Challenges and Opportunities in Health System Property Management with Lorie Damon

Challenges and Opportunities in Health System Property Management with Lorie Damon

An interview with Lorie Damon that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this episode, Joel Swider interviews Lorie Damon, the Managing Director of Cushman & Wakefield’s Healthcare Advisory Practice. The Cushman & Wakefield Healthcare Advisory Practice provides healthcare organizations with strategic and transformational real estate services that directly affect positive business outcomes.

Podcast Participants

Joel Swider

Attorney with Hall Render

Lorie Damon

Managing Director, Cushman & Wakefield

Joel Swider: Hello and welcome to the Health Care Real Estate Advisor Podcast. I’m Joel Swider, an attorney with Hall Render, which is the largest healthcare-focused law firm in the country. Please remember that the views expressed in this podcast are those of the participants only and do not constitute legal advice. We’re in Scottsdale, Arizona today at Hall Render’s Health Care Real Estate Legal Summit, and I’m pleased to have with me Lorie Damon, the Managing Director of Cushman & Wakefield’s Healthcare Advisory Practice. We’re going to be talking today about trends in property management and some of the challenges and opportunities facing health providers in managing their real estate. Lorie, thanks for joining me.

Lorie Damon: Thank you. I’m pleased to be here.

Joel Swider: Lorie, before we dive into the property management, I wanted to get to know you a little bit and start with your background, who you are and how you came to be such an expert in the area of healthcare real estate services. You earned your bachelor’s degree from Hood College in English Literature, your PhD from Purdue, and you also taught a course at Harvard. How did you get into healthcare real estate?

Lorie Damon: Purely by accident. I am classically trained. I was trained to be an English professor, and I spent a number of years teaching. I ultimately decided that that was really not the career for me, and I came back to Washington D.C., which was my college home, and I found a job working in a trade association as the editor of their magazine. One of my colleagues there left shortly about a year after I had joined the firm, and she went to work at BOMA International, and a year later, she called me and said, “Hey, we have this job as our Director of Education.” “Would you be interested? You should interview.” We’re doing a lot of online learning, which I had done. I had piloted some online learning programs at Purdue, so I interviewed at BOMA, and I took the job, and I didn’t know a thing about real estate or healthcare real estate, except that I went to doctors in medical office buildings, but I had a really great … I had the best luck in that BOMA had a small Medical Office Buildings Conference that they asked me to be in charge of, and I am curious, so I had the good fortune of learning from some of the industry leaders by virtue of asking them to speak and contribute content to BOMA’s conference. I learned a lot from John Winer, who was then at Ernst & Young, and now is at Seavest, Todd Lillibridge was one of the first investors in medical office, and I used to talk with him every week to get a primmer on why somebody would buy a medical office, Gordon Soderlund, Danny Prosky, I mean, some of the luminaries in the industry and some of those who are really early, early to commit to this sector were, taught me the business. Then, out of that, in order to create our strategy for growing the conference, we really wanted to have the perspective of health systems, so I was always the person calling somebody and saying, “Oh, I’m sorry. I can’t pay you an honorarium, but would you be willing to come and speak at my conference?”, and so I really established good relationships and listened to those health systems and to real estate companies, trying to navigate their portfolios, right? I always say that one of the most important lessons that I learned is that the real estate industry wasn’t really built for healthcare, and has always, I think struggled in some ways to accommodate healthcare because healthcare doesn’t fit easily into some of our sort of standard boxes to classify their real estate or classify the occupants or classify the owners.

Joel Swider: That’s interesting to think of BOMA MOB Conference as a small conference, right? I mean, there’s what, thousands of people now, and you guys have really grown it?

Lorie Damon: There are 1,500 people there, but in my first BOMA Conference, there were about 100, and I was one of two women.

Joel Swider: Yeah, okay. Wow. Okay. Wow.

Lorie Damon: It was a great experience to watch that conference grow. Some of that was just the luck of market timing because the sector was starting to take off, and there was more interest in it, but I think it was also just very good fortune and having the right set of volunteers who were industry leaders and who were good at recognizing that the industry itself needed to come together and create a venue where we could talk about some of the more complicated matters of working in this sector, and where we could create a forum for health systems, and investor owners, and developers, and property management companies to sort of collaborate and establish a track record of best practices and common procedures, if you will. A lot of that was, really did not exist, and in its essence, that is the obligation of BOMA as the industry’s leading trade association, so it made sense. It gave us the perfect venue in which to do that. Then, one volunteer, we were so fortunate because one volunteer would recruit another. I can’t even tell you how many hours of time all of those folks that I mentioned not only spent teaching me, but just contributing to the industry so that we could have a body of knowledge about this particular sector.
Joel Swider: Sure. How long have you been with Cushman now?

Lorie Damon: I’m in my sixth year.

Joel Swider: Okay.

Lorie Damon: I will finish my sixth year in December.

Joel Swider: Okay. In my mind, I think about BOMA as, as you mentioned, it’s a trade association. You’re sharing best practices. For someone that wasn’t involved maybe on the operational side before you, before your role, and maybe I’m overgeneralizing, but how did you transition then from BOMA? You had a lot of knowledge and expertise to where you are now, where you’re really applying that for clients.

Lorie Damon: Yeah. I think one of the things that was very advantageous about my role at BOMA was that I really had a bird’s-eye view on the whole industry, right? I wasn’t in it. BOMA sits outside of it, but can see all of the things, all of the major real estate firms, regional firms, smaller firms. All of those folks are BOMA members, and there’s a cross-section of owners, and management companies, and brokerage houses who come together to comprise the membership at BOMA, and my job, I was just fortunate because my job was education and research, so I was at the crux of understanding, “What does the industry need, and then how should we teach them?” Well, in order to teach them, I had to learn it, and then I had to determine from all of the variety of sources of information about, well, for instance, “How do you create a compliant timeshare lease?” Well, it would be my job to distill seven different opinions into what looked like the most common set of practices, and then work with, in those days, I would call Bob Hicks and say, “Could you take a look at this, and make sure that we’re not communicating something that’s inappropriate or inaccurate?” All of that activity really helped me to understand how the industry worked, and like I said, how some of the methodologies for serving healthcare could be adapted to better suit the needs of that particular client base. Coming to Cushman, coming into the industry, I did have some reticence about that because I knew all of the firms, and I sort of knew, as they would say where all the bodies are buried, but I really felt like there was a great opportunity there too, to bring a body of knowledge that none of them would have by themselves to bear on a sector that was growing, and demanding, and evolving very quickly, and so I wanted to road test that theory.

Joel Swider: Sure. How has it gone?

Lorie Damon: Well, it’s been a great ride. Well, certainly, Cushman itself has undergone a number of changes. When I joined the firm, I joined one of the legacy firms, so we came together now as an entity. Cushman & Wakefield was a merger of Legacy Cushman & Wakefield, and then DTZ, and prior to that, Cassidy Turley, so we are about 10 times bigger than the company that I joined. We’re international now. We’re a publicly traded company, so we’ve seen a lot of changes on our side, but through the auspices of that, we now have an extraordinary array of services and capabilities that are really only possible with our size firm, and so that has been great because so much of that, as healthcare systems are looking at retail opportunities. I have colleagues who are retail experts. I can pick up the phone and call one of them. I have a colleague who’s an opportunity zone expert, and I can top that base of knowledge. I have a counterpart in London who we have some mutual investor clients. We also have a couple of health system operating clients in common, and so we can regularly compare notes across the pond and start to forge a truly global perspective on healthcare, which is exciting.

Joel Swider: Sounds like a powerful platform and a value add.

Lorie Damon: It is a powerful platform, for sure.

Joel Swider: Yeah. What are, I guess some of the benefits to people listening, benefits of outsourcing their property management through a platform like Cushman’s?

Lorie Damon: There are many benefits to outsourcing, but I always remind my teams and our clients that the best solution is the one that works best for you, and in health care, I just don’t believe that one size fits all. I think in any exercise where you’re looking for a partner, it’s really important to understand how you want, first of all, “What do you mean by property management? What needs to be managed? Let’s look at what those activities are. Which ones do you really want to do yourself for whatever reason?” You can do it better. You can do it more cost-effectively. For internal relationship purposes, you just need to retain that or to risk manage. You just need to retain it. “What do you want to do, and then what do you need a partner to do?”, and so I think one of the best arguments for working with an outsource service provider is that we house real estate expertise. We hire it, we train it, we groom it, we promote it. All we do is think about it, and we can invest in and deploy a variety of tools that might be prohibitively expensive, right? Lease administration is a very expensive technology, and we can work with a variety of platforms, so if that’s not a capability that you have, and you want it, and you can’t afford it, then that’s a good opportunity to look at having a service provider. If you don’t have a big enough facility management team to service a growing outpatient portfolio, if it’s just physically dispersed, and your FMs are based on your hospital campuses, it is not necessarily efficient to run those maintenance talks in a car from the campus out to a surgery center. In cases like that, I think it’s really important to be very transparent and collaborative upfront to understand, “What are the goals?” “What are we trying to accomplish, and then what are you able to accomplish? What do you want to accomplish yourself, and then what do you need help with?”, and then find, if we’re not the right partner, find a partner who’s equipped to address those needs and to do it in a manner that’s consistent with the health system’s philosophy for servicing its assets.

Joel Swider: What are some of the biggest challenges right now facing health systems in terms of managing their real estate? We’ll get to opportunities as well in a second, but what are some of those challenges?

Lorie Damon: Right. Well, I think one of the biggest challenges that I see and that I know a number of my panelists talked about today is just that their portfolios are growing, and they’re growing really rapidly, but their staffs are not necessarily keeping pace. The technologies that they use to manage those portfolios may not also be keeping pace, and so I think that’s really a challenge because in some cases, those portfolios have doubled or quadrupled in size, and it’s a lot. That can mean that you went from having 100 leases to 400 leases, and that’s difficult if you don’t have additional people to manage them. Healthcare leases get touched a lot, and so there’s sort of a constant administrative burden that comes with that growth. I think one of the other challenges in healthcare in general, but at this particular historical moment is just that there’s regulatory uncertainty and there’s also just an evolving set of regulations. I don’t mean just start getting a kickback, which has, in some ways, it feels like it’s always been with us, but I’m thinking about things like site-neutral payments, which dramatically impact how you pro forma a new site, and how you think about where to locate a new site. I think the push toward consumer-driven healthcare really changes the dynamics of site selection, and that’s a different set of skills and a different set of tools than what many health systems have historically used to figure out where they want their real estate. I think there’s just a lot of evolution in the sector now to adapt to a new regulatory environment and just a new consumer that requires a different set of real estate tools and skills than what we maybe had even 15 years ago when I started at BOMA and realized that that medical office was an asset class, and that people invested money in it.

Joel Swider: Yeah. What then are some of the opportunities on the flip side of that?

Lorie Damon: I think that some of the biggest opportunities are to really embrace the data. Embrace data is sort of my mantra. There’s a lot of data available that health systems have themselves about their patients and about future demand that doesn’t always make its way into real estate decision-making, but should and could create a much more foolproof strategy around where to put particular services or particular facilities. I think there’s also a lot of … We could all do a better job of managing the data around how our assets perform as assets, and really understanding the way any investor would want to know, right? “What are we generating and operating in common rent in this particular facility? How much of it is occupied and how much of it is vacant? Are there opportunities to lease out what we already have? Are we paying rent on vacant spaces?” I mean, really, really, really mining the data that’s available to us to create a much more optimal portfolio, I think is a great opportunity and can drive some pretty significant expense savings.

Joel Swider: Lorie, I want to switch gears a little bit. The Health Care Real Estate Legal Summit has just concluded, and you had a panel discussion on property management trends, and specifically for healthcare facilities. Could you give us maybe a little bit of a recap, or what did you view as kind of some of the nuggets of information that you kind of took away from that or that our listeners might take away from that?

Lorie Damon: Sure. I think one of the most important observations from our panel is just that there are no two systems operate that activity the same, so Nancy and Laura from Mercy Health, they manage all of their real estate internally with internal teams, including internal legal teams. Ashley, our other panelist from Atrium Health has a combination of internal teams, including an internal legal team and then external resources, including our property management partner and external counsel. I think that’s always good to know that there are just different models that evolve for that various needs. I think a couple of the other things that we heard is that there’s a real … Both of them echo that understanding control, having both control but flexibility and their portfolio, and structuring that into leases or purchase and sale agreements, or options for buybacks has become absolutely critical, and there are many reasons for that. First of all, there’s a lot of new owners, new investors who are seeking opportunities in this space, and there’s also just a lot of dynamism around what the health system might want to do and when they might want to do it, so one of their goals is to try and optimize that footprint and their control over it so that as their care delivery evolves, their portfolio can quickly adapt to those new changes. Then, of course, we close by talking a lot about retail strategies and how they’re approaching that. Mercy has a pretty significant urgent care strategy that they’ve launched in St. Louis. It’s very fast. In nine weeks, they can have them open and they have literally kind of [led 00:17:01] star city with options on every corner, which is great and very convenient for patients, but they’ve partnered to do that because they recognize that they didn’t have the internal expertise to execute as quickly as they needed to. I think we got a pretty good cross-section of some trends that other health systems everywhere else are grappling with.

Joel Swider: Yeah, and I guess that’s … Maybe I’ll close with that question. We heard from a couple of of well-respected health systems. I know you have the opportunity to work nationwide with a vast number of others. Is what we saw today representative or are there other trends or other approaches that you’ve seen that are kind of on the rise?

Lorie Damon: I think what we saw today is fairly representative. I think most health systems are really, are in some sort of growth mode, at least for their outpatient services. They are looking hard at taking care closer to the patients. I think that’s a fairly common refrain and a common strategy. What varies is the manner and form of that execution. On a lot of how you execute your outpatient strategy depends on who you are and where you are, and who your competition is. We’ve seen in some markets, urgent care is really popular sort of to the point of saturation, and other markets, we’re seeing experimentation with all new sorts of facilities like micro-hospitals, for instance are evolving, and we’re starting to see that. There are only 50 now. In two years, will there be 250? I don’t think we know. Freestanding EDs have come, and in some markets, they seem to be here to stay, and other markets, they seem to be really challenged. I think we’re definitely seeing an evolution of the types of outpatient facilities, and in the strategy for how you create an outpatient strategy to capture market share and to serve as a patient base. I think the other interesting evolution is this focus on the patient, and patient-centered care, and how that translates into the real estate footprint. I mean, Laura made a great point about how much effort Mercy is investing in creating branded facilities that look alike, so that the minute a patient steps into them, they know they’re in a Mercy facility. I definitely see that in all the markets that I visit. There is a much greater focus on making sure that hospitals have clear signage, that patients know where they’re receiving care and from whom.

Joel Swider: Well, Lorie Damon, thank you so much for being with us. It’s been a pleasure talking with you.

Lorie Damon: It’s a pleasure to be here. Thanks, Joel.

Joel Swider: Thanks. If you like what you heard on this podcast, please subscribe on iTunes, and if you’re interested in additional content from Hall Render, you can send me an email at jswider@hallrender.com subscribe to our monthly newsletter. Thanks again.

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