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A healthy future

Property managers for the booming medical office building sector must meet a demanding and diverse set of requirements

By John Salustri
Physicians Realty’s 168,676-square-foot Northside Midtown asset in Atlanta.
Physicians Realty’s 168,676-square-foot Northside Midtown asset in Atlanta.

Like most commercial and residential real estate, medical office buildings are in a time of transition. Unlike typical retail, office or multifamily, however, the nature of medical office demands a unique set of skills for property managers.

“There was a time when, if you needed care, you went to a hospital,” says David Domres, CPM, CCIM, a vice president with Physicians Realty Trust, AMO, in Milwaukee. “Hospitals and healthcare providers all have strategies today for bringing that care to the community, and those strategies require real estate.”

Physicians Realty owns and manages 252 highly specialized real estate properties, pacing out to more than 13.6 million square feet in 30 states. The bulk of the REIT’s assets (97 percent) are medical office. The remainder is divided between specialty hospitals and long-term acute care. The assets are located on hospital campuses and suburban locations alike, some with retail tenants that support the building’s mainline healthcare services.

The other market transition for medical office buildings (MOBs) is the continual aging of the population, further driving the need for more locally accessible healthcare. “Roughly 10,000 baby boomers retire daily,” Domres says, “and that’s a trend that’s going to continue, and so will the necessity to establish healthcare facilities in local neighborhoods. As healthcare providers move these services out of the hospital and into more cost-effective settings, we find ourselves in a great position to provide that service to those healthcare partners.”

And, he adds, those transitional trends will serve the property management community well, especially practitioners who truly understand the specialized nature of MOBs and seek long-term owners who they can trust to provide outstanding property management.

 

“Managing specialized facilities when there’s economic pressure on your tenant to provide great care at a cost requires a high level of knowledge of buildings and systems.”

—David Domres, CPM, CCIM

Cost control is king

Cost-effectiveness is key to the management of all property types. But, given the focus on rising healthcare costs at the grassroots and congressional levels, nowhere can that scrutiny be more intense than in medical offices. Not surprisingly, that concern extends to the role of the property manager.

“There’s tremendous pressure on the industry to reduce cost, and that drives this push for services to be provided at the community level,” Domres states. “But managing specialized facilities when there’s economic pressure on your tenant to provide great care at a reasonable cost requires a high level of knowledge of buildings and systems that support healthcare. It requires a strong understanding of how healthcare as an enterprise functions, and of its requirements and its needs.”

For instance, he points out that many of these facilities, such as surgical centers, operate on a 24-hour basis. Conditions have to be maintained on that basis, even if there aren’t any procedures taking place. “That comes with a cost that’s supported by the rents.”

Word to the wise

So how can property managers answer that challenge? And what advice can Domres provide for managers interested in venturing into MOBs? “First, of course, is a basic set of property management skills,” he says. “You have to be able to do the straightforward items that we all do: budget well, negotiate contracts well and understand vendor identification, selection and management. Most important is sustaining a customer service-focused strategy, as hospitals are entrusting you with the daily care and support of their physicians, one of their most important assets.”

Then, it’s necessary to overlay the specific requirements of your specialized tenants. “New entrants to this field need to educate themselves on the specific requirements of the different healthcare specialties in a building or portfolio they’ll be managing,” he says. “Ten different buildings may have 10 different types of tenants, all with different needs and expectations. You need to understand and manage the standards of care for each piece of equipment for each asset in your portfolio. And keep in mind, just like every other commercial facility, there’s a very high probability that every building is of a different age and contains different systems.”

Many eyes on many details

And then comes the oversight bodies. Not surprisingly, medical offices are a highly regulated industry, another consideration that speaks directly to the skills of the property manager. Domres explains that two of the primary governing bodies are the Joint Commission and the Associated Accreditation of Ambulatory Surgery Centers (AAASC). (According to its website, the Joint Commission is an independent, not-for-profit organization that accredits and certifies more than 22,000 healthcare organizations and programs throughout the United States.)

In addition to the inspections conducted by the local municipalities, MOBs are subject to surprise inspections by either of the two bodies. While property managers are not responsible for the condition of medical equipment, maintaining accurate records of all base-building equipment is a must.

“The accrediting and healthcare organizations tend to have a much finer eye for detail than most regular inspectors,” he continues. “The minimum expectation is that all of the records for all systems maintenance and testing that are required under their local, state and federal guidelines are available at the moment of inspection, on the spot.”

Shifting trends create increased potential

Medical offices might pose a higher barrier to entry than most property types. But, Domres says, the opportunities for growth are terrific, especially given the aging population.

“We see strong tailwinds for medical offices,” he says. “This is especially true in locations that aren’t in primary real estate markets, where there’s great potential for growth as healthcare providers continue to bring their services to the local communities and do so in cost-effective ways.”

And that, he concludes, bodes well for managers looking for career opportunities in healthcare asset and property management.

 

 

Journal of Property Management

John Salustri is a contributing writer for JPM®.

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