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| "Pill Hill" - Atlanta, Georgia |
There are two basic types of medical office buildings: Those that are located on-campus (or near-campus) and off-campus of the hospital. The on-campus building has traditionally been owned and operated by the hospital. Although there are many ownership variations, recent trends have been for hospitals to monetize the value of these buildings while maintaining ownership in the land and partial control of tenancy. The off-campus building is usually owned and operated by non-hospital entities, including physicians, private developers, syndications and real estate investment trusts. The ownership goal is to maximize rents through quality management and maintaining the proper mix of physicians –generalist and specialist. An on-campus medical office building and/or one affiliated with a hospital will have the strategic goal of promoting the hospital’s mission, and negotiating a lease will be complicated by the hospital’s ground lease and regulatory environment.
Physician Issues
The typical physician practice operates as a small business in the form of a sole proprietorship, partnership or limited liability corporation. As a result, they focus their limited resources, time, and capital on the areas that provide the highest benefit to patient care and ongoing business concerns—profit. The medical leasing professional acknowledges this and demonstrates through market knowledge and specialized health care experience how specific locations will help build the doctor’s practice. Concerns lie in increasing patient visits and increasing the amount of time to see patients while receiving a fair market rental rate based on competitive buildings, amenities and services.
In health care, the location of the physician’s practice is crucial to attracting patients. Good alternatives will be based on demographics that demonstrate there are underserved prospective patients within a reasonable travel time. Traffic ingress/egress, parking, signage, and elevator identity issues, which are important to most office space users, are also important to the medical office building tenant. However, there are specific building issues for each medical specialty that often relate to the physical condition of the patients and will contribute to the real estate decision-making.
With changes in healthcare services and the shift in medical care from an inpatient to an outpatient focus, many physicians are relocating and/or expanding their practice in locations other than on-campus or near-campus medical buildings. Growth in the off-campus sector is fueled by consumer demand. As on-campus physicians seek to expand their practices and referral networks they are locating in growing suburban areas and along growth corridors where people work, live, shop and play.
Primary care physicians often refer their patients to medical specialists for complicated ailments such as heart disease and cancer. It is a benefit to the primary care physician to have different specialties in the building. These physicians also use services such as pharmacy, X-ray, imaging and laboratory. A complimentary tenant mix, just like in a retail center, is important to the success of the physicians in the medical office building.
As small business operators, physicians are extremely price sensitive. Comprehensive market studies and specific knowledge of lease terms, conditions and concessions of competing buildings is critical. Negotiations based on comparables in light of specific amenities, tenant mix and property attributes will insure rent expectations are met.
To provide the best health care real estate tenant services, the leasing representative must have complete knowledge of the medical office market(s), and know of physicians, large doctor networks, healthcare agencies and medical service providers who are growing and expanding.
