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Strategic planning, healthcare real estate investments and development/construction sectors to overcome uncertainty of 2012
CHICAGO Jan. 31, 2013 — All signs point to an active year in healthcare as industry executives work diligently to advance their strategic plans in the post-healthcare reform/post-election era, according to Jones Lang LaSalle. The firm’s Healthcare Solutions group that specializes in healthcare capital asset strategy, capital markets, development and construction predicts:
“Many in the healthcare industry looked to the Supreme Court decision, the election and a resolution of the fiscal cliff to provide clarity and direction that would make the decision-making process easier,” said Pete Bulgarelli, Chief Operating Officer, Jones Lang LaSalle’s Healthcare Solutions group. “Because this failed to happen, savvy healthcare executives instead are defining plans and pushing them forward.”
He added that sustainable cost saving measures driving operating efficiencies are becoming standard healthcare lexicon, helping to dictate how systems respond and move forward.
Focus shines a light on planningScott Latimer, Managing Director in JLL’s Healthcare Solutions Group, expects that 2013 will be marked by greater levels of confidence, growth and demand in the healthcare industry. The uncertainty of the past two years will have changed and most systems have a better idea of how they will be evolving under reform legislation.
“More strategic planning has taken place in the last few months than over the last several years,” he said. “Architects are tooling up for a major expansion in demand for their services. By mid-year 2013, they are supposed to be in a place where demand outstrips their resources.”
Capital investments will still be largely limited to those that build networks—through expansion of ambulatory care centers and/or mergers and acquisitions—or reduce cost. Although systems will return to planning on their campuses, investment in expanding hospital infrastructure is still a couple of years off. Yet one of the greatest challenges facing hospitals and healthcare systems is the cracking, eroding infrastructure prevalent in so many older hospitals.
“Over the last several years, cash-strapped hospitals and systems faced very difficult decisions about how to allocate precious resources,” Latimer said. “Among the considerations were improvements and fixes to hospital infrastructure or investment in ambulatory care and other outpatient facilities.”
“The problem is that most infrastructure investments, while a necessary evil, don’t show a return,” he continued. “Only the most critical projects were funded. As a result, the average age of plant has increased to levels that make a lot of people uncomfortable. It’s a very tough question. One is a matter of growth and opportunity, the other is a matter of determining when it is best to deploy the life boats.”
Medical office still the investment darling In spite of impending changes in healthcare and reimbursement, 2012 will go down as one of the most robust years in the acquisition and disposition of healthcare-related real estate. Jones Lang LaSalle anticipates investment in this favored property sector will continue in 2013, although the types of available investments are likely to change from the bumper crop of medical office portfolios that traded in 2012.
“The high level of capital raised for healthcare property investment helped to sustain activity and drive up values in virtually all product categories,” said Mindy Berman, Managing Director of Jones Lang LaSalle’s Healthcare Capital Markets group. “Demand for everything from medical office buildings to senior housing projects will continue unabated in 2013 because of the tremendous returns they produce.”
“The real question is what product is available,” said Berman. “Many vintage 2005 to 2007 medical office portfolios have changed hands, smaller healthcare REITs have been gobbled up by larger healthcare REITs and research estimates that 70 percent of Class A senior housing product has changed hands.”
She noted the propensity for the sale of physician-owned real estate, explaining that these entrepreneurial investors understand the high value of their holdings and have been eager to cash in on returns. Other notable activity resulting in property changing hands would come through M&A activity and hospitals that are beginning to evaluate monetization. Investor interest in post-acute care properties is stimulated by healthcare reform and the continuum of care, making inpatient rehab and long-term acute care facilities more likely to be sold and new development expected.
“Because of, and in spite of, reform, healthcare is changing,” Berman said. “Acquisition of physician practice groups and consolidations of hospital systems continue without missing a beat to create better quality of care, operational efficiencies and greater scale. Organic growth within health systems, particularly in this environment, is limited but we expect expansion to occur through M&A activity and through the new settings of care that healthcare reform is demanding.”Construction gears upMany healthcare organizations have gained efficiencies through revenue cycle management and other measures to enhance their capital positions. Many of those strategies have run their course, and hospitals and healthcare systems are now focusing on their real estate strategy and management models, and a more efficient, cost-effective outpatient model to help lower the cost of delivering patient care.
“Throughout last year, hospitals and systems went through the process of developing real estate strategies to help position themselves for the future,” said Shawn Janus, a Managing Director who specializes in healthcare development. “This should translate into new real estate projects on the development front. RFP/RFQ activity has been increasing and we see this as a growing trend in 2013.”
Hospitals and systems continue to evolve and respond to the changing landscape—whether driven by reimbursement changes, demographic shifts, increased demand or other factors. These factors have influenced organizations to expand their presence in the community and capture greater patient share.
“Growth in the outpatient arena and the commensurate need for new development projects will continue to be a major story in the foreseeable future,” Janus said. “From the perspective of a third-party developer, the greatest concern is whether hospitals will elect to self-develop their project. The hospital is often the developer’s biggest competitor – will the hospital invest its capital and develop the project, or will they utilize a third party developer and access an alternative source of capital?”
Jones Lang LaSalle’s Healthcare Solutions Group works with hospitals and healthcare systems throughout the nation, delivering comprehensive inpatient and ambulatory facility management, strategic consulting, real estate capital advisory, program management, property management, transaction services, lease administration and energy/sustainability advisory services. Through its work, the Healthcare Solutions group connects healthcare business strategies to real estate solutions, driving efficiencies and enhancing quality. For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center Web page. Bookmark it here: http://www.us.am.joneslanglasalle.com/UnitedStates/EN-US/Pages/News.aspx
For information specific to healthcare, please go to: www.us.am.joneslanglasalle.com/healthcare.
About Jones Lang LaSalleJones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, visit www.joneslanglasalle.com.
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