Southern Maine Commercial Real Estate
Joseph Malone, CCIM Designated Broker
Southern Maine Commercial Real Estate
Trends in Medical Real Estate
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Advances in surgical techniques and economic incentives continues to drive an increasing shift toward outpatient services offered in the forms of ambulatory surgery centers (ASCs), diagnostic imaging centers, clinical (e.g., cancer treatment) and urgent care centers and medical office buildings (MOBs). Baby boomers have entered into the higher utilization and spending levels of age-specific health care services. This factor and others, such as obesity and diabetes, will continue to drive the demand for health care services in both outpatient and hospital settings. |
| Ownership & Development The concept of doctor-owned MOBs is certainly not new. Ownership, either as individual investors or partnerships, has allowed physicians to develop and control the practice concurrently with their individual efficiencies and productivity. Physician participation continues to increase in the ownership of MOBs that they occupy and lease. Third party ownership and management of medical real estate continues to be embraced by health care systems and hospitals. This arrangement can work to preserve capital resources for critical care needs, as well as eliminate possible conflicts of interest between referring doctors and hospitals. The third party ownership/management scenario also helps to minimize potential regulatory and legal issues associated with leasing space to referring doctors. | |
Greater Portland MOBs
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84 Marginal Way, Portland |
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Clearwater Drive, Falmouth 3,380 SF leased - Joe Malone, listing & leasing broker Mercy Hospital leased a 3,380± SF first floor medical office condominium. The condo is a part of a new 3 1/2 story complex offering up to 10,365± SF of office for lease or sale. building under construction in the Tidewater Village mixed-use development. The Tidewater Village development has created a new neighborhood connecting Clearwater Drive (just off U.S. Route 1) to the Presumpscot River Basin and Casco Bay. |
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100 Brickhill Avenue, So. Portland 16,400 SF leased - Joe Malone, listing & leasing broker Portland Urologic Associates (PUA) is the largest group of urologists in Maine. PUA specializes in urologic surgery and medical management of urologic disease in all age groups, pediatric and geriatric. PUA had been operating its practice from a 2-story building near Maine Medical Center in Portland for many years. They had outgrown their space for patients and services and wanted to sell their 8,000± SF building and move. Joe provided analysis and recommendations to assist the practice in determining whether they should own again vs. lease their new location. |
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50 Sewall Street, Portland 5,047 SF leased - Mark Malone, listing & leasing broker Bayside Employee Health Center, P.A. leased 5,047± SF on the 3rd floor of a 4-story 40,000± SF newly constructed building. The property is close to Maine Medical Center and Mercy Hospital. 50 Sewall Street was was the first office building in |
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Westgate Shopping Center, Portland 10,995 SF leased - Joe Malone, leasing broker Mercy Hospital leased 10,995± SF in the Westgate Shopping Center a 91,000 SF center at the Congress Street and Stevens Avenue intersection. The center will be completely renovated in by its owner/developer. Mercy will use the space for a physical/occupational therapy center and physician offices. |
MOB Ownership
| Doctors who want to own their space generally have the options of purchasing the MOB with their space or, in other cases, condominium units. Both of these options require the doctor to be engaged at varying degrees in the overall operations of the MOB. Many doctors remain interested in direct ownership of their practice's real estate, however, a growing number prefer to participate as equity investors in their MOB. Ownership interest by doctors (tenants) in MOBs is in its own class of commercial real estate. For example, in shopping centers and office buildings, the tenants do not usually have such ownership interest. Developers of medical real estate and MOBs prefer to work with investors willing to commit larger amounts of money rather than assembling and managing large numbers of small investors. | |
| Doctor-Owned MOBs Physician incomes have not kept pace with inflation in recent years. Slow growth factors impacting this includes declines for specialties, smaller fee increases from private payors and Medicare, office costs, higher malpractice insurance and increasing difficulties regarding collections (higher copays, deductibles, etc). Therefore, single and group practices are seeking ways to increase income and create new revenue streams. MOBs anchored by ambulatory surgery centers (ASCs), diagnostic imaging centers or other specialty/ancillary centers can offer doctors more income. |
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| Third Party Development of MOBs It's important to recognize that running parallel to increasing physician interest in equity participation in MOBs is the fact there are many doctors who have little interest in any ownership model. Physicians may be unfamiliar with the risks and rewards of a MOB investment. The medical real estate market has become much more complex in recent years. Gleaned from their experiences working on multiple projects, outside developer/owners can bring efficiencies to new and existing MOBs. The same developer/owners can also use the same experience to manage leasing processes, tenant relations and operations. Third party developers would be well advised to be aware of the diversity of doctor experience and expectations in potential MOB investment. For example, a family practice physician or internist recently out of medical school and a cardiology or surgical specialist--- each would require different financial planning and MOB investment strategies. MOBs (including ASCs, imaging centers, wellness/fitness centers, urgent care centers) fit well with third party development. These non-acute facilities are often built on hospital campuses and sometimes have a connector to other hospital buildings. Off campus MOBs accommodate primary care services and do not need to be directly adjacent to the hospital. This gives primary care doctors a lower cost alternative than may be possible with an on campus MOB. | |
MOB Doctor-Owners
| There are several models for ownership and they may also allow doctors to invest passively without responsibility for property operations. Among them are: direct cash equity, rent-amortized and no equity. Direct cash involves contributions during planning or after construction of the MOB. Risk is usually limited to the amount of the doctor(s) investment. Another variation would be the doctor(s) have equity ownership with the same rights/priveleges as the developer. This expands the doctor(s) risks and gain to the same basis as a developer. In rent-amortization, the doctor(s) equity is contributed over the term of the doctor(s) lease through an additional amount of rent. The no equity ownership model allows doctor(s) to participate in cash flow without any contribution. One way for this is the doctor(s) are offered a percentage (usually fixed) of a percentage of the MOB in return for a long term lease. Any of these models require careful analysis if a physician and/or practice group is considering MOB ownership. |
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MOB Third Party Development/Ownership
| The trend from inpatient to outpatient surgery has made ASCs (Ambulatory Surgery Centers) more common. Hospitals are joining in partnerhips with their doctors and/or a third party in joint ventures. The ASC is also the anchor tenant in many of these MOB joint ventures. The third party owners of the MOB can often manage the property with greater efficiency and success. This can free up the hospital to concentrate on their acute-care services while maintaining an ownership interest. Other positive factors for hospitals and/or doctors partnering with third parties include: financing resources, design and construction expertise, efficient leasing and management. |
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