Arnall Golden Gregory’s Steven Kaye Leads Discussion on Healthcare Real Estate

A number of factors and trends within healthcare are affecting the real estate decisions health systems make. Declining reimbursements, changing regulations, trends in improved patient care, competition for capital and advances in healthcare-related technology, including electronic medical records, all play a role.

AGG Partner Steven A. Kaye, co-chair of the firm’s Healthcare Real Estate Practice Team, led a panel discussion on resuscitating underutilized real estate at Building Owners and Management Association (BOMA) International’s 2012 Medical Office Buildings & Healthcare Facilities National Conference, held this month in Atlanta.

“It’s virtually impossible to consider any of these factors in isolation,” Mr. Kaye told the audience, “and the complex interconnectivity of these issues helps to explain why those in charge of a health system’s real estate have very difficult jobs.”

As a result of those trends, acute care facilities are faced with underutilized or empty space, and outpatient and support services are moving into buildings built for other purposes, often empty retail space.

BOMA is an international federation of more than 16,500 members who own or manage more than nine billion square feet of commercial properties. AGG was a lead sponsor of the BOMA conference.

“Do you folks need more space or less?” Mr. Kaye asked his panel of real estate experts: Dane Peterson, Chief Operating Officer at Emory University Hospital, Midtown; Cynthia Hayward, Managing Principal at Hayward & Associates LLC; Rick Hassold, Assistant Vice President for Real estate Services at Crozer Keystone Health System; and David Park, Senior Vice President of Real Estate and Construction at Novant Health.

The question is not easily answered. Expanded healthcare insurance coverage would seem to point to additional space needs, but several of the other factors discussed suggest that systems need less space not more.

Those factors include geographic and patient diversity. What works for one system in an urban area may not work for a smaller system in a more rural area, and what works for one segment of patients may be ill-suited for other patients in the same market.

“Real estate is a case by case, location by location decision,” Mr. Park said before a large audience at the Hyatt Regency Atlanta.

Healthcare’s image, one of illness rather than wellness, can be an obstacle when it comes to convincing owners of a retail complex that medical offices are a good fit. “Why do I want sick people in my shopping center?”

The increasing number of mergers and consolidationsof hospital systems and physician groups, and health systems acquiring physician groupsfurther complicates a health system’s real estate decisions. Consolidations occur to curb costs and help meet quality of care standards, but they often produce more underutilized real estate, Ms. Hayward noted. “Unfortunately, the move off campus often results in wasteful capital expenditures.”

The Arnall Golden Gregory team that Mr. Kaye leads is made up of more than 30 attorneys who provide expertise on healthcare, real estate, corporate, taxes and financing issues.