Certain real estate and property acquisition decisions are unique to the healthcare industry. With hospital real estate costs significantly higher than those of shopping malls and apartment buildings, leaders must carefully consider their options when looking at a new facility. Additionally, in order to keep hospitals running efficiently all hours of the day and all days of the year to meet community health needs, maintenance costs will also be much higher than other commercial real estate.
Despite the differences from commercial real estate, healthcare real estate teams encounter common challenges when expanding their physical footprint: deciding where to place a facility, choosing whether to lease or buy, and more. Discussing with facility teams and understanding the advantages and disadvantages of leasing or buying, as well as how certain locations will impact decisions, is critical.
The role of facility managers
During the decision-making process, real estate teams should always consult their facilities experts. Facility managers have specialized knowledge concerning building systems and how components most effectively and efficiently operate. With a comprehensive understanding of system life cycles, maintenance requirements and associated costs, facility managers can offer key insights that can help reduce costs.
Facility experts are able to give valuable advice for certain considerations, such as the likelihood of replacement during the lease term or regular maintenance cost that the real estate teams can use to negotiate a better position for the health system and potentially avoid a costly expense.
Finding balance and meeting needs
Oftentimes, healthcare leaders assume that the ideal location for real estate is the most visible, highest trafficked or center of population growth. While this can be beneficial for specific healthcare operations, decision makers should keep in mind that more demand comes with more expenses. These locations also tend to take longer to find and acquire. Finding the right balance of visibility, convenience, access and cost must fit the individual facility’s specific uses.
A crucial concern is meeting your community’s needs. There is an increasing demand for healthcare facilities in rural areas that currently have limited healthcare options. Growing populations in suburban areas may also create more of a need for facilities, which will influence how healthcare real estate teams choose locations in the future.
The costs and benefits of owning property
Determining whether to own or lease a property is a case-by-case decision because a benefit in one situation may be a drawback in another. Real estate teams should assess every project at a high level and consider the facility’s short- and long-term goals; for example, owning a building can create more consistency overall, but whether or not it is the most effective solution depends on how long the facility will remain in operation.
For each situation, there could be advantages related to tax, control, cost, flexibility and even potential to generate income. A healthcare system’s model can also play a role in this. For example, not-for-profit lease models have worked well in education, student housing and, more recently, healthcare real estate ventures where they have been able to generate millions of dollars in savings on a property.
When leasing a property, everything in the lease is negotiable, from maintenance responsibilities, to utilities, to operating expenses and more. Keeping track of responsibilities can be challenging for organizations managing many different leases. When choosing to own a property, real estate teams may have to consider if they prefer to renovate or reconstruct. While rebuilding can at times be more costly and time consuming, it may be the best option depending on the amount of renovation that would be required. It may also be the safest decision if a facility is not structurally sound.
The most important element when making healthcare real estate decisions is assessing the specific needs of your facility and the community. Every situation will differ in its challenges and the best solutions, but relying on the facility leaders’ support and considering a variety of options will help ensure your facility will be an effective healing environment.
About the Author
Ron Brown currently serves as the Vice President of Real Estate for Medxcel, leading the company’s Real Estate portfolio strategy in property acquisition, leasing, disposition, asset management and lease management. He has over 14 years of healthcare facilities management, construction and real estate experience.