The landmark health care reform package is expected to drive demand for medical facilities in the years to come. The sheer number of patients that will be added into the insurance system, 32 million individuals by 2019, will increase the need for both on and off campus medical office buildings, outpatient facilities, and ambulatory care facilities. The roles of nurses, nurse practitioners, and physician assistants will expand to help the demand for primary care services. A portion of the bill eliminates the exception for physician owned hospitals under the Stark Law and grandfathers existing hospitals with a Medicare provider number as of December 31, 2010. Until physician groups fully understand how changes in reimbursements will affect their practices, healthcare facility dollars need to be analyzed and spent more wisely. 

 

Despite the uncertainty, more activity has occurred locally in the first quarter of 2010 than the latter half of 2009. It is considered to be a tenants market and groups looking to reduce overhead and reevaluating their current real estate options are considering now to be the time as lease rates continue to drop and landlords are willing to offer competitive rates and are more generous with their concessions. Tenants are considering ways to renegotiate their current lease with ‘blend and extend’ opportunities taking advantage of lower rates whereby extending the lease term and renegotiating a lower base rental rate. Construction prices are at an industry low which is helpful for build out cost in both first and second generation space. Another trend is to share space through timeshare opportunities with other medical practices. This is popular in both metro and rural areas that serve the population growth areas. Physicians are now looking for ways to go to the patient rather than having only one office and having the patient come to them. Clinics that have a central headquarters are opening satellite clinics to serve that population growth as well.

 

Medical groups who are reevaluating their current office space should allow ample time to review lease options since finding the right space or renegotiating lease renewals can take up to a year or longer to define deal terms and move through the transaction. The following items should be taken into consideration when medical groups are considering a move into new space. The transaction timeline includes a thorough search for space, request for proposals, develop a lease cost analysis and negotiation strategy, prepare preliminary space plans, negotiate the letter of intent, legal review, finalize lease negotiations, develop and price construction documents, lease execution, obtaining permits for construction, building out the space, installing furniture fixtures and equipment, and finally moving into the space. This process can be lengthy, but starting early can put the tenant in the driver seat on negotiations.

CB Richard Ellis Memphis | Healthcare Real Estate Services

2620 Thousand Oaks Blvd., Suite 4000 | Memphis, TN 38118

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laura.carpenter@cbre.com | www.cbre.com/memphis

 

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