Libby Park

Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

February 8, 2021 Libby Park 23:11 Comments Off

Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

Hall Render attorneys from four offices across the U.S. discuss CMS’ Final Rule modifying various Stark Law regulations, including those specifically geared toward health care real estate arrangements. CMS issued the Final Rule on November 20, 2020, and starting January 19, 2021, health care organizations nationwide were required to comply with the new regulations. The podcast discussion addresses key guidance provided by the Final Rule, and covers topics of fair market value, commercial reasonableness, and Stark exceptions that may be available to health care organizations.

Podcast Participants

Attorney, Hall Render
Denver Office

Gerard Faulkner

Attorney, Hall Render
Dallas Office

Joel Swider

Attorney, Hall Render
Indianapolis Office

Kiel Zillmer

Attorney, Hall Render
Milwaukee Office

Episode Transcript

Libby Park: Hello, everyone. And welcome to the Healthcare Real Estate Advisor podcast. My name is Libby Park and I’m an attorney with Hall Render, the largest healthcare focused law firm in the United States. Thanks for tuning in today. We have some great content for you. Today, we’ll be talking about CMS’s final rule aimed at modernizing key fraud and abuse regulations under the Federal Stark Law. CMS issued the final rule in November, 2020, which became effective as of January 19th, 2021. These regulations have now been in effect for a few weeks. So, we hope that this podcast has content that is relevant and timely to our listeners. Today, we’ll hear from three Hall Render attorneys from different geographic locations around the U.S. Joel Swider is joining us from our Indianapolis office. Hi there, Joel.

Joel Swider: Hi, Libby. Thanks for having me.

Libby Park: Of course, welcome. Kiel Zillmer is based out of our Milwaukee office. Hi, Kiel.

Kiel Zillmer: Hi, Libby.

Libby Park: And Gerard Faulkner is from our Dallas office. Hey, Gerard.

Gerard Faulkner: Hey, Libby. Happy to be here.

Libby Park: Thanks for joining us. I’ll be moderating our conversation today, and I’m located in Hall Render’s Denver office. Thanks, everyone, for joining me today. Today, we’ll discuss the big three areas of the Stark law final rule changes that will impact healthcare leases, fair market value, commercial reasonableness, and exclusive use. Joel, let’s start our conversation with fair market value, as it relates to the final rule. Can you tell us what changes did CMS make to its interpretation of fair market value in the real estate context?

Joel Swider: Thanks, Libby. When it comes to fair market value, CMS did a couple of things in the final rule. The first is that they finalized changes to the structure of the definition of fair market value, the structure itself. CMS advanced a general definition of fair market value, as well as some more specific definitions that apply in the rental of office space and rental of equipment contexts. The general definition of fair market value that was finalized is, and I’m quoting here, “The value in an arm’s length transaction, consistent with the general market value of the subject transaction.” So, they’ve really scaled it back and made it more basic.

Joel Swider: And then, CMS went on to give additional definitions for, in our context, the rental of equipment and the rental of office space. And so, part of that definition, from the rental of office space exception or the new language from the final rule says, “With respect to the rental of office space, fair market value means,” and I’m quoting here, “the value in an arm’s length transaction of rental property for general commercial purposes, not taking into account its intended use, without adjustment to reflect the value that the perspective lessee or lessor would attribute to the proximity of convenience to the lessor where the lessor is a potential source of patient referrals.” So, this was a concept that appeared previously, but was somewhat disjointed and they kind of brought it down into one definition.

Joel Swider: And then, furthermore, and I’m quoting again here, it says, “It must be consistent with the general market value of the subject transaction.” So, the CMS also updated the definition of general market value to sort of bifurcate it into multiple parts, applicable to different scenarios and applications. They had one part for assets, one part for compensation, and there’s a separate definition for general market value that is specific to the rental of office space and equipment. And what CMS finalized there is, it says, “With respect to the rental of equipment or the rental of office space, the general market value is the price that rental property would bring at the time that the parties enter into the rental arrangement, as the result of bonafide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for one another.”

Joel Swider: So, these concepts in verbiage are really consistent with how those definitions read in the past. But they’ve been consolidated and they’re easier to find. And so, really to my mind, from a practical perspective, I don’t know that this necessarily changes the end result of what would be considered fair market value. But I do think that it makes it easier for a health provider to find and use the definitions. It also makes it easier when we are, let’s say, reviewing an appraisal that has come in from a third party. We can make sure that they’re using the right definitions and that they’re using them in the right contexts.

Joel Swider: So, the other thing that I’ll mention about the fair market value definitions for real estate arrangements was CMS removed part of the text that used to say a rental payment does not take into account intended use if it takes into account the costs incurred by the lessor in developing or upgrading the property. And CMS had originally added this language to the Stark regulations to basically clarify that rental payments may reflect, they are allowed to reflect the value of improvements or amenities, which I think to most of us practicing in the real estate realm or anybody that’s an appraiser or works with valuations frequently would realize that that is a base assumption upon which the fair market value of the space is based, is those costs that were incurred in improving it. But CMS basically said this was really confusing to people. It wasn’t necessary. And so, they took it out.

Joel Swider: So, I guess, in summary, the CMS in the final rule, they modified that definition of general market value to more closely align with valuation principles that are already used. And any sort of FMV appraisal or broker’s opinion of value that a provider might have previously used is probably still accurate, even if it’s based on those old definitions. But, from a practical matter, I think one takeaway for me and to those listening is, consider updating your template fair market value reports, your fair market value policies, your lease templates, because these definitions have changed. And to the extent that an appraiser would, in his or her professional judgment, base an opinion on these, obviously they’re going to be very important for those purposes.

Libby Park: Thank you, Joel. And thanks for offering some practical tips for folks listening in as to how we can apply some of these changes. Another question, in regard to fair market value, Joel, did CMS opine on any methodologies for setting FMV in real estate transactions?

Joel Swider: They did. So, what CMS said in terms of methodologies was basically that CMS will not prescribe any particular method for coming up with fair market value. And CMS said it would accept a range of methods, appraisals, comparables, looking at documentation of other transactions. They even talked about cost plus a reasonable rate of return, which is something that hasn’t appeared in commentary for a long time. Basically they will accept any method that’s reasonable.

Joel Swider: And I think, from a practical perspective, this really gives providers a bit more leeway to use their discretion, which is a good thing for providers. And I think that’s where too, from a legal perspective, some of our guidance comes in the form of let’s look at this arrangement, let’s look at the stakes involved and the parties involved. And maybe we can apply a cheaper, or faster, or easier method to come up with fair market value, as opposed to getting an appraisal, which is really sort of the gold standard. And that’s something that you would want to use in a more high-risk type of arrangement. So, I think in general though, it was good because CMS gave additional leeway to providers in this area.

Libby Park: Thank you, Joel. Appreciate your thoughts on the fair market value portion of this. Let’s shift to commercial reasonableness. Gerard, can you please tell us a little bit about what changes did CMS make to the definition of commercially reasonable?

Gerard Faulkner: Yeah. So, CMS’s definition of commercially reasonable was sort of expanded in order for them to try and take a more objective approach to their analysis. And so, they ended landing in the final rule on commercially reasonable meaning that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. CMS also kind of added in there that an arrangement may be commercially reasonable, even if it does not result in profit for one or more of the parties.

Libby Park: Gerard, thanks for that definition. How will CMS determine if an arrangement is commercially reasonable? And how does the new definition impact this analysis?

Gerard Faulkner: So, now under the final rule, the new rule, CMS’s determination is based on a case by case analysis that turns on whether or not the arrangement makes sense as a means to accomplish the party’s legitimate business goals. And so, when CMS is making this determination, they’re going to look on a case by case fact specific inquiry on the characteristics of the parties. And that will kind of depend on which parties are involved. So, they’re going to be looking at things like the size, the type, and scope and specialty of the parties.

Gerard Faulkner: CMS indicated in the publishing of the final rule that it views this updated standard is more objective since it requires assessment of the characteristics of the parties themselves rather than the previous rule, which had more of a focus only on the perspective of those parties as they entered the arrangement. So, that’s really how the previous CMS commentary had framed this commercial reasonableness discussion. It’s important to remember though that just because an arrangement ultimately achieved a legitimate business purpose, that doesn’t mean that that arrangement was necessarily commercially reasonable. We can take from the final rule that the focus here will not, obviously, be on that result of the arrangement, and moreso a fact-based inquiry, case by case inquiry into whether or not it was reasonable to enter that arrangement in the first place for the parties.

Libby Park: Thanks for those thoughts, Gerard. And can you tell us how will this definition, what are your thoughts on how the definition of commercially reasonable will work in conjunction with the requirement that lease space does not exceed the amount of space that is reasonable and necessary for the legitimate business purposes of the leasing arrangement?

Gerard Faulkner: Yeah. So, that’s a bit of a mouthful, but CMS essentially clarified the additional requirement that the leased space does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease arrangement. In the office space exception, it’s separate entirely from this commercial reasonableness standard. According to CMS, the language in that office space exception is more geared towards the prevention of sham lease arrangements where the rental charges are for office space for which the lessee rather has no genuine or reasonable use. So, it’s not serving legitimate business purpose.

Libby Park: Great. Thank you for your thoughts on this topic, Gerard. Kiel, let’s close things out today with a discussion on the changes to the rental of office space exception. Did CMS make any other noteworthy adjustments to the rental of office space exception that providers should be aware of?

Kiel Zillmer: Thanks Libby. Yes. In addition to the changes to FMV and commercial reasonableness that Joel and Gerard have discussed, CMS finalized another significant change to the rental of office space exception and how we view leasing arrangements in the healthcare context. One of the requirements of the rental of office space exception is that the lease space be used exclusively by the tenant. The rationale for this requirement was to prevent, as Gerardo alluded to previously, sham or paper leases in this case where a landlord receives payment from a tenant for space that the landlord continues to use itself. However, without further clarification, this requirement was also interpreted to mean that the tenant could not share the space with other tenants contemporaneously. So, when we had clients who wanted to structure part-time or shared space arrangements, we were inclined to rely on the timeshare exception to protect the arrangement, which does permit non-exclusive use. But, as those who work with the timeshare exception know, it does have a number of strings attached to it and a number of hoops to jump through.

Kiel Zillmer: In the final rule, CMS incorporated a comment in the rental of office space exception, which clarifies that the exclusive use, as used in the exception, means that the tenant and any other tenants of the same space uses the space exclusion of the landlord or any person or entity related to the landlord. So, in other words, the landlord may not be an invitee of the tenant to use a space, but the tenant and any other tenant operating in the same space may use it at the same time. So, this is a significant clarification by CMS, particularly in light of the trend of hospitals employing more physicians, as value-based healthcare becomes more prevalent. It allows for greater flexibility in how leasing arrangements can be set up, and provides more collaboration between tenants in clinical space.

Kiel Zillmer: So, a prime example of the situation would be where a physician invites another physician into its clinical space to treat a mutual patient for the patient’s convenience. This may have previously been considered a Stark violation, given our understanding of the rental of office space exception and the exclusive use requirement. However, with the revisions to the exception, CMS has made it clear that these types of arrangements would not pose a risk of program or patient abuse, provided that they continue to meet the other requirements of the rental of office space exception. And lastly, I should also mention that CMS also incorporated a similar change to the exclusive use requirement in the rental of equipment exception. So, there is some additional leeway there as well.

Libby Park: Thanks, Kiel. It sounds like the final rule added in some flexibility, which will be beneficial to providers and further clarification as well. Another question, does the final rule provide any other insight on Stark exceptions that may be available to providers in structuring real estate arrangements?

Kiel Zillmer: Yes. As I mentioned, when we look at protecting real estate leasing arrangements, we have typically looked at the rental of office space and timeshare exceptions. However, in the final rule, CMS made clear that leasing arrangements may also be protected under the fair market value exception. But this is also a drastic departure from CMS’s position in previous rulemaking and is significant, particularly in light of the fact that the fair market value exception does not have a one-year term requirement like the rental office space exception does. This provides healthcare entities with greater flexibility for one-off arrangements that may be shorter than one year or arrangements that otherwise do not qualify under the rental of office space or timeshare exceptions.

Kiel Zillmer: In the final rule, CMS also confirmed its position that other exceptions, even beyond the rental of office space and fair market value exceptions, may protect space lease arrangements. For example, CMS reiterated that the arrangements with hospitals exception could cover certain real estate arrangements like, for example, rental payments made by a teaching hospital to a physician to rent his or her house, as a residence for a visiting faculty member. Likewise, CMS repeated that the payments by a physician exception could protect payments by a physician for the lease or use of space other than office space, such as for leases of hospital owned storage space or residential real estate.

Kiel Zillmer: And finally CMS finalized this proposal for a new exception for arrangements with limited remuneration. Provided certain requirements are satisfied, this exception would protect remuneration from an entity to a physician for the provision of items or services that does not exceed $5,000 per calendar year. So, this exception could be available to protect one-off or short-term lease arrangements with terms that are set in advance, even if the arrangement is not set in writing, that is not a requirement under this exception. So, obviously, it provides some greater flexibility there as well.

Kiel Zillmer: And lastly, I just wanted to mention two other changes CMS made that could also be relevant for those who practice in the healthcare real estate realm. First, CMS revised its position with regard to missing signatures and the writing requirement rules. Previously, if a written agreement lacked the party’s signatures, they were allowed to obtain the signatures within 90 calendar days following the effective date of the arrangement, provided the arrangement complied with all other required elements of an applicable exception. In the final rule, CMS expanded the scope of the late signature exception to include a grace period for the required writing, along with the missing signatures. In the event the parties fail to compile a written agreement for a particular arrangement, if that’s a requirement under the applicable exception, they now have 90 days from the arrangement’s effective date to compile a collection of documents that evidences the course of conduct and the terms of the arrangement between the parties and reduce that collection to assigned writing. So, we’re expanding it, not just to the signature, but also to the required writing requirements for certain exceptions under the Stark.

Kiel Zillmer: The second change is with regard to the isolated transaction exception. Healthcare entities have historically used this exception to protect a one-time transaction involving a single payment or one that involves integrally related installment payments. In the leasing context, we typically see this exception called upon in the instance of a missed rental payment or a similar oversight in an arrangement. But the final rule clarifies that the forgiveness of an amount owed in settlement of a dispute, so for example, the payment of back rent or a missed rental payment, is itself a separate arrangement which may be covered under the exception. However, the important thing to note here is that the compensation arrangement, which is the subject of the underlying dispute, is not retroactively made compliant simply because a settlement arrangement is achieved by the isolated transaction exception.

Kiel Zillmer: So, it gets to be a little complicated and convoluted when you go down this path of trying to figure out if an arrangement or a back payment could fit under the isolated transaction exception. So, if there is any confusion or any question as to whether an arrangement would comply with the exception, we often tell our clients to go through the facts and consult with their attorney to figure out if they can rely on the exception in that case.

Joel Swider: Yeah. And, Libby, this is Joel. The only thing that I would add there, and I think Kiel makes a great point, that these additional exceptions that CMS has allowed providers to avail themselves of in the leasing context is a really big and important departure from past guidance, and one that I think a lot of our health provider clients will be able to utilize.

Joel Swider: So, I guess, two quick notes. One is on the isolated transactions exception. As Kiel noted. I mean, I think the important thing to consider there is that CMS didn’t have a lot of guidance on that particular exception in the past. And so, one of the big, I guess, departures or clarifications that was made was the fact that it doesn’t make the underlying arrangement compliant. And Kiel noted this, but I just want to highlight that, that even if we have a payment that needs to be made to settle a dispute, that payment itself might qualify or be compliant under the isolated transactions exception, but it does not make the underlying arrangement compliant, if it otherwise wasn’t, otherwise didn’t meet the other standards.

Joel Swider: The other thing I wanted to point out too is the fair market value exception, because I think that that one, in particular of all of the three or four that CMS pointed out and sort of opened up to leasing arrangements, I think the fair market value exception is going to be really important and provide a lot of flexibility to providers because it can sort of help cure or cover arrangements that, as Kiel noted, they maybe don’t fit within the realm of office space exception. Maybe the term is less than a year. And they maybe don’t fit in the timeshare exception, because it’s actually a lease. It’s not a license. It’s conveying a possessory leasehold interest. But nonetheless, it can meet the other elements of the fair market value exception and, in some ways, that might be easier for certain arrangements. So, I think that’s another one that I think it provides a really good backstop for providers who are really trying to do the right thing with their arrangements, but for whatever reason, the terms of that arrangement don’t fall neatly into the rental of office space exception.

Libby Park: Thanks for jumping in, Joel, and for those additional thoughts on the two exceptions and highlighting their relevance to our listeners today. That’s all that we have on our discussion format for today. Thanks to all of our listeners for tuning in and to Joel, Gerard, and Kiel for joining me today. Please feel free to email any of us directly with follow-up questions. Our emails and contact information is located in the show notes of this podcast and also on Hall Render’s website at www.HallRender.com. And additionally, I’d let listeners know that we prepare a newsletter called the Healthcare Real Estate Advisor. And, to be added to this list, please email me directly at LPark@hallrender.com. Thanks again for tuning in, and have a great day.

The Post-Election Outlook for Health Care – A Conversation with John Williams

December 9, 2020 Libby Park 31:35 Comments Off

The Post-Election Outlook for Health Care – A Conversation with John Williams

Hall Render attorneys John Williams and Libby Park discuss the post-election outlook for health care. John is a shareholder based out of Hall Render’s Washington, DC office, and he provides his thoughts on the following topics: President-elect Biden’s regulatory agenda, the COVID special package, release of the Stark and Anti-Kickback final rules, the future of the 340B Drug Pricing Program, and more. Learn about John’s background for the first few minutes of the podcast, after which we jump into health care specific questions.

Podcast Participants

Libby Park

Attorney, Hall Render

John Williams

Attorney, Hall Render

Episode Transcript

Libby Park: Hello, everyone and welcome to the Healthcare Real Estate Advisor podcast. I’m Libby Park, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today we will be speaking with John Williams. John is an attorney with Hall Render and based out of our Washington, D.C. office. I consider John a resource on all things healthcare related at the federal level.

Libby Park: Today we’ll talk with John about the post-election outlook for healthcare in the United States. John is a seasoned veteran in the healthcare industry and he has a great story to tell us today about his career and also what’s happening in D.C.

Libby Park: John, thanks for joining me today.

John Williams: Great to be with you, Libby.

Libby Park: John, before we talk about the post-election outlook, let’s talk about your background. Tell us where you’re from, where you went to school and what you aspired to be.

John Williams: Well, born in Indianapolis, Indiana, raised in Galveston, Texas until I was 16, back to Indianapolis where I finished high school and then went to Embry-Riddle University in Daytona Beach, Florida where I intended to be a commercial airline pilot.

John Williams: When I got out of college in 1992 the airline industry had suffered a number of bankruptcies. Pan Am, Eastern, Midway had all gone out of business and you couldn’t find a flying job and so I ended up looking elsewhere and meandered my way into politics, like so many young people before me and after me.

John Williams: Somebody said to me, “You need to go to work on a political campaign.” And so I ended going to work for the mayor of Indianapolis, who at the time was Steve Goldsmith and my job was to drive Steve around and be what they refer to as his body guy. So I did that, bounced around with some other campaigns, did some work at the Indiana State House and then eventually when Republicans took over the House of Representatives in 1994, subsequent to that I went to Washington.

John Williams: Again, like many before and after me who had done campaign work and then ended up making their way to D.C. So I worked on Capitol Hill as a Congressional staffer, mostly at the House Committee on Government Reform and Oversight, where I served as the press secretary, but I also served a policy role for the chairman of the committee. So in that role I covered issues like Social Security, Medicare, Medicaid and that was my first real, real taste of healthcare policy.

Libby Park: So then how did you transition into more fully focused healthcare work.

John Williams: I went to law school in Washington at night while I lobbied during the day for the Aircraft Owners and Pilots Association. So my parents were thrilled that I was actually using my undergraduate degree for something. It came to the point, as for many lawyers, where you have to decide where you’re going to take the bar exam and I realized that if I took the bar exam in Virginia where I was living that I was going to stay in D.C. probably for the rest of my life.

John Williams: And so I was engaged at the time and really in transition and used that as the opportunity to come back to Indiana. And my initial course in Washington at that point had run and I was ready to go and I was done with politics at that point. And so I moved back to Indianapolis, got married and started at Hall Render and that would have been in 2003. I started at Hall Render as a litigator doing medical malpractice and other healthcare defense work, largely because that was as far away from politics that I could humanly get myself, which was my desire at that point.

John Williams: But politics is like the Mafia, in that you never really get out and so along the way I did some things like when Mitch Daniels was elected governor of Indiana I ran the transition for the Indiana State Department of Health for Mitch. We had a Republican mayor in Indianapolis get elected at one point, Greg Ballard, and I helped to the transition of the mayor’s office for him. So I stayed active here and there.

John Williams: And then it just so happened that about eight and a half years into it I had actually made shareholder and it interestingly coincided with the time that Mitch Daniels was deciding not to run for President of the United States, which a lot of us had expected him to do, and had become somewhat invested in that idea. That coincided with the leadership change at Hall Render where John Render retired and Bill Thompson became the chairman, John Ryan became the president and we instituted a growth strategy that happened to include opening an office in Washington.

John Williams: So I decided to take on the task of opening a Washington, D.C. office and dived back into healthcare policy and that’s where I’ve been ever since.

Libby Park: I am learning a lot about you today as well, John, because you have a very interesting background. Before we jump into our specific healthcare topics I have a very important question, do you still fly planes?

John Williams: I do. As a matter of fact. I belong to a flying club in Indianapolis and still fly somewhere between 30 and 50 hours a year. So that’s one thing that I have not given up on.

Libby Park: Great. Well, thanks, John, for sharing about your background. Let’s jump into some topics that we would like to cover today. So as of the recording of this podcast Joe Biden has been declared the winner of the election and is poised to become the 46th President of the U.S. Can you tell us what the atmosphere is like in D.C. with this recent news?

John Williams: I keep telling myself that I’m not going to use the word unprecedented any more but it’s 2020 and all that so it’s hard not to. The atmosphere in D.C. today is really unlike any other in history because of the pandemic.

John Williams: For people who do what I do, being on Capitol Hill, meeting with members and staff, being in Congressional offices and hearing rooms is vital but Capitol Hill’s been closed to the public for months, I think since March, and D.C. as a whole has almost become a ghost town, almost like New York. So D.C. is unlike any other time that anyone can really remember.

John Williams: As far as the transition goes, on the one hand you’ve got an incoming administration that’s doing all the typical things that an incoming administration does, making Cabinet appointments, making White House staff appointments, putting things in place to take office in January.

John Williams: And then on the other hand, you’ve got an outgoing administration that’s refusing, to a large extent, to accept the results of the election, which again is unprecedented. So you’ve got that playing out on one side and then on the other side you’ve got President-elect Biden who’s doing all the things that you traditionally do to put a new administration into place.

Libby Park: Let’s jump to another topic. On November 20th, the Centers for Medicare and Medicaid, CMS and the Office of Inspector General released long awaited Final Rules under the Federal Stark Anti-Kickback and Civil Monetary Penalties Laws. What’s been the response in Washington to the release of these Final Rules?

John Williams: The response has been great and we’re thrilled as a law firm for that. One of the first things that we did when we opened our office in Washington, D.C. was undertake an effort to reform Stark and eight years ago we would travel to Capitol Hill to have meetings with congressional staff and say, “Hi, we’re here to talk about the Stark Law.” We would get this deer-in-headlights look because Stark, as everyone who’s probably listening to this knows, is so convoluted and it’s so confusing.

John Williams: In the time since then we’ve had some success in terms of getting some changes to Stark made. From a regulatory perspective in the 2016 physician fee schedule we were successful in getting some changes there as far as the writing requirements are concerned and some other technical issues. And then we were able to get those changes codified into the statute, subsequently to that in 2018.

John Williams: So Stark is something that we’ve been working on for a long time and when this administration came in and Seema Verma became administrator of CMS, because she’s from Indiana and so many of us have known her for so long, we jumped at the opportunity to encourage her to take on Stark reform and so she in fact asked us to prepare recommendations for her on what they should consider pursuing and so we did.

John Williams: And those things included things like defining commercial reasonableness or what it means to take into account and creating a rebuttable presumption for fair market value. So we were thrilled to see CMS take a lot of this stuff into consideration. Rebuttable presumption, they obviously did not but the reception so far to what’s been produced has been great. We’re thrilled that they’re able to get it out the door before this administration ends and the response, I think from the industry has been favorable and the response on Capitol Hill’s been favorable.

John Williams: We’ve had members of Congress from both parties praise the administration’s work on Stark and anti-kickbacks. So it’s been great. It’s been great. Now as you well know they’re both long and very convoluted and confusing so we’re still working through it and we may not be as thrilled once we are able to analyze the details of it. But, no, to this point we’re really pleased.

Libby Park: Okay, great. Well thank you for that update. I know that Hall Render has been digesting and processing those rules since they came out and hosted a webinar yesterday in a round table format that discussed these Final Rules and if any listeners of the podcast are interested in that webinar it is available on our website at hallrender.com. So take a look at that.

Libby Park: And, John, can you tell us about the COVID special package? What is this and what should we expect from this?

John Williams: Yeah, there’s two things that are happening right now as far as legislation on Capitol Hill is concerned. One, funding for the federal government expires on December 11th. Congress funds the federal government on an annual basis and the last funding legislation expires on December 11th. So Congress must renew that or else we begin to default on our loans and a whole lot of other nasty things happen. So they’ve got to deal with that on the one hand.

John Williams: The other thing is obviously COVID relief and what are they going to do and that has been in a real big stalemate for weeks, even since the election there hasn’t been a lot of action on COVID. That’s changed significantly in just the last 48 hours. And so in the last 48 hours obviously we know that government funding has got to get done and appropriators on the Capitol Hill are working through that right now.

John Williams: We don’t know what the funding levels for each federal agency are going to be. We know that some things might get added to that, non-COVID related. For example, there’s talk about trying to put surprise medical billing legislation into the year end package. I know people are lobbying for that. I don’t think they’re going to be successful because there still isn’t consensus in the House of Representatives on what that should be but I just want to let everybody know that it is out there.

John Williams: But what we’re now hearing in the last 48 hours is that the leadership on Capitol Hill wants to use the government funding bill as a vehicle, what we call a vehicle, to put all the COVID relief language into. And so what you’ve seen this week is you’ve seen different pockets come out with their own COVID proposals. So for example, on the one hand, Senate majority leader, Mitch McConnell has rereleased really what the Senate passed back in September with some adjustments to funding levels for things like unemployment insurance and PPP. He’s tweaked those a little bit but otherwise it essentially remains the same.

John Williams: What everybody is really talking about in the last 24 hours is this bipartisan group of senators and also members of what’s called the House Problem Solvers Caucus, which is 50 members from both parties in the House. They have come together and reached the framework of a deal that would provide $980 billion in COVID relief and that would be spread out in a lot of different areas. Again, it’s the framework right now. So Washington is very much a the devil is in the details type of place so we’re really not going to know where they are until they reduce it to what we call legislative language. They put it in bill form.

John Williams: But right now they’re talking about an extra $300 a week add-on for unemployment insurance, which is lower than the $600 that’s been in existence for quite some time. More money for PPP, a temporary liability shield, which I know a lot of hospitals and other providers are interested in as well as a whole bunch of different industries. $50 billion for vaccine distribution. We’re also hearing that there’s $35 billion in there that would go into the CARES Act provider relief fund.

John Williams: So in other words, more money for hospitals. Now, that’s in the Problem Solvers Caucus bill, this bipartisan proposal. I can’t even call it a bill because it’s not a bill yet. That’s in there. That’s not in McConnell’s proposal. And then on the other hand, we’ve got Speaker Pelosi talking to Treasury Secretary Mnuchin about a deal between them and the White House. So there’s a lot of moving parts to all of this but I think what I can say is we’re seeing more action on COVID relief in the last 48 hours than we’ve seen in the last month.

John Williams: And there’s a recognition in Washington that they’ve got to get something done and no group of people play chicken more than the members of Congress. That’s why everything gets done at the last second. So as I sit right now I think there is a good chance that you’re going to see targeted COVID relief be part of the year-end spending bill that gets passed on December 11th.

John Williams: But I could be wrong. God knows I have been before so…

Libby Park: Well we never know until we know, right?

John Williams: Right. Exactly. Exactly.

Libby Park: Interesting. Well, let’s shift then to a hospital focus. You said potentially this Problem Solvers bill could have earmarked $35 billion towards hospitals, maybe something like the CARES Act type funding that we’ve seen but what should hospitals expect even up … not necessarily through December 11th or in the coming weeks but in the next few years as the administration changes and a second question on that, what is the future of the 340B drug pricing program?

John Williams: So in terms of the Biden administration’s healthcare priorities and Capitol Hill are concerned it’s going to come down to what happens in the Georgia run-offs in January. There are two seats that need to be filled out from there. If Republicans hold at least one of those two seats, which I expect that they will at least one, perhaps two, they’ll keep control of the Senate. Republican control of the Senate means things like Medicare for All, adding a public option to the ACA, the Green New Deal, things that President-elect Biden talked about a lot on the campaign trail are complete non-starters. They’re not going to happen.

John Williams: Republicans in the Senate will never go for that. So the focus then shifts to what a Biden administration can do from a regulatory perspective and that is going to focus a lot right out of the gate on undoing a lot of what the Trump administration has done from a regulatory perspective. I think one of the first things … well, the first thing that you’re going to see happen because it happens in every administration is the incoming Chief of Staff, who in this case is Ron Klein, is going to issue a memorandum to all federal agencies instructing them to freeze work on any unfinished rule.

John Williams: So that’s going to take place first. So if something isn’t done by that point then it’s going to get frozen. And when I say done, it means that there’s got to be a certain amount of time too for implementation that has to pass. So if that clock hasn’t run then that’s going to be a problem for a lot of unfinished rules. And again, every administration does that.

John Williams: The second thing I think you’re going to see happen is that Biden is going to do what Trump did in terms of going to the Oval Office on the day that he’s sworn in and start issuing some executive orders and I think that one of the first executive orders you’re going to see is going to be directed at what’s going to be his biggest priority and that’s shoring up the ACA. So I think you’re going to see Biden issue an executive order that reopens enrollment for the Affordable Care Act.

John Williams: My understanding is that closes on December 15th but Biden can use the public health emergency as an excuse, a reason, justification for issuing an executive order to immediately reopen enrollment for the Affordable Care Act. So there’s one thing that he could do. He could also start using the public health emergency to direct monies to things like increased marketing for enrollment, funding navigators to help with enrollment. These are things that the Trump administration drained money from. They didn’t market enrollment. It was their way of trying to starve the ACA to death.

John Williams: So you’re going to see Biden reverse those. One of the interesting things that people are talking about is whether or not he can actually move money around from different federal agencies to do things like increase subsidies for the ACA without having to go to Congress in order to do that or even to go through the rule making process to do that and I think you’re going to see the Biden administration look to some of the Trump administration moves for around things like the border wall where the Trump administration moved money around internally from agency to agency in order to fund construction of the border wall because Congress wouldn’t fund it.

John Williams: So I think you’re going to see the Biden administration use that precedent to try to do things like increase subsidies. Beyond that, actions to reverse other Trump administration regulations are going to have to go through the traditional rule making process. So that means notice and comment, that means it takes time, right? That could take up to a year in some cases.

John Williams: So if you want to talk about things like reversing the funding cuts for Planned Parenthood or other abortion providers, rolling back the contraception mandate coverage stuff from the ACA, the anti-discrimination rules for transgender patients, even eliminating the Medicaid work requirements in some states, which were done under waiver, that’s going to take time if they want to try to reverse those things.

John Williams: So the Biden administration is going to have their hands full from an administrative standpoint undoing what they want to undo from the Trump administration. So that’s where the focus is going to be and it could be for the first couple of years. Beyond that, what they want to do from a regulatory perspective is a guessing game right now because nobody really knows because there’s just so much to do in terms of rolling back the Trump administration’s regulations.

Libby Park: Okay. Well, thanks for your thoughts on that and definitely sounds like there is a lot to do. I know that some of our listeners are likely pretty interested in the future of the 340B Drug Pricing Program.

John Williams: Right.

Libby Park: Do you have any intel on what may be happening with that in the short term and the long term?

John Williams: Well, I think as a general rule the Biden administration is going to be much more favorable to 340B than the Trump administration has been. It’s no secret in Washington that pharma hates 340B and they took advantage of the, I guess, if you will, pro business position of the Trump administration to try to really do damage to the 340B Program and you saw that with significant cuts to 340B and in other regulatory actions.

John Williams: So I think that 340B entities can feel more comfortable that they’re not going to get additional cuts from a Biden administration. They could see a rollback of some of the cuts that were made by the Trump administration and just a general overall positive attitude or more positive attitude towards 340B. It’s a controversial issue on Capitol Hill too. The overall growth of the program in the last 10 years has gotten an awful lot of attention.

John Williams: So I think you’re still going to see folks in Washington looking at issues like transparency within 340B Program. “Where does your money go?” I know that we’ve gotten that question a lot from members of Congress when we would go to the Hill to represent our 340B clients. Simply, “Tell me where your money goes? Where does the money go? What do you spend the money on?” I don’t think that’s going to go away necessarily but I think that the Biden administration is going to be much, much less likely to propose additional cuts to 340B.

Libby Park: Okay. Thanks for your thoughts on that, John. And do you foresee any additional challenges or restrictions in regard to physician owned hospitals?

John Williams: This is another controversial issue in Washington. I know that we saw some relaxing of the rules, right, in … during COVID, during the pandemic. Let me put it to you this way, when Republicans controlled the White house, the House and the Senate, if they were not able to roll back the moratorium on physician owned hospitals I don’t know how it’s going to happen otherwise.

John Williams: American Hospital Association and a whole host of others are adamantly opposed to that. It is a huge issue for them and they will lobby hard against any rollback of that moratorium. And that moratorium you’ve got to remember, right, it was part of the ACA. So Democrats are not in favor of rolling back physician owned hospital moratoriums. So unfortunately for folks in that sector I really don’t see any changes coming. That train left the station when Republicans were in control and they didn’t get it even done.

Libby Park: Okay. I’ve got a couple more topics here, two more questions I’d like to ask you, John.

John Williams: Sure.

Libby Park: So have you heard anything on the life sciences front and do you anticipate there will be more or less funding from the National Institutes of Health?

John Williams: Everything is going to focus around the pandemic, right, and so NIH is one of those entities in Washington that’s as much as anything can be noncontroversial because lawmakers can make anything controversial these days, it’s NIH and NIH has really had fairly broad support amongst both parties for quite a long time.

John Williams: When we’ve seen healthcare funding bills come out of Capitol Hill you see cuts to site neutral payments and these other things but for some reason, not for some reason, for the reason that people like the NIH on Capitol Hill, it gets more money.

John Williams: So I do think that you’re going to see more money go into NIH during a Biden administration. I think there’s a lot of support for that and so you’re going to see much more of the life sciences get support as well.

Libby Park: Will there be ACA challenges under a conservative majority court?

John Williams: Well, I think one of the things that you’re going to see and this happens with the change of any administration, right, is that you’re going to have new folks at the Department of Justice and how DOJ goes about participating in ACA related lawsuits is going to change. When the Trump administration came in and it was a Republican Department of Justice they took a different position. There were lawsuits they were pursuing that they just dropped because it didn’t serve their political purposes any more.

John Williams: So you’re going to see a Democratic, democratically run DOJ do the same thing as far as the ACA is concerned. They’re not going to take any litigation position that’s going to undermine the ACA. Now, what Republican Attorneys Generals across the country are going to do could be a different story. We all know that there was oral argument before the court last month, no one really believes that the ACA is going to be taken down in its entirety. It’s much more of a political issue that was both put out during the campaign. We should get that opinion next year.

John Williams: So it’s really going to be up to Republicans at the state level to decide what lawsuits go forward against the ACA and that might reach the Supreme Court because the Democrats are not going to do it. It’s long been a political issue and I don’t see Democrats doing anything that is going to undermine that in the future. So I would be surprised if we get much more ACA related legislation, or excuse me litigation before the Supreme Court in the next four years.

Libby Park: Okay. Well thanks for your thoughts on that as well, John. I feel like we’ve covered a lot of ground today and I’ve learned a lot and I know you have a wealth of knowledge so thanks so much for sharing it with me and with our listeners today.

Libby Park: For folks that tuned in if you would like to pick John’s brain or my brain please feel free to reach out to us. John’s email is jwilliams@hallrender.com and mine is lpark@hallfrender.com. And as always, if you have any topics you’d like to hear covered on the podcast please feel free to email me directly.

Libby Park: Thanks for your time today, John, and thanks to our listeners for tuning in.

Health Care Real Estate Trends Observed During the COVID-19 Pandemic (Webinar)

May 14, 2020 Libby Park 01:02:22 Comments Off

Health Care Real Estate Trends Observed During the COVID-19 Pandemic

Join a panel discussion hosted by Hall Render attorney Libby Park with health care real estate professionals John VanSanten, Managing Director, Valuation Advisory, Stout Risius Ross, LLC; Lorie Damon, Managing Director, Healthcare Advisory Practice, Cushman & Wakefield; Perry Bacalis, Broker, Denver Medical, Carr; and Shawn Janus, National Director, Healthcare, Colliers International.

The conversation will focus on health care real estate trends observed through the COVID-19 pandemic to date and what health care entities may expect in the months to come. Some of the issues to be discussed include rent relief, fair market value, considerations for re-opening medical practices and other issues related to a return to “normalcy” post-COVID-19. Time permitting, the webinar will open for questions from participants.

Podcast Participants

Libby Park

Attorney
Hall Render

Shawn Janus

National Director, Healthcare
Colliers International

Lorie Damon

Managing Director, Healthcare Advisory Practice
Cushman & Wakefield

John W. VanStanten

Managing Director, Valuation Advisory
Stout Risius Ross, LLC

Perry Bacalis

Broker, Denver Medical
Carr

Episode Transcript

Libby Park: Hello and welcome to the Healthcare Real Estate Advisor Podcast. I’m Libby Park, a healthcare real estate attorney with Hall Render. For today’s episode of the podcast we are going to listen in on a webinar that discusses health care real estate trans observed during the COVID-19 pandemic. I hope you enjoy the podcast and feel free to contact me at lpark@hallrender.com with any follow up questions you may have.

I like to thank everyone for turning into our webinar today to discuss healthcare real estate trans-observed during the COVID-19 pandemic. My name is Libby Park and I am an attorned with Hall Render. The largest healthcare focused law firm in the country and then based out of our Denver Colorado office. I work primarily with the firms reals estate service line and it’s my pleasure to be here with each of you over the course of the next hour for our discussion. I like to start of today by thanking all of our healthcare workers on the front line that are working to keep our community safe.

We appreciate the work you do each day. On the webinar today we are joined by distinguish panel of experts in the healthcare real estate field. John VanSanten, Lorie Damon, Perry Bacalis and Shawn Janus. Each of whom will introduce themselves to you in a moment. Our goal in hosting this webinar is to bring a group of professionals together to talk about best practices in industry trends affecting healthcare real estate during the current public health emergency. We will discuss topics including rent relief, fair market value, reopening considerations and what a post COVID-19 return to normalcy may look like. Our goal is to learn from one another and our panel and take the information back to our respective organization. And with that lets hear from our panelist. John could you please start out introductions and tell us about yourselves.

John VanSanten: Sure. Libby I’m happy to be a part of the panel. My name is John VanSanten. I’m a managing director [inaudible 00:02:11] as a financial consulting firm that has a number of service lines including investment banking, dispute consulting, management consulting and valuation, which I’m a part of. And valuation includes business valuation, machinery and equipments as well as real estate valuation. I’m based in our Chicago office although this firm actually has offices in 16 cities around the country as well as some international offices too. So I called the real estate valuation practice for stout and I focus my practice on healthcare real estate where I’ve been practicing for about 30 years and we do valuations in the healthcare space for a variety of purposes including stark. And as I kicked back compliance and other matters as well. Very happy to be part of a panel.

Libby Park: Thanks John. Lorie, can you please introduce yourself?

Lorie Damon: Sure. Thanks Libby. I’m Lorie Damon. I lead Cushman and Wakefield’s healthcare advisory practice. I have a team of roughly 300 healthcare real estate professionals who collectively manage 34 million square feet of medical office and ambulatory assets. We also provide advisory and transaction expertise for healthcare systems, physician practices and investor owners and developers.

Libby Park: Thanks for that Lorie. And Perry, can you please introduce yourself?

Perry Bacalis: Thanks Libby. My name is Perry Bacalis. Thanks again everybody for being on the panel of your time this morning. I’m honored to be on a panel with everyone. I am a healthcare real estate advisor, a broker here in Denver. Company I work with is called Carl Health Care Realty. I’ve been with Carl for about six years. When I joined Carl, there was four of us in Colorado. And now there are over a hundred men and women across the country representing real estate professionals. We’re a tenant buyer only firm. So it’s exciting to watch our company grow and to be helping people that help people.

Libby Park: Thank you Perry. And Shawn, please tell us about yourself.

Shawn Janus: Thanks Libby. I’d also like to make a note to thank all the health care workers. Any of you may be on the phone as well. So we do appreciate all your efforts. My name is Shawn Janus. I’m the national director of Healthcare for Colliers International. So I run our US healthcare practice seven of business for over 20 years on both the principal and advisory side. Colliers is a global organization in the real estate side full service. So we do brokerage, capital markets advisory, project management, et cetera. We actually have we pride ourselves on kind of taking national best practices, kind of the healthcare level and having local brokers and advisors deliver that at a local level. So we have a healthcare [inaudible 00:05:14] program, which are folks dedicated to the healthcare space in our specialists. And I’m looking forward to today’s discussion.

Libby Park: Thank you Shaw, and thanks everyone for those introductions and for telling us more about what you do each day. Now let’s jump into our first topic of rent relief. Landlords and tenants across the US are experiencing the financial ripple effect of the COVID-19 crisis, particularly as it relates to payment and collection of rent. Shawn, what types of rent relief structures are landlords and tenants asking for in order to deal with the pandemic?

Shawn Janus: It would be interesting. I think one of the unique things, and obviously I give him a nose out of the real estate asset classes the industrial space has fared better than most. I think healthcare is probably potentially best positioned after that currently. Just to give some perspective, it’s been a read the wall street journal today. You look at retail tenants and SL-green, one of the largest owners of space in New York city, their April rents were less than 40. They received less than 45% of their April rents. By contrast in surveys that we’ve been doing across healthcare owners across the country on the landlord side. On April rents 14 to 18% on average is either tenants who have sought rent relief or have come to some conclusions with their landlord relative to how that would be held in going forward.

Shawn Janus: I think most importantly, it’s important to communicate and openly early and honestly between landlords and tenants so that folks are aware of what’s going on. I will tell you, landlords typically want to see when tenants are coaching them for potential rent relief. They’ll want to make sure that the tenants have pursued the PPP applications with the federal government or the payroll protection plan. They’ll also typically want to see financials of those tenants as well. So they can make prudent decisions and try to keep them moving forward as well. In terms of specific structures, it’s interesting. I think hospital and health system owners typically have a standard policy is what we’ve seen relative to how they deal with tenants. A part of that is I’m sure folks on this call know we have the blanket waiver of the cert provisions, et cetera.

Shawn Janus: And even given that the uncertainty of what things will look like afterward had caused the hospitals and health systems to try to get to a situation where those treat each of those tenants in a similar manner. So again, a standard policy. A contrast that to the investor developers who are approaching it more on a case by case basis. And again, we’ll work with each particular tenant given their circumstances and try to work out what that relief might be. To specifically address kind of your question, Libby, in terms of what we’re seeing in the marketplace currently, I think on average it’s fair to say we’ll probably the two to three months rent relief rent before rural situation for most folks, how that is then dealt with from the landlord tenant perspective changes a bit in terms of how it might be structured.

Shawn Janus: We’ve seen it where those two three months may be paid back at the end of the calendar year or paid back over the last two to three months of the calendar year. We’ve also seen it where the rent deferral has been amortized over the balance of the lease term. So you’re capturing over that time. And we’re also seeing it whether it be amortized it over just this calendar year. So if you get two months of deferral, you would then take you through say June, you would end up resenting amortize that over the July through December period. We’ve also seen in a couple of instances where they’ve added months to the end of the term to extend the term as well.

Shawn Janus: Some of those examples are two months extension for every month of deferral. So if you were to do for your rent for two months, you would add four years of term onto the back end as well. So again, those are the few examples of what we’re seeing. But again, I think most importantly, it’s the tenants approaching the landlords early, honestly communicating. And I think the landlords in most cases then will deal with the tenants may ask for certain financials, as I said, PPP applications. But that’s kind of what we’ve seen in the marketplace.

Libby Park: Thanks for that Shawn. And Perry, can you speak a little bit to what you’re seeing from the tenant perspective of what type of documentation landlords are requesting? Is it similar to the same things Shawn is making through here?

Perry Bacalis: Yeah, absolutely. I mean Shawn covered it pretty thoroughly, but I think what interesting question that I’ve gotten from several clients of mine is, should you approach my landlord on this one or do you want me to do that? And typically, if the lease is coming up in the next 18 months, year to 18 months, I think that’s an appropriate time to talk about a renewal potentially. And giving free rent right upfront as you’re renewing obviously the term extends and then you get the free rent now which is helpful.

Perry Bacalis: My response to my clients when they asked me that question, who should approach a landlord? It’s well, if you’re going to think about a renewal and that’s coming up within the next year, let’s have that discussion together and then we’ll negotiate with the landlord. I would negotiate for you. But then if there’s time left on the lease we’ve encouraged our clients to do exactly what Shawn was saying is, approached the landlord. It’s personal. We’re not just trying to leverage extra money here. We can’t pay this rent or we need relief here. This is what we’re doing. And so I’ve advised our clients to go and have those conversations. And then if they say that got a deal or some terms that they’re not sure about, we’re happy to advise them on.

Perry Bacalis: But that’s one thing that I’ve just said, “Hey, I think it’d be good for you to have that conversation with your landlord and I can get involved to say if I need to.” And so far I think it’s been pretty good. Right when this all just started happening, there was a lot of questions and fear, but things have really kind of flat-lined a little bit in terms of that hole that kind of fear based mentality if I can’t make rent. So yeah, it’s changed even in the last couple of weeks on that one.

Shawn Janus: This is Shawn. I would add one of the things which I found somewhat interesting is kind of piggybacking off that comment is some of the landlords have actually… we may have approached them, the clients, like the tenants would like us to do that. Some of them have actually reached out directly to the tenants themselves. It’s up you to not less renewals and more kind of rent to full discussions. And part of that we believe is just because they don’t want to be on the hook for potential lease commissions. In terms of restructuring these things, I would tell you that our approach has been as advisors to our clients that we’re not looking for commissions. We’re trying to find the best solutions for those we believe with a longterm that would come back. So I do point that out that some landlords are talking directly to the tenants who haven’t been going through some of the leasing brokers.

Perry Bacalis: I’d agree with that as well.

Libby Park: Can anyone speak to in terms of standard policies that you’re seeing from healthcare systems, what exactly are the specifics of the terms of these policies? Does this vary by healthcare system or are you saying consistencies nationwide with the policies that are being implemented?

Lorie Damon: Libby if you’d like, I can jump in here across our portfolio about 80% of the square footage that we manage is owned by health systems or master leased by them. And by and large, their approach has been a short term deferral either 60 days or 90 days. Very few have looked beyond that. All of it is structured as a deferral and it’s either repayable through the end of the calendar year or through the end of the year as defined by the term. A few of them have also amortized it or have tacked it on as additional rent at the end and almost every case it’s structured as additional rent and late fees and interest are waived.

Shawn Janus: I would agree with Lorie’s comments. I would say that specifically to your other part of that question, Libby, is that while within a particular health system we typically standardized, but across the country from health system, the health system it may be a little bit different. So we’ve seen each of those act independently, but typically with a standard procedure,

Lorie Damon: Yeah. Applicable generally to everybody. In the interest of out of an abundance of caution. Stark as the blanket waiver doesn’t specifically address rent deferments and they do still typically have to be sensitive to looking like they’re not incentivizing referrals. I think it also just makes it administratively easier frankly.

Libby Park: Yeah, I agree. Thanks for those perspectives everyone. Making sure that there’s a process in place and standardized documentation is very important as we move through the COVID crisis. And unless anyone has anything to add on to rent relief. Let’s move on to our next topic of discussion. Fair market value. John, can you speak to what you’re seeing in regard to the pandemics effect on valuation and how our healthcare systems assessing fair market value currently?

John VanSanten: Sure. Well, even under normal circumstances it’s always very facts and circumstances specific. But under current circumstances I would say it’s even more so. And as appraisers, one of the challenges that we have is that a lot of our analysis in our opinion is based on analysis of recent comparable transactions. And so if you’re talking about a leasing arrangements under normal circumstances, if we were able to find a comparable lease of the property next door from two months ago, we might say that’s probably a really good indication of a fair market rent for the space we’re looking at. But obviously a lot has changed in the last two months. And so, relying on that transaction even that recent may not necessarily be the right thing to do. But then the challenge there is that we’re really about the end of this because there haven’t really been recent transactions that we could point to that really show the impact of the crisis.

John VanSanten: Oftentimes not a lot in the way of recent comparables that we can point to that says that market rather is an indication of what rent is, posts or while we’re into the crisis. So in the absence of actual transactions though, we can turn to what we really have to do is spend a lot of time talking to participants in the market. And talking to the people on this panel trying to understand what is it that they’re seeing, what are they hearing? What kind of arrangements are they hearing about? Whether it’s rent concessions, rent relief or for purchase and sale transactions. Are they working at a different cap rate now or are they looking at underwriting with a greater level of credit and collection loss? All of the things are conversations that we’re constantly having as appraisers to try and understand in the absence of specific transactions that we can point to, what’s going on.

John VanSanten: And we might still rely to some degree on that two month old transaction, but now we at least have a basis for being able to make some adjustments to that to reflect the current state of what’s going on. But read a lot on what that, one of the questions you ask, we often are asked as appraisers is, well, why was that opinion good for you? Is it good for a month, two month, six months? If you’re saying the fair market rent today is $20 a square foot, is it going to be $20 a square foot a month from now? And I think with the uncertainty in today’s environments there’s no guarantees that it’s going to be the same amount from now. It could literally change in a week potentially.

John VanSanten: And again, it’s all going to be very facts and circumstances specific. But I think it’s probably good practice when you’re getting an FMB opinion. And there may be some delay between one the opinions rendered and one the transaction actually closes that you might want to circle back with the appraiser to find out if there’s been any material changes in that intervening period of time. But those are some of the things we’re definitely seeing and things we’re dealing with in today’s environment.

Libby Park: Thanks for that John. In light of as you mentioned, the lack of recent transactions to base these valuations off of. And it sounds like you’re keeping a pulse on the marketplace. How do you recommend that client’s document these types of facts and circumstances to support the valuation?

John VanSanten: Well, typically if we’re preparing an appraisal report, we would document those facts and circumstances within our report and all the different considerations we’ve taken our analysis. We obviously have points actual transactions, but we would also document the conversations we’ve had with brokers who are actively involved in leasing space or investors rationally buying a space and just document the kind of conversations that we’re having. So that definitely would be part and parcel of any kind of fair market value opinion that we provide. It would be included within our appraisal. But again, I think it’s important to understand that things could change very rapidly. And I think it would be a best practice to circle back, particularly if there’s some delay between one of the tenants issues and when the transaction closes.

Shawn Janus: This is Shawn. I might weigh in on, in terms of valuation trends just on some of the disparity and maybe this way to describe it relative to cap rates. And John brought that up in terms of where cap rates may or may not go kind of in the future. Some of the surveys that we’ve been involved in that I’ve seen, I think we’re predicting kind of the cap rates within the healthcare sector could go up 25 to 50 basis points. On the outlier side, they’re saying they could look 50 to 100 basis points. Over the last week, I’ve actually had other conversations which are actually saying that they believe that the cap rates or healthcare properties may not move much at all. And the reasons for those being that healthcare, everyone believes coming out of this will be a preferred asset class.

Shawn Janus: Some of the other ones, retail in particular obviously hospitality, some of those stand out in terms of how they will be affected by the crisis. But I think we’re getting more and more questions from investors who are looking to get into the space. So there may be additional supply of capital coming into the space, which then will obviously keep cap rates at a lower level. So to be interesting to see how it plays out, no one has the crystal ball, but I think there’s at least good news from a healthcare perspective. I know there’s healthcare folks who are on this call that cap rates should not be significantly impacted. They may creep up, obviously.

John VanSanten: Yeah Shawn. What we’re hearing as well, we work with a number of real estate investment trusts and other types of investors as well. And in general, what we’re hearing is they don’t anticipate cap rates changing much. And then their underwriting, they may be forecasting greater credit and collection loss in sort of a short term basis. But from an overall cap rate standpoint, they’re not necessarily, we’re seeing a big change there.

Lorie Damon: John, this is Lori. I would agree with all of that. I think one of the other really important considerations on pricing is the quality of the assets. So I think a cap rates, we’re not seeing much movement there on anything that’s core or core plus particularly if it has a strong health system credit. I think the more interesting and possibly more volatile sector is going to be what happens with the value add properties. With a lot of different physician tenant credits, especially smaller physician tenants, we don’t yet know what the longterm financial impacts of this are going to be. And even as elective cases start opening back up, I think it’s really difficult in some cases for smaller tenants maybe to forecast what their revenue stream is going to look like and how quickly they can recover their patient base, and work through what may be pent up demand.

Lorie Damon: So I think that’s a really important segment of the industry that we’re going to have to keep a close eye on. I also think that longer range as investors if more capital comes into this sector that may allow pricing to remain what it was. But it’ll be interesting to see how investors who are new to the sector underwrite the risk. I think a lot of them have been surprised that medical office actually saw rent really for costs. I’ve worked in the sector for more than 20 years and I’ve never seen that before. And much of that was by what was perceived as a government edict to shut down caseload. So I think as we get a flock of, or potentially get a flock of new investors to the space will be interesting to see how those new investors look at the factor, how they underwrite it, how they come to understand potential risks that they may not have foreseen in the past.

Libby Park: Thanks for that, Lorie. You raised an interesting point about how these considerations will be relevant as we transition into the next phase of reopening medical practices. And we’re all likely aware that on April 19th CMS issued its recommendations for reopening healthcare facilities for non-emergent non-COVID-19 care in certain communities. And Lorie, can you speak to how healthcare clients are readying their buildings for resumption of service and what are operational considerations as practices begin to resume activities?

Lorie Damon: Sure. So across our portfolio, 100% of our health system clients are now working through their internal planning to open up elective cases. Obviously that will be phased and they will work through the requirements issued by CMS to be able to safely open up hospitals and [inaudible 00:25:20] of course, will go first. And then because many medical office buildings have surgery centers and then we’re preparing the buildings now. There are of course many, many consideration. 100% of our medical office buildings have remained open throughout this, but patient volumes have been significantly curtailed. And a lot of physician staff maybe in there, but their patient flows are much lighter. So a couple of things that we’re thinking about and working through on our case, all of this is directed by the by health systems who are the owners are masters lessors of the buildings.

Lorie Damon: One of the considerations is just looking at the volume of people coming into the building. A number of health systems restricted visitors so that they have a patient drop-off. And patients can not be accompanied unless they have a need for a helper to get them physically into the building. So in some cases those restrictions will remain in place. We’re looking at restricting ingress and egress to specific entryways so that you can carefully control the flow of patients. Limiting the number of patients in elevators is another one. There’s still some discussion about screening and whether or not patients will be screened. In many cases patients are going to be screened in advance with a phone survey. But then many health systems are also looking at doing some form of temperature screening at the entry prior to the entry to the building.

Lorie Damon: So those spaces will have to be set up and secured against an inclement weather and staffed to lots of discussion around cleaning and making sure that they’re all common areas and high touch surfaces are cleaned adequately. Everyone is concerned about making sure that buildings reopened safely. I think one of the other challenges is making sure that not only that we can document the safety initiatives that we’re taking, but also that patients sense that they are safe. So the building is going to have to look and feel and smell clean in order for patients to feel good receiving things like preventative care visits and the like. So far some physician practices are looking at having patients check in and then wait in their cars until it’s time for their appointments so that we can reduce waiting room traffic.

Lorie Damon: And I think in markets where that’s accessible and parking is available that’ll probably end up being a popular choice. So those are the primary considerations. Lots of additional I would describe this as a work in progress. We’re working through that with individual tenants and trying to develop very specific documents to guide those protocols. And also reminding our team to be flexible because the best practices are likely to evolve over time and shift a bit as we understand better what patients need and what works most effectively in the various settings.

Shawn Janus: This is Shawn. The one thing I would add, I agree with everything. We’ll reset it and it goes over those are spot on in terms of the things that owners of medical office are looking at along the extended building hours. The other thing I was going to bring up, and this is less of a real estate issue than it is an operational issue or operational potential solution. So for example, for AFCs where they may have a staff on a percent of their people, they’re shifting those to where they’re actually at the other day using 50% of that staff on Monday. 50% on Tuesday, and then rotating that and it makes a whole bunch of sense. And the reasoning being if they do, God forbid have a positive COVID test, they would need to quarantine and self isolate for the 14 day period potentially. So at least then they would have the other 50% of the folks who could step in and begin working every day. So the theory being you’re obviously not going to lose a hundred percent of your revenue, but if you can be able to keep 50% of that revenue on a limited basis moving forward. So I think those are some of the creative solutions that health care providers are looking at, ways to kind of keep the business going in a thoughtful manner.

Lorie Damon: Yeah, I think that’s a great point Shawn. And we’re doing the same thing with the building management and engineering staff. Creating teams and rotating them to limit their risk of exposure already throughout the pandemic today. We’ve staggered hours for maintenance and try to schedule preventative maintenance or even repairs that don’t have to be done immediately. Try to do those when there’s nobody in this suite. And a lot of tenants have said that they’re going to do some of their own cleaning particularly wiping down exam rooms between patient visits just to mitigate their risk and mitigate the introduction of yet another person into this space. So I do think we’re going to see slower volumes of patients based out. That may mean that building operations hours get extended. But I do think we’ll see that phase over time and not be the immediate response.

Libby Park: It sounds like there’s already a lot of movement and implementation of practices and procedures to make sure that buildings are reopened in a compliant manner. And maybe this is evaluation question, but generally as we progress through COVID, who do we think is going to absorb these costs in relation to even cleaning or screenings? Will these be passed through to tenants? How will the owners or landlords of buildings absorb these costs?

Lorie Damon: I think that’s a good question Libby. I think it’s going to be interesting to see. I think it really depends and buildings that are owned by health systems, I think if they’re being prescriptive about what happening they may agree or feel obligated to shoulder some of the costs. I think the other issue here is the duration. Certainly additional cleaning in common areas and for instance staffing a security guard in an elevator so that one person pushes the buttons and not every patient pushing buttons to whatever for the floor they want to go to. I think there’s a case to be made that those are shared expenses that benefit the entire tenant base.

Lorie Damon: Again, I think this will require some negotiation. It requires being able to forecast what those costs are going to be so that all parties, the landlord and the tenant base understand what those additional costs will be. And then I think wherever possible and appropriate looking really hard at where other operations savings can be accomplished to offset some of these costs so that physician tenants and even health systems who have experienced pretty significant financial hardship are not also then upon resuming in cases facing significant additional capital outlay as they try to ramp their businesses up. John, I don’t know what your thoughts are on that one, but that’s my off the cuff hunch.

John VanSanten: Yeah. I mean I would agree with it. It’s really hard to say for sure. But I think you’re off the cuff conscious probably. I mean similar to what I would think as well, so we’ll just have to wait and see how it all plays out.

Libby Park: And how are we seeing which this can be open to anyone, but how are we seeing the transition for reopening in regard to short term leases that have been put into place to deal with the COVID-19 crisis? For example, repurposing AFCs or potential leasing of hotel spaces. How are parties thinking of transitioning out of those short term arrangements?

Lorie Damon: So I haven’t seen any movement on them, I think one of the remaining questions is really understanding or trying to feel like you have a good grasp on what potential additional capacity is going to be needed. And so a lot of health systems really expanded their bed capacity and especially their ICU bed capacity. And some of them did took down short term leases and AFC is in order to have that on the shelf. I could envision that if they think they have enough capacity in the event of a second wave or an unpredictable reopening where they can’t accurately forecast the number of potential cases, that they may allow some of those AFCs to either be sublet back to their original users. So that they can resume caseload there.

Lorie Damon: Some of them may just leave those short term leases in place. I mean most of those leases least the ones that I saw were only three or four months in duration. And the health systems who took them over took complete control of them. So there would be no switching back between hospital use and non-hospital use or regular surgery center use. So some of those may just be easiest to leave them in place in the event of needed capacity. I haven’t seen directives on that one yet, but I’m sure that will get figured out in the coming weeks.

Shawn Janus: Yeah, I would agree with Lorie. I think Lorie, that was well put and this is kind of one of the areas of which so many of these are, which is we have to see how things play out a bit. Obviously there’s two components to that. There’s those that kind of health systems are controlling as you mentioned AFCs and then you kind of have the whole other world of what municipalities are doing, whether it be replace here in Chicago, which were converted to hospital beds or the Javits center in New York. And there’s examples around the country as well. So some of those will be driven by municipalities in terms of what kind of that excess overflow capacity might look like. Some thing thing with as it relates to the leasing of hotels, which are I would say hard hit city of Chicago has as least hotels on two fronts.

Shawn Janus: One, they actually house those who have tested positive for COVID-19 but not serious condition, but just need to be isolated and not being in intensive care. And then also other hotels which are effectively have been leased so that health care workers can utilize those facilities to isolate from their families as hard as that may be as a way to that effect those families as well. So you have the two components with our hospitals and health systems doing on that front and then what are the municipalities doing. But I do think it’s a big swag in terms of how things continue to progress over the next weeks and months.

Libby Park: And that’s a common theme that we’re all in this together and we’re all taking the pulse of how things will progress over the coming weeks and months. So I think having discussions like we are today so that we can share knowledge amongst each other and best practices for handling these things moving forward is important. Thanks for those perspectives. Let’s shift to our an extension of our consideration for reopening topics. Perry, could you speak a little bit on the tenant side of what the most pressing issues are relating to the return to normalcy post-COVID and in particular, what are physician practices thinking through?

Perry Bacalis: Yeah, that’s a great question. So two things come to mind there. One is the insurance reimbursement lag coming. I feel like there’s been a lot of practices that have said, yeah we’re good now. But what is maybe going to look like in June, and that some of those things start to drive because our traffic has been at a fraction of what it was last couple of months. So there’s that aspect. Hopefully most of those practices have the rent relief in place. But really that’s just going to give them an idea of okay, those practices that have kind of that tag or savings saved up so they can kind of weather the storm. I think that’s going to be one of the most interesting things to see. But I think going forward once we kind of get over that hump and obviously going back to speaking to that the telehealth that those insurance companies are reimbursing those visits at a 100%, so like a regular office visit.

Perry Bacalis: So does that continue, does that go back to where it was before all this sort of happening? Is there going to reimburse it at 50% going forward? How is that going to affect practices? And I think the biggest concern or question really that most of my clients are having is what is my space going to look like going forward? The physical space itself which goes right back into telehealth, has something like that. Something we’re going to be able to do, we’re going to be able to do follow up visits where they don’t even have to come back into the office. What is my waiting room going to look like? Are we going to have folks wait in their car and then come in right as their appointment comes in. Our waiting room is going to get bigger. Are they going to get smaller? Is the six feet distancing a new normal now? So is that going to impact our space? I’ve got multiple clients right now. We’re planning on okay, what’s your space gonna look like in the future on relocation, or renewal.

Perry Bacalis: They don’t know how to plan their space out. How’s it going to change. And I will be interested to see kind of the new future space knowing that hopefully this is the last time something is this large of a pandemic will be around. But in the future, what could be more we’re prepared for how can our spaces be laid out for the new normal. And I don’t really have an answer to that, but that’s something that I’ve got several clients going. I wish I knew how the space is going to lay out. So that’s the main thing I’m seeing and trying to advise my clients the best I can. I would be curious to know what other folks are seeing out there with how physical spaces are going to change.

John VanSanten: And Perry, you bring up some great points to Shawn in terms of I think that… the best news is that this is what people are thinking about here over the course of I’ll call it the last week, whereas before it was what am I doing the next minute, the next hour from a health perspective as a healthcare. I think it’s a positive perspective that we’re starting to think about getting back to normalcy and what are some of those implications. Let’s get out in front of this beforehand. Obviously testing which is all over the news will be a key component of that. And you’re right Perry and things of people are conjecture at this point. I mean, obviously some of the things that you touched on that Lorie touched on earlier, which I thought were great points in terms of single entrance and exits.

John VanSanten: One way thoroughfares through the space, checking in online, getting rid of the front desk in terms of check-ins, the waiting room was it can be boys in their cars. And then kind of get texted and say, okay, it’s your turn to come in. And there was just having a larger waiting things that may be congregating and all those types of things. The other interesting thing that you mentioned, which is kind of that telehealth component, I think that’s from my perspective will be one of the more interesting components that will flush itself out in our space. In the healthcare world States the healthcare space has been talked about for a long time. It’s really been a slow adoption of telehealth, telemedicine and I will tell you primarily two reasons. One is as you touched on reimbursements and that the fact that they weren’t being reimbursed.

John VanSanten: And then secondly, the fact they’ve relaxed the kind of interstate guidelines as it relates to that as well. So it will be interesting to see what happens after this and how that changes. Some of those discussions have been, we may need dedicated space within our offices that we’re going to use for telehealth, so that providers, whether it’s nurse practitioners or physicians, will be kind of doing the telehealth within a certain component of the office. So I think it’ll be interesting. I think originally people were thinking, boy, could this is going to shrink the space that’s needed. Will this grow the space that’s needed? And I think it’s a big swag at this point. But I think all of those things been positive news again, is that they’re on the table and people are starting to talk through it. And what are those solutions and what will that look like.

Lorie Damon: I also think it’ll be interesting to see, particularly with respect to telehealth with how well it really works. There’s been a lot of those, a lot of headlines lately about patients who have experienced really serious health issues, who’ve been afraid to go to the Ed. So the incidents of heart rates was down, but not really. People were having a heart attack at home. And that they have a stroke and appendicitis and all sorts of things, all of which is not easily diagnosed from telemedicine. So I think one of the interesting questions that we should ask out of this is what are we going to, what do we know about the quality of diagnostics available to us from telemedicine on the back end of this? Because I think between, the answer to that question and then how reimbursements are going to change or if reimbursements are going to change.

Lorie Damon: And then the regulations around patient privacy that allow telehealth that have been lifted to allow, for instance, a FaceTime visit with your doctor to count as a check-in. Are all going to really dictate what the demand for whether or not telehealth has any impact on demand for space or the kinds of space in a physician office or whether it gets aggregated together in some other telehealth hub. I think we’ve got to have some better data around how it works and how it is assessed using really rigorous scientific measures in order to help guide those decisions for patients. I do think we might see the pace of adoption accelerate, but I think we’re still a long way out before we see it have really dramatic impact on a footprint.

Shawn Janus: That was a great point Lorie. This is Shawn Janus. I agree with that completely. It also hearkens back, it struck a chord when you had talked about read the same things in terms of heart attacks or cancer screenings and folks not wanting to go into the healthcare environment. And what could the impacts of that do? So I just tie that back to your earlier comment in our discussion, which is really getting the confidence of the consumer of that patient to be comfortable coming back to the hospital and, or the medical office building. And, we as real estate advisors and providers need to make sure that that space is designed in the correct manner so that they do feel safe if you have the social distancing, we have the way finding and all those types of things. And even to your point, the back that even the air quality such that it smells clean, it looks clean are all gonna be very important cause that’s going to start getting us back the road.

Lorie Damon: And it may be that, it’s not an all or nothing solution. I was talking to a colleague yesterday who his partner is a diabetic and there’s a lot of concern around his underlying health condition. That’s also a condition that can be safely monitored remotely. And there are lots tools in place already to do that. But for other conditions that may not be so easy. The other, comment I would share on tele-health as I was thinking about this because I used to work in higher education and I remember when online learning was first launched that everyone, the naysayers came along and declared that professors were going to go away and university classroom footprints were going to shrink. And there were all of these very dire prognostications about that.

Lorie Damon: And now of course that many of us who have small children are at home suffering through online learning are grateful to have it or whatever your perspective is. I don’t know very many parents, teachers or even students for that matter who are not going to run back to a physical classroom the very minute that they are able to do the fel. I mean, even my son who has pretty good setup for online learning told me this morning, he was like, mom, I’m so sick of this. I actually cannot wait to go back to school. And so I have a feeling that for some dinner, racially speaking, I think patients may also feel the same way, that they might just appreciate some of the social aspects of being seen physically and in person by a doctor.

Perry Bacalis: I’m with you there, Lorie. This is Perry. I’d love to just interact with another human, that’s not my family.

Lorie Damon: Right. Like even if I have a hangnail, I might just go ahead and make an appointment because why not?

Perry Bacalis: And the excuse to see another human being having a conversation.

Lorie Damon: Great that’s an in person visit would be great.

Perry Bacalis: Yeah. No, I agree with that. I think, just like in any other major event that happens, we learned from it, take the best practices and we adapt and going forward. But things are going to be, 90% the way they were beforehand. We just, take the best practices and move forward. I think that’s what it’s going look a lot like going forward.

Libby Park: It sounds like it may be a little early to see health systems reconfigure, pared down a brick and mortar spaces in light of the fact that we all are craving social interaction. But can someone speak to bottom line considerations that executives should think about as we progress through into the new normal if brick and mortar spaces are a real necessity? Or to what extent brick and mortar spaces should remain?

Lorie Damon: I’m a believer in brick and mortar. And I don’t think that’s wishful thinking on my part. I just think there’s an awful lot of medicine that must be done in person and especially for specific patient populations who are chronic disease or complex comorbidities. Caring for them is really, really challenging and it requires a lot of a lot of diagnostics that cannot best be done remotely. It also requires, I think, medicine in recent years has moved much more to teaming to treat some of those chronic conditions and that requires interaction among care providers as well as with the patient. So I just can’t imagine really even in my wildest dream having technological tools really quickly that would supplant or replace as fully what is accomplishable in an in person visit.

Shawn Janus: This is Shawn. I would agree totally Lorie. I think from, bricks and mortar, we’ll always, we’ll always have a place and again, the makeup and what that looks like may change, may shrink, may grow, but I think it is important for some of the reasons you mentioned. And also healthcare is at its nature, high touch. I mean as you guys were, as you and period we’re talking about with your kids and schooling and the wanting to see other people, it’s the same thing. And even accelerated when we talked to our physicians, you have a physician you can, get personally interacted with.

Shawn Janus: Do you have an emotional connection with doing that over the phone or via telehealth or the other setting technological settings. It’s not the same as seeing your physician. So will change and most likely will change. And we all, none of us have the crystal ball, but we’re beginning to work through that. I think you know, the bricks and mortar component will continue for my lifetime for sure.

Lorie Damon: If I think back to higher ed and what happened after classrooms, after we equipped classrooms with computers and facilitated some version of online learning, almost everything became blended. It did. One did not complete supplant the other. They started to work in tandem and in fact, many universities put prints grew, they didn’t shrink. And so it be interesting to sort of keep those two situations in tandem and look to other industries to see how widespread technological adoption is going to work. I mean, one of the challenges that we’re seeing now with online learning across an awful lot of the United States is that a remarkable number of people do not have reliable internet access. And I think, widespread adoption of telehealth really requires that.

Lorie Damon: And that conversation really needs to proceed because some of the places now that are most susceptible to COVID and are experiencing really significant issues related to dealing with the pandemic are in rural markets where there’s limited hospitals, limited numbers of ICU beds, limited numbers of clinicians to care for these people. So, just at the very pragmatic brass tacks terms, we can’t adopt tele-health widely unless we’re sure everybody has access to the internet and to technology that can facilitate it.

Shawn Janus: Yeah, I would agree. And as Perry had mentioned earlier, we as a society here in the United States in particular, we learn from things that have happened and not just as it releases pandemic. And ways to go for [inaudible 00:52:29] going forward we’ll be able to address this in different ways. But to your point, Lorie, I think being able to take best practices from other industries who have dealt with things which are similar, different but similar in ways that we can leverage that and be more efficient as we roll this out. I would agree with that.

Libby Park: Those are great points. Thank you. We’ve been receiving questions throughout on the webinar Q&A platform as well. And we have one that I will post to the group from one of our participants that’s state, excuse me. We’re seeing conversations regarding future design and build senior housing in light of the potential paradigm shift in the delivery of care. Can anyone offer any early insight on the potential evolution of senior care?

John VanSanten: I’d be happy to kind of do my observations with John. So we do a lot evaluations to senior housing facilities. You have the full spectrum from independent living, the assisted living, the memory care to nursing homes and we’ve all certainly heard the tragic stories of what’s been happening in some of the nursing homes as well as some of the assisted living. And there definitely are some concerns that we’re hearing that may cause a big paradigm shift. And how those types of facilities are designed. Do people really want to go to a facility that has 90 people all congregate in a close quarters like that where something like Corona can be so easily transmitted from person to person. And typically that the move to a facility like that is more driven by a healthcare need rather than a lifestyle choice.

John VanSanten: So they have to get the care from somewhere. And so the most logical alternative is home health. And so you start to wonder, is there going to be more demand for home health as opposed to people moving into these facilities? Or are they going to have to change the design of these facilities to be able to sort of protect people who live there and give them the sense of security that they’re not going to catch the next communicable disease that comes around. They’re still very early in the discussions about that, but it’s definitely some serious concerns that we’re hearing within the industry about that.

Libby Park: That’s an interesting contemplation, John, regarding the shift to home health and raises questions regarding again, cost absorption. The transition to home health becomes the new norm what will that look like. Another question that we’ve received shifting gears is in regard to construction. Have we been seeing construction delays as a result of the coven 19 pandemic? And if so, how are parties dealing with those?

Shawn Janus: Oh, this is Shawn. I can weigh in a little bit on that one. So I think I was just on a call actually just yesterday. I guess it was with a large group of investor developers and we were kind of touching on some of those similar topics. So I think from the construction side, again it varies state by state. Here in Chicago construction is continuing see crews out there and other States it’s prohibited and it’s not in steam, not non-essential or not moving forward, but I think in all instances everything has been delayed because even on the construction side when you get to that, they still are trying to practice social distancing. So obviously that just delays, it makes things slower. We also have a supply issue in terms of when you can get the supplies, how those come in.

Shawn Janus: So we are seeing construction at least on our side, seeing construction continue. The developers, in fact I’m at call I was somewhat surprised that how rosy their outlook was relative to projects they had in the pipeline. Most of those are moving forward. I’ll be it with delays, whether it be on the construction side as we talked about. Or the other piece is just getting through the governmental regulatory process getting permits done. [inaudible 00:56:36] when you get to the back end, et cetera. But surprisingly also from a leasing perspective, they were still having success in leasing those projects. Again, those are further out in the future. So folks that didn’t go looking beyond kind of the current situation and that there might be some positives. So I think that speaks both to the industry as well.

Perry Bacalis: This is Perry, same thing out here in Denver. It’s a surprisingly on track for construction. Even so much I’ve got a quite a new medical office building and obviously they’ve been delayed not being able to address lease comments, but construction still on schedule so we kind of could go in and we don’t want to miss our date. So yeah that’s one of the nice surprises is there really hasn’t been much of a delay in we are starting construction costs were an all time high out here in Denver months ago and now they’ve kind of come back down to earth too. So that’s also good for our clients.

Shawn Janus: The same thing that was also brought up in terms of the construction cost that those had escalated kind of in the short term. But they’re seeing those come down and I actually had one individual say that they foresee that construction costs overall could come down another 15% here in fairly short order.

Libby Park: We have another question. Jumping back to reopening consideration, what are the panel’s thoughts on multi-tenant medical office buildings and whether a landlord should be responsible for testing at the main entrance of the building or if the testing obligation should fall to the tenant for their own individual suite.

Lorie Damon: This is Lorie. I’ve had a thousand conversations about this matter, so I will weigh in with what I think is prudent. And with the caveat that I’m not an epidemiologist, so here’s what I think. It depends on who the landlord is. It’s a landlord as a health system and they have specific directives and many of the tenants in there are either aligned or affiliated physicians, then I think they are likely going to direct how and where and when testing is going to occur. In the early days of the pandemic, we experienced an awful lot of instances where tenants took it upon themselves to temperature screen patients and some of them were doing it in the common areas of the building and they were doing it suite by suite. That is not only problematic because the common area of the building is not theirs to use for that.

Lorie Damon: It also meant duplication of effort. So in many cases, we worked collaboratively with the tenants, with the landlord to raise the question, can this more safely be done prior to entering the building. Because the goal is to just reduce risk and reduce exposure for everybody entering this space. And then also to reduce the need for interim cleaning so that you can deep clean all of those areas maybe once a day or maybe two times a day if you need to, but try to manage how much cleaning has to occur all the time. And so I think to the extent that tenants and landlord can come to some sort of agreement that screening will happen outside of the building in a secured location and that all parties can contribute to that if all parties can benefit from it.

Lorie Damon: And some of the cases that we had, the tenants who had staff available rotated staff to perform the temperature screening. And so that became very efficient and very cost effective. It allowed for order the path of ingress into the building. So patients were notified, all of the tenants could notify their patients, hey, this is going to happen. Before you enter you’re going to have to go through a temperature screening. And if somebody’s had a high temperature, then they were directed to another entry way or were directed for additional screening to determine whether or not they should proceed with their appointment or not. I mean, temperature screening overall are murky. You can have a fever for lots of reasons, one of which might be COVID and lots of other reasons might not be. So I think part of the goal there is just the whole purpose of temperature screening is to reduce risks for everyone. And the idea of having tenants do it individually in their suite just gives me a pause.

Libby Park: Thanks for your thoughts on that Lorie. I realized that we are at time everyone and I want to be sensitive to everyone’s schedules. I’d like to say thank you to Lorie, John, Perry and Shawn for our conversation today. I’d also like to let everyone know that Hall Render publishes an E-newsletter each month called the Healthcare Real Estate Advisor and also a podcast. If you’d like to receive this newsletter, please email real estate at hallrender.com. Thank you again to everyone for joining the webinar and please feel free to reach out to me directly or any of our panelists with any followup questions. Thank you.

Libby Park

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