colliers medical office-update

Medical Office Update (US)

Andrea Cross, National Office Research Manager | USA

John Wadsworth, National Director Healthcare Properties

March, 2014

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About the 2014 Medical Office Outlook Report

Colliers’ first-ever national medical office report

Collaboration between Colliers Healthcare Services Group (CHSG),

U.S. Research team and local market researchers

Report supports CHSG’s activities by establishing Colliers as a thought

leader in the MOB space

Features healthcare industry overview, key healthcare real estate

trends and investment market outlook

About the 2014 Medical Office Outlook Report

Features detailed market-level statistics for 39 U.S. markets

Key differentiator from reports produced by our competitors

More markets to be added in future iterations of the report

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What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

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What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

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What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

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Annual number of physician office visits 70% higher among

65-74 year-olds than 45-64 year-olds.

What Are the Key Drivers of the MOB Market?#2: Affordable Care Act (ACA)

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U.S. healthcare costs highest in the world by a large margin

Goal of ACA: insure more people while achieving lower-cost,

more successful outcomes

What Are the Key Drivers of the MOB Market?#2: Affordable Care Act (ACA)

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Electronic Health Records (EHR) requirements being phased in to

improve provider coordination

Healthcare Industry Employment Trends

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Outpatient, home health care employment driving overall healthcare

employment.

Healthcare Industry Growth Widespread Across

Geographies

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Large, in-place older populations supporting healthcare demand in

Northeast and Midwest.

Healthcare Industry Growth Widespread Across

Geographies

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Above-average population growth driving healthcare demand in

South and West.

What Do These Trends Mean for MOBs?

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MOB vacancy rate remarkably stable despite uncertainty caused by ACA.

What Do These Trends Mean for MOBs?

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Construction activity down significantly in recent years.

Retail Space Conversions

Sources: ULI, Kaiser Permanente

Open Layouts

Sources: ULI, Davis Partnership/Align Healthcare

MOB Performance by Market

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Small, southeastern markets top the list: strong demand, little new supply

Overbuilt Sunbelt markets starting to recover

MOB Investment Surging

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Q4 2013 MOB investment totaled $2.47 bil., approaching Q4 2006 peak,

cap rates trending down.

Cap Rates Trending Down

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Q1'06

Q3'06

Q1'07

Q3'07

Q1'08

Q3'08

Q1'09

Q3'09

Q1'10

Q3'10

Q1'11

Q3'11

Q1'12

Q3'12

Q1'13

Q3'13

Medical CBD Suburban

Note: Latest data as of Q4 2013

Source: Real Capital Analytics

Links

CHSG: http://www.colliers.com/en-us/us/healthcareservices

US Research: http://www.colliers.com/en-US/US/insights

MOB Report: http://www.colliers.com/us/medical-1H

Contact Info

Andrea CrossNational Office Research Manager | USA

Direct: 415.288.7892

Email: andrea.cross@colliers.com

CI_AndreaCross

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Colliers InternationalHealthcare Services Group

Specialized Real Estate Solutions

Presented by:

John Wadsworth

National Director

An Introduction to…

Colliers Healthcare Services Group (CHSG) Overview

Formed in 2005, “Organically Grown”

76 members in US 34 markets, London and Hong Kong

Service Offerings:

Brokerage

Property Management

Valuation & Appraisal

Project Management

Market Research

Strategy & Consulting

$1B in Gross Transactions 2013

Key Differentiator: CHSG is Healthcare Real Estate Solutions Provider:

“If you are in the healthcare real estate business,

by default you are in the healthcare business”

Patient Protection and Affordable Care Act, aka “Obamacare”…

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ACA Impacts on the Healthcare Industry,

Resulting Trends:

March 2010 present: Major shift in US healthcare delivery system

Fee for service fee for quality

Healthcare “consumer“ driven

Lower payments (reimbursements) from the Feds & Insurance

Companies

New pressure on Hospitals/Providers to:

Cut cost / Improve quality

Coordinate care for better outcomes

Preserve margins via savings (vs. more revenue)

Mandate for efficiency = Massive healthcare industry consolidation

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Hospital Mergers and Acquisitions

5,000 hospitals in the US

2012: $143B in healthcare M&A

2013, topped 100 mergers

US Physician Consolidation

2000: 682,470 physicians in the US / 57% independent

2013: 792,594 physicians / 36% independent 24

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Shift in Tenant Profile

Flexibility

In-patient to out-patient: higher acuity care moved to the MOB setting

Hospital driven monetization

Repurpose of non-medical assets to medical facilities

Regulatory Compliance

ACA Impact on Healthcare Real Estate, Resulting Trends:

Challenge

170,000 SF, 176-bed “dark” acute-care hospital

1970’s construction / compliance with CA seismic

standards

Find a new hospital operator to re-use the facility vs.

redevelop

Healthcare Reform

Strategy

Determine feasibility / cost of re-use of existing

building

Position as re-opportunity to comply with HC Reform

Perform need/gap analysis for full “continuum of care”

Roadshow presentation to prospects

Success Story Century City Hospital, Century City, CA

Success Story Century City Hospital, Century City, CA

Results

Secured a provider with a need to develop an

“acute-rehab” facility

Building re-purposed / modernized to comply with

licensing req’s

Partnership between UCLA, Cedars Sinai and

Select Medical

Executed 17 year, $80M lease

50 acres / 1.2M SF

Full continuum of healthcare to be developed

CHSG awarded assignment in 2013 to market, lease and sell

Current Project Canyon Springs Healthcare Center

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How can you partner withColliers Healthcare Services Group?

Step #1 – know that CHSG exists, is “healthy” and expanding!

Leverage CHSG platform to pursue HC – “b/c you don’t understand it, don’t

ignore it”

Expand service offerings (beyond brokerage) to existing healthcare client

Collaborate!

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“We take our job seriously…”

Medical Office Update (US)

Andrea Cross, National Office Research Manager | USA

John Wadsworth, National Director Healthcare Properties

March, 2014