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Why is health care construction at 7-year high?

By: Dan  Heilman October 15, 20147:01
*Posted from Finance and Commerce:http://finance-commerce.com/2014/10/why-is-health-care-construction-at-7-year-high/

A construction crew works on the 57,479-square-foot expansion at Fairview Southdale Hospital in Edina. (Staff photo: Bill Klotz)

On Right: A construction crew works on the 57,479-square-foot expansion at Fairview Southdale Hospital in Edina. (Staff photo: Bill Klotz)

If you look out your window and don’t see a clinic or other health care  facility under construction, don’t worry — one might be going up near you  soon.

That’s an exaggeration, of course, but not a huge one. Health-care-related  construction is at a seven-year high in the Twin Cities, with vacancy rates in  existing facilities under 10 percent and numerous “on-campus” (in-patient) and “off-campus” (out-patient) projects underway.

Consider this snapshot of projects in progress in the health care sector:

  • The 330,000-square-foot University of Minnesota Ambulatory Care Center in  Minneapolis.
  • The 120,000-square-foot expansion at Fairview Ridges Hospital in  Burnsville.
  • The 57,479-square-foot expansion at Fairview Southdale Hospital in  Edina.
  • A planned 57,000-square-foot addition to the Southdale Medical Center in  Edina.
  • The 63,000-square-foot North Memorial Health Care building in  Minnetonka.
  • A planned 128,000-square-foot, four-story HealthPartners on Phalen Boulevard  in St. Paul.

“Is it a boom? I’m not so sure I would call it that. It’s a shift — from an inpatient environment to more of an outpatient environment,” says Camille Helou, vice president and director of Kraus-Anderson’s Healthcare Group. (Staff photo: Bill Klotz)

“Is it a boom? I’m not so sure I would call it that.  It’s a shift — from an inpatient environment to more of an outpatient  environment,” says Camille Helou, vice president and director of  Kraus-Anderson’s Healthcare Group. (Image on the left: Staff photo: Bill Klotz)

According to a Cushman & Wakefield/NorthMarq Compass report released over  the summer, more than 900,000 square feet of health care-related projects are  already under construction and another 413,000 square feet of projects are in  the planning stages. Vacancies in the medical office sector are at 9.7 percent — about half the 17.4 percent vacancy for general office space.

At the time of the report, 13 medical office buildings totaling just under a  million square feet were under construction in the metro area.

“Is it a boom? I’m not so sure I would call it that,” said Camille Helou,  vice president and director of Kraus-Anderson’s Healthcare Group. “It’s a shift — from an inpatient environment to more of an outpatient environment. So, more  money is being spent in specialty and primary care clinics and ambulatory care  centers than on hospitals.”

Indeed, projects such as clinics, ambulatory care centers and other sources  for routine care are being built at a swifter rate than traditional hospitals  and other in-patient care centers. Eagan-based MSP Commercial, for example, is  either developing or redeveloping clinics for Allina in Champlin and Oakdale,  and for Children’s Hospital in Woodbury. Meanwhile, ambulatory care centers are  going up in Coon Rapids, Maple Grove and the East Bank of the University of  Minnesota.

Credit Obamacare

What’s behind the activity? One likely reason is the implementation of the  federal Patient Protection and Affordable Care Act, which has provided access to  health care insurance for about 180,000 Minnesotans.

The Affordable Care Act, commonly called Obamacare, and similar state-level  programs are driving huge numbers of new patients into the health care system,  forcing providers to restructure their delivery models — in short, to go where  the people are.

According to Helou, while some outpatient efficiencies were realized by  providers before the ACA, a current issue that’s driving development activity is  how to comply with federal and state regulations around the act.

“We all knew that primary care and specialty care were where the focus should  be prior to the ACA,” Helou said, “but I don’t think many health care providers  spent a lot of time and energy to go that way before the ACA was  implemented.”

Tom Stella, senior director of Brokerage Services for Bloomington-based  Cushman & Wakefield/NorthMarq, contributed to the recent Compass report and  agreed that the ACA was a significant spark in the current wave of projects.

“ACA spurred it,” Stella said. “You’ve simply got more patients that you’re  going to be seeing because of it. They have to figure out how to attract and  serve that volume.”

But Obamacare isn’t the only factor in play. Stella said his company foresaw  the activity at least in part because a number of projects were being discussed — but not started — over the past several years while hospital systems were  dealing with the recession and converting their medical records to electronic  formats.

“Those things put a huge capital drain on all systems — development and new  deals went by the wayside for a while,” he said. “Now that those constraints are  gone, they’re trying to figure out how to best compete in this environment. They  want to get out into communities and away from campuses.”

Seeking efficiency

Along with the natural consequences of pent-up demand, there’s the growing  prevalence of health care systems that are looking at their service areas as  retail markets. With more health care options, patients are doing more shopping  around, according to Alex Young, vice president of development at Eagan-based  MSP Commercial.

“All the systems want patients to have more choices about where they go, who  they’re insured by, who they’re treated by,” he said. “That’s been driving a lot  of the construction.”

Even so, the activity in health care construction is still subject to  cyclical forces and will likely level off soon, according to Stella. In the  meantime, there are still enough projects in the discussion and planning stages  to hold the interest of developers and construction professionals. Helou pointed  to the planned consolidation of clinics owned by Hennepin County Medical Center,  a project for which the selection process started recently.

“Like all development, this market will become saturated, and then it will  slow down,” said Stella. “But this will continue for a little  while.”

Read more: http://finance-commerce.com/2014/10/why-is-health-care-construction-at-7-year-high/#ixzz3HRxFNstm

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