huguley has been around for decades, serving the healthcare needs of southern Tarrant County and northern Johnson County. Furthermore, the Texas Health Resources health care system, one of the largest faith-based, nonprofit healthcare delivery systems in the United States, has a huge toehold in this region.

Yet right across the road from Huguley, in almost David-and-Goliath fashion, Dallas-based Baylor Healthcare System, in conjunction with Duke Realty’s healthcare arm, is building a 38,000-square-foot emergency medical center, scheduled to open in May 2014.

According to experts, the above scenario isn’t unusual in the brave new world of healthcare and its real estate component.

“Anyone will go anywhere these days,” observes John B.
Mugford, editor of Healthcare Real Estate Insights. “Putting
up a medical office building or an emergency department
across from a competitor’s hospital is becoming the norm,
unless it doesn’t make much business sense.”
According to Don Dunbar, executive vice president, Midwest
and South Regions for the Indianapolis-based Duke Realty, build-
ing a new emergency care center across from the huge, estab-
lished Texas Health Systems hospital makes perfect business
sense for Baylor Healthcare. Baylor currently operates Baylor All
Saints Hospital, a 525-bed facility in Fort Worth. As such, the
Burleson emergency department is a logical extension of those
services. “The current trend in healthcare is that the patient pre-
fers one provider or another. So the provider almost has to be
everywhere,” Dunbar comments.

THE CONCEPT OF HEALTHCARE REAL ESTATE

Once upon a time, healthcare real estate referred to acute care
hospitals and the medical office buildings on those hospital cam-
puses. Inpatient and outpatient services were clearly delineated,
with the hospital handling the former and tenants in the MOBs,
Dan Prosky of Griffin-American Healthcare REIT II Inc. nar-
rows the definition somewhat further, pointing out that the best
definition of healthcare real estate involves a location where a
patient is seen by a provider. “This means medical office build-
ings, skilled nursing facilities and hospitals,” says Prosky, who is
president and COO of the Los Angeles-based REIT.

Richard Rendina, CEO of Rendina Cos. in Jupiter, FL adds that healthcare real estate no longer necessarily needs to be close to a hospital campus, nor does it only encompass purpose-built medical office buildings. “We’re seeing healthcare systems occupying space in traditional retail centers,” he says, pointing to the stand-alone primary and urgent-care centers in shopping centers as examples.

Even as the definition of healthcare real estate becomes more flexible (and as investors and developers attempt to play catchup with the concept), experts believe it’s still a relatively stable sector. William S. Transou, principal-broker with WST Realty Corp. in Charlotte, NC, points out that healthcare providers aren’t going to up and relocate to a new space on a whim. “Once you get them in and keep them happy, it’s stable,” says Transou, who recently partnered with Benjamin E. Bivens of Charlotte-based Bivens Investment Group LLC to form the healthcare real estate buying entity MedSouth Healthcare Properties LLC.

As such, the product remains a desirable commodity, even as it’s becoming scarcer for investors. Bivens, for example, points out that the larger REITs, which once shunned healthcare real estate in the $10-million to $50-million price range, are seriously considering examining investments in that price range due to the lack of available product on the market. And Mugford points out that, while the demand for healthcare real estate remains high, there is, and will continue to be, small availability of the product coming to the market.