NEWMARK KNIGHT FRANK

To Own Space or Lease It, That's the New Healthcare Real Estate Question

Commentary by, Chris Gordon, Senior Managing Director, Global Healthcare Services

This article outlines the decision criteria that a health system or physician group should consider when evaluating whether to own or lease their real estate and how to engage the appropriate parties to execute different project types.

As suggested, it is often of great value for a healthcare provider to have a competitive bidding process with developers with the help of an advisory firm or broker. While the exact scope of the development and the individual line items of cost are important, the yield returns demanded by the developers and the development and management fees they charge for their perceived “risk” are oftentimes the most impactful to the overall cost or lease rate that a healthcare provider will pay for the building. Making sure that these yields and fees are both within market and the lowest offer compared to other developers brings the greatest financial value to the healthcare provider. A smart advisor that executes on the mission of the project can help deliver the best “cost of capital” for the project when the healthcare provider is choosing to employ the use of another party’s capital.

Written by Dave Arnold, Irgens Partners, September 13, 2017

A rapidly changing healthcare market is impacting how health systems deliver care to patient populations, as well as development strategies for new buildings and facilities.

The impact of long-term capital allocation for on- and off-campus facilities is prompting leadership of many health systems to carefully consider either owning real estate outright or leasing space from a third-party developer on a build-to-suit basis.

Each approach has advantages and disadvantages that will impact long-term strategies for efficient delivery of care and the growth of an organization. The following is an overview of some considerations to be aware of with each approach.

Read the full article here

temp-post-image

Download Our
Brochure

Sign Up for Our Newsletter

2017 Healthcare Real Estate Outlook