Health Care Real Estate Advisor

An Interview with Tamia Kramer, AVP of Real Estate, Ardent Health Services

An Interview with Tamia Kramer, AVP of Real Estate, Ardent Health Services

In this interview, Andrew sits down with Tamia Kramer, to talk about her real estate career, building a centralized real estate function for Ardent Health Services and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Tamia Kramer

AVP of Real Estate, Ardent Health Services

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today we’ll be speaking with Tamia Kramer, the associate vice president of real estate at Ardent Health Services. Ardent is a national hospital and healthcare system that’s based in Nashville, Tennessee. We’re going to talk about Tamia’s background, Ardent Health Services and trends in the healthcare real estate industry. Tamia, thanks for joining me.

Tamia Kramer: Thanks for the invite, Andrew.

Andrew Dick: Tamia, before we talk about your role at Ardent, let’s talk about your background and tell us where you’re from and what you wanted to be when you pursued a professional career.

Tamia Kramer: So I’m from a little bit of everywhere. I was a military brat growing up, went to 14 different schools. I went to college in Texas. That’s actually where I lived for the 18 years before I moved to Nashville with Ardent. Went to college at Texas women’s university, and really knew that I was fueled at negotiation and analytical review of information and decided to pursue working within the real estate industry and start as a broker, but ended up taking my career down that path. And so I bring that level of experience to this role at Ardent.

Andrew Dick: Got it. And so when you worked in the commercial real estate industry, talk about your roles. I mean, it’s my understanding you were a commercial broker, you worked for a developer. Tell us a little bit about your experience.

Tamia Kramer: Yeah, so I started out working for an industrial real estate developer and kind of an administrative capacity and that really gave me a snapshot into the industry itself and the ins and outs. And let me begin to hone some of my negotiation and analytical skills. From there, I decided to double down on that career path and become a broker. Got my real estate license working for a local firm in Dallas. And the primary client that I had to start out with was a healthcare client. I actually worked on the corporate headquarters of the former Triad hospitals campus and managed all of their real estate transactions. And then as far as the developer piece of it goes, in addition to the brokerage side of things, I’ve also gotten some experience with build-to-suit type developments related to the expansion of some of those healthcare clients and specifically art and health as well.

Andrew Dick: Got it. And so at what point did you make the transition to Ardent, talk about that transition.

Tamia Kramer: Yeah, so I was working in-house for another healthcare company in 2017. Ardent reached out to me and was interested in centralizing some of their real estate functionality at the corporate office. At the time, the real estate functions were all on a case-by-case basis at the facility level. And so that led to either a lack of visibility or cohesiveness with our strategic plans. And there was a lot of benefit to giving that visibility to the leadership team at the corporate office. So I presented to the executive team, gave them a plan on how exactly we would go about centralizing the department. And at that point, they extended an offer to me. And I took that role in mid-2017.

Andrew Dick: And to me, it sounds like when you presented to the executive team, it was really to build out a real estate department, and so what does that mean? Talk about building out a centralized real estate department within a larger health system. That sounds like a heavy lift.

Tamia Kramer: Yes, very much so it was slow going at first, a little bumpy along the way. The first thing that you have to do in trying to stand up a real estate department that didn’t exist previously is getting your arms around what you currently have, and we had a lot of lease documents, but they weren’t in a centralized location, they were not all electronic. So a large part of what I did to start was just taking inventory of everything that we have and a baseline of where we’re at and then start the process of making sure that each of those agreements is compliant, it’s current, and try to add value wherever you can.

Tamia Kramer: Another function that we work to streamline and centralize is the billing and collection of all of our income leases. So what that means is sending out rent statements to any tenants that lease space from us and then collecting on those funds and reporting those down at the facility level. Previously, the hospitals each managed that locally and at the end of the day, if rent isn’t paid, that is a problem, not just from a business standpoint, but also a compliance standpoint. And so it has helped us to get in front of a lot of those issues, kind of create a standardized process of billing and collections and not letting anything get too far gone before it’s addressed.

Andrew Dick: Got it. And so you’ve been at Ardent for a number of years now and so what are some of the key takeaways? I mean, did you implement like a centralized technology database or how did it work when you started centralizing the real estate function?

Tamia Kramer: Yeah, we did. So we have a web-based platform that we use that holds all of our real estate leases. We are able to pull reports out of that system. We use that same system to build the income tenants, their rent, and any other amounts that are owed under the lease. We’ve created a site selection, an optimization system using various demographics and business intelligence data to help us determine where we want to be and why we want to be there. So that’s added a level of improvement to the locations that we decide to pursue. Rather than taking a wait-and-see approach and trial and error, we’re trying to get it right the first time where we can. So that has significantly helped. In addition, we’ve got a data room of various floor plans, schematics measurements that we have been able to collect over the last four years by engaging a firm, an architectural firm to help us remeasure all of our spaces to ensure that what we’re releasing is in fact accurate.

Andrew Dick: So Tamia, talk about, let’s transition and talk a little bit about strategy. So one of the big issues that healthcare providers face today in the real estate world is whether to own or lease their facilities. How do you approach those decisions and does Ardent have a certain perspective on whether to own or to lease?

Tamia Kramer: So it’s approached at the highest levels, we certainly want the local division leadership and the Ardent leadership to kind of be the driving force behind whether we decide to own or lease something. I will tell you that the historic approach is into lease property. Now that does not mean that we do not own property, we have a healthy amount of both, but we do have a preference to lease. And the reason for that preference is that it doesn’t tie up large capital sums of money in those hard assets that could otherwise be deployed into operational type functionality and also an expansion of our footprint and of our various healthcare activities and market.

Andrew Dick: And so let’s also talk about the impact of COVID, Tamia, so how is the impact of COVID changed the way you’re doing business on behalf of the health system?

Tamia Kramer: So we are always trying to be as smart as possible about the dollars that we spend, but COVID really made us focus even more on that and tried to leverage what we could in order to improve existing terms or close locations in favor of better locations. I’m sure a lot of other healthcare companies have gone through that same exercise. Now we’ve also, from a corporate office standpoint and an administrative space standpoint, we’ve been looking at how to better utilize the space that we have and ways that we can improve efficiencies.

Tamia Kramer: One thing that we have started looking at and we’ve implemented fairly recently is a hybrid type working environment where people are in the office 1, 2, 3 days a week, the rest of the week, they’re working remotely from home. That has enabled us through some creative exercises to potentially reduce our corporate office footprint by over 30%. We’re currently sitting in about 104,000 square feet and it looks as though we may be able to reduce that footprint down to about 75,000, still meet all of our needs, and actually improve efficiencies and collaboration across the board. And in that same approach is being used in each of our local markets as well to evaluate our use of administrative space and how much we in fact actually need.

Andrew Dick: Got it. So Tamia, when we talk about administrative office space, there are often strong feelings on behalf of the employees that use the space. Has there been any pushback from employees that like to have a traditional office, or how have your team members responded to this more hybrid approach?

Tamia Kramer: Before we implemented that, we actually distributed a survey to all of our staff and we asked them to weigh in on what they wanted the corporate office of the future to look like, what was important to them. And at that point, when we deployed the survey, we had already started working remotely for the most part because of COVID, because of all of the lockdowns and the restrictions and we didn’t have a cohesive hybrid working policy developed yet. And we weren’t sure if it was going to continue in the future. So to get a decent baseline of where exactly the future was going to be taking us, we deployed that survey and the survey came back with 73% of the staff wanted to work in some type of hybrid environment. That was pretty telling, only 11% of the respondents came back and said that they wanted to work in the office five days a week, which was, it was a little shocking to everybody that was reviewing the results.

Tamia Kramer: But that told us what we needed to know that with the changes that COVID brought around, we were better serving our employees by giving them a chance to work in the environment that they thrive in, whether that’s in an office without distractions from home or working from home if there aren’t any distractions at home. And so focusing on where someone thrives rather than just having somebody sit at a desk just to sit at a desk, it’s kind of, it’s been a culture change here at Ardent and I can tell you that from my perspective, I’m happier. I think I have a better work-life balance as a result and I think that that is probably the case with a lot of my colleagues. I will tell you that we are planning on doing a secondary survey just to test the waters again and make sure that what everybody thought they wanted, earlier in this year is actually working for them before we start making some long-term space reduction decisions.

Andrew Dick: Yeah, that’s interesting because it seems like each company has a little bit different response to those types of surveys, whereas, in the law firm world where I work, the attorneys always want an office and aren’t as flexible when it comes to giving up an office. But that’s interesting how Ardent approached it and how things are working out. So Tamia, let’s talk a little bit about trends in the industry. What are some of the bigger trends in the healthcare real estate industry that you’re noticing?

Tamia Kramer: So I am noticing more of an ambulatory strategy. That is where access points are at an increase and access points are the goal. People are looking for convenience, they’re looking for things close to their home. They don’t necessarily want to travel to an on-campus large acute care type facility and have to navigate all of the halls there just to get to a run-of-the-mill doctor’s appointment. And so we’re trying to increase those access points across most of our markets.

Tamia Kramer: I am seeing that that is an increasing trend. We’ve partnered with some Ardent care providers that are helping us meet that goal in several of our markets, specifically near Austin and Topeka, and several others. So I trend toward urgent care, I trend towards increased access points and also just making sure that any new developments that are created, they’re using the dollars as best they can. The construction cost is just through the roof right now, which is obviously increasing the cost of any real estate ownership and or leases associated with those developments. So just noticing a little bit more cost-consciousness across the industry as a whole.

Andrew Dick: And what about telehealth? Tamia seems like health systems have had a big increase in demand for telehealth services. Has that changed the way that you and your team operate?

Tamia Kramer: Absolutely. So I would say that we are starting to utilize portions in some of our clinics as a telehealth room, as a place where doctors can go in and have a dedicated area to conduct those telehealth visits. When in person visits aren’t possible, it’s definitely increased our volumes. Now we don’t, it doesn’t necessarily translate to more dollars but if we are able to get access to more patients, then that’s not a bad thing, even if we’re not necessarily seeing them in person, they’re getting the quality care that they need. And they’ll likely be come back to us for more care if they had a quality experience.

Andrew Dick: Yeah. I think that’s what I’m hearing from other providers as well. So talk about your young professionals who are getting started in the healthcare real estate business, what advice would you give to someone who’s new in the business that wants to learn as much as they can? What would you tell them?

Tamia Kramer: So I would say that healthcare real estate is a little bit of a different animal from typical commercial real estate. Mostly in that there are compliance parameters that you have to stay within in order to keep yourself out of trouble. And those don’t necessarily align with the typical, get the best deal for your client approach that you will typically see in commercial real estate. There have actually been some times that I have had to approach a landlord and ask them to increase my rent, because it was not fair market value any longer.

Tamia Kramer: And you typically won’t ever see anybody do that in commercial real estate. It’s get the best deal you can. The reason why we have to be careful with that in healthcare is you cannot give any type of incentive for any referral business. And if, for instance, we’re leasing space from a referral source and we are not paying them at least the fair market value for the rent, or more fair, more money, more than fair market value for the rent, then that could be construed as an incentive to refer. So it, I would say that go into it still with making the best financial deal possible at heart, but understanding that the most important thing to do is to actually stay within those compliance and regulatory bar rails.

Andrew Dick: Yeah, that’s right. I agree with you from, in the healthcare world, the regulatory environment is very different than in the traditional business world. So Tamia, this has been great. Where can the audience learn more about you and Ardent health services?

Tamia Kramer: So you can go on our website at There are several links on that webpage that will navigate you through our health systems and our history where we started at, where we’re going. There’s also a link to careers and different news articles that are available that talk a little bit about what we do and our impact in the community. And I’m on LinkedIn so, I mean, I’m welcome to connect with anybody that wants to know a little bit more about what I do, a little bit about Ardent or just wants to talk about real estate.

Andrew Dick: Great. Well, thanks Tamia, this was a good conversation and thanks to our audience for listening on your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the healthcare real estate advisor to be added the list. Please email me at

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An Interview with Collin Hart, CEO, ERE Healthcare Real Estate Advisors

An Interview with Collin Hart, CEO, ERE Healthcare Real Estate Advisors

In this interview, Andrew Dick sits down with Collin Hart, to talk about his company and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Collin Hart

CEO, ERE Healthcare Real Estate Advisors

Andrew Dick: Hello, and welcome to The Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today we will be speaking with Collin Hart, the CEO and managing director of ERE Healthcare Real Estate Advisors. ERE is a healthcare real estate consulting and brokerage firm.

We’re going to talk about Collin’s background, the company he leads, and trends in the industry. Collin, thanks for joining me.

Collin Hart: Andrew, thanks so much for having me today.

Andrew Dick: You bet. Collin, before we talk about your role at ERE, let’s talk about your background. Tell us where you’re from, where you went to college, and what you aspired to be.

Collin Hart: Sure. I actually happened into the real estate business by chance, but I’ll kind of start at the beginning and give you a little bit of understanding of where I come from.

Collin Hart: So I originally grew up in the Carolinas, and I started my undergraduate degree at NC State University in Raleigh, North Carolina, and I was going for business. But sometime between my sophomore and junior year, I was looking for an internship, and I basically was late in the game. I didn’t have anything lined up for the summer. And I was kind of looking at my options and figured I, I wasn’t sure what I was going to do.

Collin Hart: So I ended up going to a family reunion and I ran into a cousin of mine. And I mentioned to him that I was looking for an internship and he said, “Well, that’s perfect. We’re looking for an intern. We run a real estate business in south Florida. We own a bunch of shopping centers, and we’d love to have you down.”

Collin Hart: So I didn’t have any other options, and I thought this might be a good one. So I decided to move down to Palm Beach Gardens for the month of July. And basically, I was working at his company. It’s a family office. And so during the day I was learning all about property acquisitions, management, leasing, working with tenants, and then in the evenings he was mentoring me.

Collin Hart: And so at the end of that internship, I moved back up to NC State and I’m reflecting on that experience. And I decided that I learned more in that month working with my cousin and be mentored by him than I learned in my first two years of university. And so with that, I decided, hey, I really want to have a career in real estate. And I moved down to Florida to continue school, but also continue working with him.

Collin Hart: And so that’s how I got started. And eventually I moved into an acquisitions role for that company. And so, as I mentioned originally, they were owning shopping centers all over the state of Florida. But we started branching out and looking for other asset types to acquire. And so we got into the single-tenant real estate space. And so, in case you’re not familiar, that’s fast food restaurants, drug stores, gas stations, basically single-tenant net lease properties that you can really own anywhere. And basically, your job as a landlord is to collect rent. Okay?

Collin Hart: And so that allowed us to really open up our box. And so I got into the role of acquisitions, buying these properties all over. So we acquired about a hundred million dollars of real estate all over the country in about 30 different states. And so fast forward, and I got to the point where I realized I was never going to own any of those assets.

Collin Hart: And so I thought, maybe I ought to forge my own path. And so from that point I left the company, and I went to New York and I worked for a private REIT in acquisitions in New York. And so just in the year that I worked in acquisitions, we bought $300 million of real estate all over the country.

Collin Hart: So I’m coming from this private, we’re investing our own money, into working with an entity that’s investing on behalf of others and really needs to get money out the door. So I got a lot of great experience there, but ultimately decided that I was not set up for cold weather. And so I relocated to Southern California.

Collin Hart: And so at that point I had kind of left the principal side of the business, I no longer worked for that REIT. But at the REIT, we acquiring three different types of properties. We were acquiring single-tenant industrial assets, single-tenant retail assets, and then single-tenant medical assets. And that was really my first foray into the medical real estate world.

Collin Hart: And so what I noticed is that the REIT, we were getting the best deals on all the medical real estate. And I think the reason was because there was poor representation, or no representation, on behalf of the owners of those medical properties. And a lot of times we were buying properties from doctors.

Collin Hart: So that was pretty much the advent of the start of our company, ERE Healthcare Real Estate. Where we said, hey, instead of being on the buy-side, I can move to the sell-side, to the advisory side, and fill a gap in the market, helping these folks who really are getting taken advantage of to now represent their best interests, and get the best possible outcome for them on a real estate sale.

Andrew Dick: Got it. So I know you worked for an investment bank as well. At what point did you say, hey, I need to start my own company, I need to forge my own path? And what really prompted that, Collin?

Collin Hart: Sure. Yeah, so thanks for filling in that gap there.

Collin Hart: Yeah, between the private REIT that I worked for and the founding of ERE, I briefly worked for an investment bank. And so, obviously an investment bank focuses on advising business owners on how to monetize their businesses. And so we were in the real estate side of that. And so I was working on a small team, and basically we would help with the real estate when a practice, or hospital, or healthcare organization was being sold.

Collin Hart: And I just didn’t feel like the real estate was the number one focus. Because again, we were just a piece of the investment bank’s business. And so oftentimes the outcomes would be subpar on the real estate because we were trying to get the best possible outcome on the enterprise.

Collin Hart: And so when I saw that conflict of interest, or not the best total or aggregate outcome, I said, hey, let’s focus just on the real estate side of things. And that was really the founding of ERE.

Andrew Dick: Got it. And did you start the business on your own, or did you come over with a partner?

Collin Hart: I started with a partner. Fortunately, I met some really great people working at the bank. And so as part of that, a couple of us left at different, times and ultimately ended up coming together and founding ERE together.

Andrew Dick: Got it. So talk about your typical client. Is it the physician, independent physician? Talk a little bit about the client base.

Collin Hart: Sure. So I would say that we’ve worked with all different types of healthcare organizations. It could be institutional real estate investors, it could be a health system, or it could be the independent physician groups. I would say the majority of our business is in working with those independent physician groups, generally because real estate is maybe the third or fourth tier of their expertise, right?

Collin Hart: Number one, their physicians and providers. Number two, their members of their community, members of their family. Number three, there may be business people and investors. And then number four, perhaps real estate is the focus. So those are the folks who we can work with, where we can add value to their situation. And so that’s where a lot of our business comes from. We’ll certainly advise the health systems and the others, but at the end of the day, we’re able to deliver the most value with the folks who perhaps have the least experience in real estate.

Andrew Dick: Got it. And Collin, talk about where you’re at in the country and markets that you’re serving. Or maybe it’s just nationally.

Collin Hart: Sure, yeah. So we have offices in Southern California and in Texas. And so while we have just those two offices, we’re really focused all over the country. And the reason for that is because it’s not like there’s hundreds of physician-owned medical buildings in any one market. Generally we’re working with the specialty physicians in any one market.

Collin Hart: So that might be gastroenterologists, orthopods, urologists, dermatologists, nephrologists, any of these specialty folks, often who are in a position where they own their practice and then they also own their real estate.

Collin Hart: So we literally travel across the country. I mean, we’re working on transactions now all the way from, let’s say south Florida to Alaska, believe it or not. So this is our first deal in Alaska and we’re really excited to help those folks.

Andrew Dick: That’s great. So talk about the type of services you’re providing. A lot of times we think of brokers who are trying to convince physicians to sell their real estate, or participate in a sale lease back or an UPREIT transaction. What is your role when you’re working with clients, and what is the objective?

Collin Hart: Yeah, that’s a great question and I appreciate that. So I will tell you that we’ve probably told just as many people, that they should not sell their real estate, as those who we’ve told, you really should sell your real estate. And so we really take an advisory approach. While we are a brokerage and we do make money when we sell real estate on behalf of our clients, at the end of the day, we take a long-term perspective on our transactions with our clients.

Collin Hart: And so we generally are not pushing them for a sale. Generally, they reach out to us, or we’ve been in touch with them for many years, and we advise them on certain points in the life cycle of their business that, hey, it might make sense for them to explore a real estate transaction.

Collin Hart: So the services that we offer, to kind of get back to your question, while our primary business is selling real estate, oftentimes on behalf of physicians, there’s a lot more to it, right?

Collin Hart: So you’re an attorney, and I’m assuming you understand the correlation between the strength of the lease and the value of the real estate. Right?

Andrew Dick: Mm-hm (affirmative).

Collin Hart: Right. So that’s where we try to differentiate ourselves as advisors. While we sell real estate, we’re really experts in leases as well. And so we get involved oftentimes in the lease negotiation process. Totally, we can bring aggressive offers, we run a competitive marketing process to generate multiple offers on our client’s real estate when they’re ready to sell it. But there’s a lot of buildup to that, oftentimes over the course of a couple of years.

Collin Hart: And so one of our biggest business segments right now is, we’re working with independent physician groups who are exploring a sale of their practice, let’s say to private equity or some aggregator. And so when they’re going through a transaction like that, if they own their practice and they own their real estate, and they’re selling off their practice but retaining that real estate, there’s going to need to be a new lease executed or negotiated between the new owner of the practice and the original physician to retain the real estate.

Collin Hart: And so we see so often that the physicians are so focused on the practice deal, that they don’t pay attention to the real estate and they negotiate subpar terms. So what we’ve tried to do is create a lot of education surrounding that, and the value of your real estate, and the importance of the lease terms. And so we often come in when a practice is going through a PE deal to help them negotiate that lease. So that whether they decide sell the real estate or not, they have the option.

Andrew Dick: Got it. So talk about some of the areas of expertise. I know you and I have talked about different private equity deals right now, the private equity firms are really aggressive going after certain specialties. And I know that you and your team have developed an area of expertise with ophthalmologist. And talk a little bit about that, Collin.

Collin Hart: Sure. I kind of fell into the world of ophthalmology just by chance, kind of like the same way I got into real estate. And so what ended up happening is, we were working with a couple of ophthalmology practices several years ago, and they were really satisfied with the outcome.

Collin Hart: And so we started getting involved with the different ophthalmology professional organizations, like the trade organizations that really catered to the physicians, the providers.

Collin Hart: And so in going to a couple of those conferences, I noticed that everybody’s talking about private equity and practice operations, but really nobody was talking about real estate. And I didn’t understand that. And so in, corresponding a lot with these different professional organizations, we’re able to create a consultant membership or role for ourselves where we can add value, not only to those individual physician groups that are part of the organization, but also contribute to the knowledge base.

Collin Hart: And ultimately, that’s what we’re about. So for us it’s just about delivering value from a longterm perspective, not only to specific clients but to that industry or specialty.

Andrew Dick: Got it. And so when you’re working with physicians, what are some of the concerns that they raise your. You’re right that in a traditional sale of their practice they’re focused on the economics of the sale of the practice, and the real estate doesn’t always get a lot of attention.

Collin Hart: Right.

Andrew Dick: What type of things are you helping them with? Negotiate the lease term, negotiate the lease rate, the form of the lease, things like that?
Collin Hart: Sure. It’s all of those things plus many more. And so let’s just take the private equity piece out of the equation to start out, right? Let’s just say it’s a traditional sale and leaseback transaction that we’re working on with an independent physician group, just to kind of simplify the discussion.

Collin Hart: And so everybody talks about, hey, we want to get the most money, right? I’ve never heard anybody say I want less money. And so that’s always how the conversations begin, but ultimately it comes down to, what terms are you willing to agree to in order to get to a price like that?

Collin Hart: And so what we’re kind of working against is a lot of brokers, unfortunately, I won’t say advisors, but a lot of brokers in the market kind of lead those discussions, or try to bait some of their perspective clients with the most aggressive pricing possible.

Collin Hart: And so maybe there’s really low cap rates that are available, but hey, is the practice, or are the partners willing to sign up for all the obligations that are necessary to get to something like that?

Collin Hart: So our education process is related to pricing, and certainly we can bring aggressive pricing as part of our marketing process. But it’s helping our practices understand what the implications of a lease are. What are the market terms of a lease? What is the length of lease that helps them optimize the value of the real estate? What is the rental rate that not only is sustainable for their practice, but also is in line with fair market value?

Collin Hart: And so there’s a lot of nuance to that as I’m sure you know, as council, right? And there’s no right answer. But ultimately our goal is to try and balance the short-term objectives of the sale of the real estate, and kind of getting the most proceeds, with the long-term objectives of the practice, which are ultimately sustainability, right?

Collin Hart: We’re not here to put any of our client practices out of business, it’s more about helping them balance those objectives.

Andrew Dick: Got it. So Collin talk about, you’ve been doing this for a while. Talk about how the industry has evolved. I mean, it seems to me that private equity, at least as of late, has been really driving a lot of deal activity. I was just looking at the BOMA MOB agenda for November, private equities prominently displayed. In terms of, that’s a discussion topic.

Collin Hart: Sure.

Andrew Dick: Is that one of the driving forces of the activity, as of the last couple of years? Or what else are you seeing in the industry? I mean, it seems to me that private equity is having a very big impact on the healthcare real estate industry.

Collin Hart: So here’s why I think it’s having a big impact, and there’s changes in real estate, but there’s also changes in the operational side of the business. And the practices, right? Like the delivery of healthcare.

Collin Hart: So on the real estate side, first of all, you’re seeing so much more interest in healthcare real estate because it fared so well during the recession and through the pandemic, right? Rent collections were high and tenants remain in business. And if you look at the investment landscape in the real estate world today, well, retail’s not that appealing of a place to invest, just given everything’s moving online.

Collin Hart: And then let’s say multifamily, which has traditionally been a really attractive investment class, is a little bit less certain because, hey, for the time being, you can’t kick your tenants out if they don’t pay rent. So that leaves a lot of investors looking at, what are the options? And because of the successful track record of healthcare real estate, they say, hey, maybe we should explore this. Right?

Collin Hart: So that’s, I think, why there’s a lot of additional interest and big volume of transactions in our space. Now, on the provider side, and the practice and operations side, I’m not a physician. As I know, you’re not either. And so I can only begin to understand the challenges that they’re having.

Collin Hart: But I think 20, 30, 40 years ago, practicing medicine provided a lot of freedom for the providers. It allowed a lot of creativity, and delivery of care, and running their own business. But what we’re seeing in healthcare, as is the case in many other industries, is there’s a lot of aggregation. And so it makes it challenging for independent practices to continue operating profitably, successfully, with limited risk.

Collin Hart: And so, particularly because there’s so much pressure on costs from all the third party payers and Medicare, I think it makes it even more challenging for independent practices to be sustainable.

Collin Hart: And so what we’re seeing, especially in a post-COVID world is, hey, if I could be part of a bigger organization as an independent provider, whether it be a health system or I’m under the umbrella of some private equity-backed management services organization that gives me negotiating power at a big company, but allows me to operate within the confines of my practice on my own, that might be an appealing idea. And so I think that’s, what’s driving a lot of the trend towards consolidation in the practice side of things.

Collin Hart: And as a result of that, I think that affects healthcare real estate too. Because think about it like this. Andrew, if you own your practice, you probably bought or built your real estate as a way to control the destiny of your practice, right? It’s an investment, but it’s also, the investment part is like secondary. Number one, you just wanted to own your home, let’s say. Right?

Collin Hart: So if you’re selling your practice, and you no longer control the tenancy in your building, it totally changes the dynamic of the real estate investment. And so from that perspective, we’re seeing a lot of folks say, well, the reason I bought or built my real estate was to control the practice, but I don’t control the practice anymore. So why do I own this real estate? And so that’s, at least for us, driving a lot of deal flow.

Andrew Dick: So Collin, one question I thought of is, when we see independent physicians join a larger group or join a roll up under a private equity model, sometimes I’ve seen these independent docs are very entrepreneurial. And sometimes they say, look, I want to give this a shot for a couple of years, but at some point I may want to go back to being an independent, or maybe reserve the right to do that.

Andrew Dick: Does that come up often in discussions with physicians? Meaning, hey, I may want to terminate the lease with the new provider entity, and then go back, have the right to go back to what I was doing. I’ve seen that come up a couple of times, Collin. As some of the independence are so, sometimes they want all the benefits of joining in on a larger group, but sometimes they get frustrated by the bureaucracy.

Collin Hart: Sure, so I agree with you. And I think we’ll see a wave of that in the next five to 10 years. Here’s why. In our client relationships, the folks who are really driving the practice sales and the real estate sales are the previous generation of providers. Those are the entrepreneurial guys that you’re referencing that built up their practice because they wanted to control everything.

Collin Hart: The reason that they’re selling is because they need an exit strategy. They need some way to get the sweat equity out that they built up through those decades of practicing. And so they look to the younger providers who are coming out of school, and we’re seeing a different financial and work profile associated with those folks. They have less money, they expect more, but they also have more debt. And so as a result of that, those incoming providers probably aren’t the best candidate to buy the practice from the senior physicians. And so the senior physicians don’t really have an exit strategy. So private equity or a health system would provide that.

Collin Hart: Now, fast forward five years, the senior physicians who sold are out, and the junior guys are still around. And I think eventually you’ll see this, we want to get away from working for somebody, and we want to go back to independent practice. And so I think eventually that’ll happen. But along with that comes hard work, risk, and entrepreneurship, right?

Collin Hart: And a lot of the generalizations that we’re hearing from our clients who, again, are usually the senior guys are, hey, we don’t see the same mentality in our incoming providers that we had when we started in practice. So it remains to be seen, right? I mean, my crystal ball’s about as hazy as yours.

Andrew Dick: Yeah. I tend to agree with you though, that I predict there will be a wave over the next three, four, five years of some of these docs who have joined in a larger practice, become employed and say, you know what? I kind of want to go back out on my own, or join a smaller group.

Collin Hart: Right.

Andrew Dick: Where I have a little bit more autonomy. So yeah. I agree with you.

Andrew Dick: Collin, switching gears a little bit, where do you see the opportunities in the healthcare real estate industry?

Collin Hart: Sure.

Andrew Dick: A lot of activity, right, over the past two years. It just seems more and more investors coming into the space, where are the opportunities?

Collin Hart: Yeah, I agree with you. I think historically there’s been so much focus on hospital credit, health system credit, corporate credit, right? Whether it be a hospital, or whether it be a national operator like a DaVita or Fresenius, or some of the bigger urgent care chains that are popping up.

Collin Hart: I think that corporate credit has always been something that feels safe, that you can hang your hat on as a real estate investor. But I think the real opportunity lies in understanding some of the smaller credit-worthy tenants, and really getting a better understanding of the operations, and what makes them dominant in particular areas. And that they own the market there for a reason. And they’re independent for a reason.

Collin Hart: And I think that makes for a very compelling investment thesis. And it’s not new, I mean, I’m not coining something and saying, hey, everybody should go focus on this. There are certainly plenty of participants who are focused on that. But I think that’s where a lot of the bigger opportunity is, especially in terms of risk and reward, right? Because if you look at some of those traditionally desirable corporate credit deals, the cap rates or yields on those are really low.

Collin Hart: So if you’re looking for a little bit better risk-reward profile, if you properly underwrite some of these smaller credits, I think there’s some value arbitrage to be had there.

Andrew Dick: Yeah, I agree with you. Collin, what about surgery centers? I don’t know how often you run into physicians that have ownership in a surgery center. There’s been an awful lot of activity in surgery centers over the last year or two.

Collin Hart: Sure.

Andrew Dick: Seems to be that they’re gaining more traction, but there’s also been a lot of new development of surgery centers in certain markets. And what’s your thoughts on that opportunities in that industry?

Collin Hart: Sure. So again, I’m not a provider, so I can’t give you the nitty-gritty in terms of the pros and cons of surgery centers. Here’s what I’ll share with you. Obviously there’s a push to outpatient care. And I think the reasoning for that is for pressure on costs and outpatient care is less expensive to deliver, and therefore the payers want that. That’s number one.

Collin Hart: Number two, I think you’re seeing better outcomes and lower infection rates in an outpatient environment. So not only is it better for cost, it’s better for outcomes, right? So that’s, I think that’s great, and those are things that are achieved in an ASC setting.

Collin Hart: Now from a real estate investment perspective, I would say 75% of the transactions that we work on have some ASC or surgery center component, right? So it’s a big part of what we do.

Collin Hart: And I think there’s always going to be demand for that, especially when we were talking about surveying your different investment opportunities across the real estate spectrum. You can buy retail goods online, certainly everyone’s always going to need a place to live so there’s always an investment thesis for multifamily.

Collin Hart: But the same applies to surgery centers. Which is, hey, you can’t buy procedures on the internet, right? So if someone needs LASIK, or they need to have their cataracts removed, or they need a colonoscopy, or you need a new knee, I mean, we can’t do that via telehealth, right? And so I think that’s the compelling investment thesis behind AFCs is, you need somewhere to do the procedure. So I think that in the long run, that’s where it’s at, as opposed to inpatient care.

Collin Hart: But I think maybe you were alluding to, you’re seeing lots of ASC development, and is that a sustainable model? Is that your question?

Andrew Dick: Yeah, Collin, that’s right. We know that there’s tremendous demand for those facilities, not just on the real estate side, but on the [OPCO 00:27:21] side. And anytime you see big players like Optum jumping into that space and buying up hundreds of surgery centers, you have to take notice.

Andrew Dick: And so I’ve just, I’ve seen a tremendous amount of development activity when we’re looking at trends in the industry. And I just think it’s interesting to watch. I mean, surgery centers have always been out there, but just seems like there’s an awful lot of momentum right now.

Collin Hart: Right.

Andrew Dick: In terms of investors looking for those assets, but also operating providers looking to gain access to new patient populations.

Collin Hart: Yeah, I agree with you. And just to continue on that a little bit, I think part of the consolidation play, be it in practices or in the surgery component, like in an ASC environment, part of the value proposition for folks buying into the enterprise is, hey, if we own more of these operations, we have more negotiating power with the payers. So I think that’s also driving a push into an interest in that space as well.

Andrew Dick: Makes sense. Collin, let’s switch gears.

Collin Hart: Sure.
Andrew Dick: A couple more questions before we wrap up. Last time we spoke, we talked about veterinary clinics. I find those very interesting because they’re also becoming hot right now, from an investor perspective. We’re seeing private equity move into that space as well. What are your thoughts?

Collin Hart: So it’s pretty top-of-mind for us. We just completed a transaction where we sold six veterinary hospitals. And so that was our first engagement in the space, but we learned a lot about it. I think there are a lot of parallels between human health care and veterinary care, but actually you said, hey, private equity is moving into it. Actually, private equity in veterinary care is probably a decade ahead of where it is in human healthcare.

Collin Hart: And so I think if you really study and look at the vet care consolidation, that’s what the future holds for human healthcare as well. And so I think the reason for that earlier consolidation is because there’s obviously less regulation related to the care of animals versus humans, number one.

Collin Hart: But are were some major operators out there in the vet care space. And the trends that we’re seeing in vet care are pretty similar to healthcare in that the consolidation is driven by pricing power, driven by demand for succession planning from those senior founding docs.

Collin Hart: But what’s unique about that care is, in human healthcare we have this third-party payer system. But in veterinary care, do you have a pet or an animal?

Andrew Dick: We did for many years, and I think I know where you’re going.

Collin Hart: Okay.

Andrew Dick: Out-of-pocket private pay.

Collin Hart: Out-of-pocket, yes. So in human healthcare it’s like your insurance company, you pay your deductible, your insurance company foots the bill for the rest. And we don’t necessarily see what happens behind the scenes there as a patient. But for veterinary care, if your dog is sick, you take your dog and you pay for it, cash, that day. And that’s not to say there aren’t some insurance policies for pets, but generally you’re reimbursed directly by the insurance company after you pay the bill.

Collin Hart: And so that’s a pretty interesting value proposition for an owner of a vet practice, because you’re not beholden to these big payers who are putting pressure on your pricing. So I think vet care is a desirable investment segment from that perspective. And obviously, I mean, I know you don’t have a pet now, but the growth in pet ownership has never been greater, especially through COVID.

Collin Hart: And so more people are having pets, and maybe waiting ’til later in life to have a child, right? So they treat their pets like a member of their family, and as such they’re willing to spend money on their health care. So I think it’s a super interesting space, and a lot of parallels to human health care and the real estate surrounding that.

Andrew Dick: Well, I find it interesting as well. Thanks for the insight.

Collin Hart: Sure.

Andrew Dick: Last question. What advice would you give to a young professional getting into the healthcare real estate business?

Collin Hart: I think that’s a great question. And I’ve thought about it a lot, especially as we grow our team. And I think I would take it back to an earlier part of our conversation, where we have a really long-term perspective, and we’re not pushy in terms of transactions, right?

Collin Hart: My business lives and dies by transactions, but we’re not focused on that. We’re focused on delivering value to our clients. And so I think that if you’re new coming into the business, and you can focus on delivering value, whatever capacity or role you have in the business, I think you’ll be successful. It’s all about that long-term perspective, that persistence, and that delivery of value.

Andrew Dick: Got it. Collin, where can our audience learn more about you and your company?

Collin Hart: Sure. So our website is pretty simple, it’s just six letters. It’s And you can find everything about our team, and our company, and all our contact information on our website.

Andrew Dick: Great. Collin, thanks for joining us today. A great discussion. Thanks to our audience as well, for listening on your Apple or Android device. Please subscribe to our podcast and leave feedback for us.

Andrew Dick: We also publish a newsletter called The Health Care Real Estate Advisor. To be added to the list, please email me at

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An Interview with Brannen Edge III, President and CEO, Flagship Healthcare Properties

An Interview with Brannen Edge III, President and CEO, Flagship Healthcare

In this interview, Andrew Dick sits down with Brannen Edge III, to talk about the evolution of Flagship Healthcare Properties and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Brannen Edge III

President, CEO, Flagship Healthcare Properties

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney at Hall Render, the largest healthcare focus law firm in the country. Today, we will be speaking with traded Edge III, the president and chief executive officer of Flagship Healthcare Properties, LLC. Flagship is a privately held real estate company that owns, manages and develops healthcare facilities. We’re going to talk about Brannen’s background, the evolution of the company and trends in the industry. Brannen, thanks for joining me today.

Brannen Edge: Andrew, thanks for inviting me and pleasure to be with you.

Andrew Dick: Terrific. Well Brannen, before we talk about your role as the chief executive officer at Flagship, let’s talk about your background, tell us where you’re from, where you went to college and what you wanted to be.

Brannen Edge: Sure. So, before moving to North Carolina, I was born and raised in Richmond, Virginia. Lived there, my whole childhood went to James Madison University for undergrad, up in Harrisonburg, Virginia, and after graduation initially started out in banking. So, I describe myself as a recovering banker. I had gone to Charlotte for a conference, middle of my time at JMU, the first time I visited Charlotte, and was so impressed with the city. It was a clean city, a growing city, a business-friendly city. So, as I approached graduation, really all of my efforts were focused on how do I find a job in Charlotte? Which is a little unusual, Richmond has a way of bringing its natives back to Richmond, but I wanted to do something a little different and frankly, I really didn’t care what industry it was.

Brannen Edge: I wanted to find some training program that would teach me how to do some something. I found that in BB&T and joined their training program right out of school. It was actually located in Winston Salem, which is about 80 miles from Charlotte. I thought, “All right, that’s close enough. I can do a pit stop in Winston Salem and then find my way to Charlotte,” which is what I did. It was a great pit stop because I met my now wife in Winston and had a great experience with the bank.

Brannen Edge: But after about six years of working with the bank, where I learned a bunch about credit, and operating companies, and service companies, and manufacturing companies and real estate companies, I realized that I didn’t want to be a banker for the rest of my days. A number of my clients that were in the real estate side appeared to be having a lot more fun than I was having in the banking world. So I used that opportunity to go back to business school and spent two years in Chapel Hill, also known as Blue Heaven. Then during that time, is when I found the founder of Flagship and joined forces with Charles Campbell in 2006. So, that’s what I made the shift from the banking world to the healthcare, real estate world.

Andrew Dick: So, talk about that opportunity and how you met Charles and how did you all decide to come together and start your business?

Brannen Edge: Sure, sure. So this business school’s, I guess like many universities and graduate programs are focused on getting you a job, that is from day one. So there I was in the fall of 2005 and newly married, newly resigned from my full-time employment and very much in debt with student loans. I knew where I had come from in terms of being with a public company, a big company in the form of the bank, and an old company, the bank had been around for 150 years. I wanted to do something the exact opposite. I wanted to find a young company that was growing, that entrepreneurial, that was in the real estate and private equity space. So, literally searching online for opportunities, I came across a press release from the early Flagship, Flagship 1.0, which had just launched earlier that year in 2005.

Brannen Edge: So, I reached out cold call to Charles and said, “You don’t know me, and you don’t know that you need to have an intern next summer, but I’m willing to do whatever it is.” So I did, I worked as an intern that summer, between first and second year of business school, and I think I was employee number five or six or something like that at the time. Then continued working with Charles my second year and then joined full-time after graduation. So, that’s how it got started. We were initially, a very small company working with family offices and high net worth individual investors to find real estate opportunities. And in pretty short order, focused exclusively on healthcare, which is how the firm and I got our start in the healthcare business.

Andrew Dick: So Brannen, when we’ve spoken before, you talked about the company evolving and what I’ll call the merger of Brackett and Flagship, talk a little bit about that and how the business really started to grow.

Brannen Edge: Sure. So you’re exactly right, Andrew, that that was the seminal moment for our company, which occurred in 2010. Up until that point, the legacy Flagship was really an investment firm in the real estate world. And in 2008, 2009, we purchased a building from the Brackett company, which was another firm focused on the healthcare, real estate space, also located in Charlotte, whose roots dated back to the mid 1980s. We bought a medical office building for our investors from the Brackett company, but Flagship at the time didn’t have property management skills. It didn’t have leasing and brokerage skills. We didn’t have those resources internally and we were really, really impressed with the platform and the people that the Brackett company employed. So, on the heels of the great financial crisis, we approached the Brackett company and said, “Look, we can probably be a better firm if we’re together, as opposed to separate.” They saw things the same way.

Brannen Edge: So we brought those two companies together initially as a joint venture. Then as I described, the slowest, longest merger and small business history, we integrated those two companies over the next four or five years. At that time I was really … I was not the CEO of the Brackett company, I was not the CEO of legacy Flagship. So, I was tapped as really the neutral party to integrate those two companies together. So, moved from my prior role to become president of what at the time was Brackett Flagship Properties. Then subsequently, we changed the name to Flagship Healthcare Properties. But that moment in 2010 really laid the groundwork for where we are today, which was the decision to be a vertically integrated, full service, healthcare real estate firm. That we made that decision, that how we were going to compete in the industry, how we were going to be able to serve our clients, whether they were tenants, healthcare providers, or investors, was going to be by providing the services that we do today.

Brannen Edge: So property management, maintenance and engineering, asset management, ground up development, acquisitions, investments, full service accounting, all of those services we have under one roof now, so that we are in our buildings every day, building relationships with our tenants and the healthcare providers that we serve. We didn’t want to be in a situation where investors were calling us and saying, “Well, how’s my investment performing?” We’d have to say, “Well, let me go check with the people that are taking care of your building and we’ll get right back to you.” We are the people taking care of your buildings.

Brannen Edge: And so that today is the single biggest differentiator, I think that Flagship has, versus some of the other folks in the industry. We allocate capital and it’s a critical role for us, but it’s only one facet of what we do.

Andrew Dick: So, that was a terrific summary. So Brannen, talk about the company today. So, fast forward today, talk about the size of the company in terms of employees, where your properties are located, where you’re doing business, give us a snapshot of what everything looks like today.

Brannen Edge: Sure, sure. So, the company as we’ve grown over the past 11 years and morphed into that full service provider, our mission, our whole purpose for being, is to provide extraordinary stewardship and outcomes for all we gratefully serve in healthcare real estate. So, that’s a mouthful, but what does that mean? So, we’ve really got three primary constituents and all of them are extremely important and none of them can get the short end of the stick. So, we view our investors, our tenants, and our employees as being critical to success and if we let one of those groups down, or put one of those groups well ahead of the others, there’s going to be problems. So, we work really hard to try to make our company a culture that attracts and retains really good people and we’ve got, I think the best in the business. We’ve got 86 employees now, and those are again, across the spectrum of asset management and property management and leasing and brokerage, and on the investment side, and the ground up development side, and the accounting side.

Brannen Edge: That’s what allows us to deliver excellent service to our tenants. And if we do that, we do that job and we can help meet their needs, they’re more likely to turn to us for their real estate needs. If we can deliver on the tenant side, that allows us to generate attractive returns to our investors and the investors provide the capital that lets us continue to grow and attract and retain employees. So, that virtuous circle is what keeps us going.

Brannen Edge: We are focused geographically on the Southeast and Southern Mid-Atlantic. So we own properties across 10 states right now, and that’s where we deploy our capital, our investors’ capital, is in that Southeast footprint. But when I look at the areas where we have services, we manage a building in Nebraska, not exactly in the Southeast, but that’s where one of our clients went and they asked us if we would help them with buildings that are outside of our footprint. Of course, we will follow our clients just about anywhere, but our focus is on growing our business and brand and services in the Southeast and Southern Mid-Atlantic.

Brannen Edge: The other thing you asked about was the types of properties that we’ve got. We are laser focused on the clinical outpatient healthcare sector. And so what does that mean? Well, one way to describe the properties that we seek to work on, or build, or lease, or manage and maintain, are those buildings where a patient enters the building to receive care from a healthcare provider and they leave without spending the night. So, we are not invested in senior housing facilities, or inpatient rehab hospitals, or skilled nursing, or acute care hospitals. Not that there’s anything wrong with those businesses, but they’re very different from what we are good at and know. So, I like to say, we love having senior housing as neighbor, we just aren’t looking to have them as tenants. We share the same patient population and same demographics, but we’re focused on the outpatient sector. So, that’s predominantly medical office buildings and ambulatory surgery centers.

Andrew Dick: Got it. So, let’s transition a little bit Brannen, and talk about Flagship’s REIT, because I think that is one service line that you offer that’s a little bit different than some of your competitors. There are lots of publicly traded REITs, a lot of investment funds that focus on healthcare assets, but Flagship has its own private REIT. Let’s talk a little bit about that and the evolution of that business, which is pretty interesting, based on what we’ve talked about before.

Brannen Edge: Yeah, yeah. Thank you, Andrew. I’ll describe our process, or journey of getting to the private REIT structure in Flagship Healthcare Trust. It was a journey and we’ve had some iterations along the way. Before 2010, we were doing all of our investments one off. We would do silo investments, we would have capital from a family or a group of high net worth individual investors, and we’d go and purchase or develop an asset, and we managed each of those investments separately. They were all separately capitalized and it worked. It worked well and investors were happy and the projects were profitable and turned out well, but we didn’t have any sort of synergy doing that. I like to say we weren’t managing a portfolio of say, 30 buildings, we were managing one building 30 different times.

Brannen Edge: So, everything had separate accounts, and separate reserves, and separate leasing teams, and separate agreements. So, we weren’t being efficient as a manager and our investors weren’t really getting the diversification because an investor might be in building number one, but not in buildings two through 30. So there really wasn’t that diversification.

Brannen Edge: So, the next iteration for us happened in 2012, when we launched our first closed-end fund. We raised money from accredited investors and from institutional investors. We did our first fund and we did a second … it was a venture with USAA Real Estate Company, but it operated much like a closed-end fund and started raising our third fund. At that time, we took a step back and this was 2016, 2017 and said, “What are we doing?”

Brannen Edge: Our investors were asking us … It was coming time to look at selling our first fund, liquidating that, and our investors almost in unison said, “Please don’t do that. We like the buildings that we’re invested in. We don’t want you to create a tax issue or a reinvestment issue by selling these funds.” We said, “Well, geez, we don’t really want to sell them either. We’re we’re in the business to be long-term owners in real estate and if our business model is to attract and retain the best and brightest in the healthcare real estate industry, how does that align with selling a big portfolio of properties every few years?”

Brannen Edge: Meanwhile, our tenants, the healthcare providers and healthcare systems, they really care about long-term ownership. They don’t want the owners of their property to be short-term holders. They want to know that you’ve got empathy for what they’re doing, that you are going to be taking care of these assets as if you’re going to own them forever. It didn’t really line up with a shorter term investment fund type structure.

Brannen Edge: So we engaged advisors to help us figure out how could we be structured that would create better alignment between our investors, and our tenants, and our employees, and the private REIT structure is what rose to the top. And admittedly, when we were talking about the private REIT structure, we didn’t understand what that meant and familiar with public traded REITs and there’s some excellent ones out there, but we didn’t really want to be public. But we’d heard about public non-traded REITs and those had not a great reputation at the time. It’s gotten better since then but we said, “I don’t know that we want to go down private REIT path.” It was explained to us that said, “Look, the structure as a private REIT is a tax structure.” REITs avoid double taxation, as long as you’re distributing 90% of your taxable income to investors. It looks and feels just like an open-ended fund, but it preserves a great deal of optionality.

Brannen Edge: Meanwhile, being private, we think avoids a lot of the correlation with the public markets. So, we get asked a lot by investors or prospective investors, “Why should I buy a private REIT as opposed to a public REIT?” My response is always, it’s not an either/or. There are some excellent public REITs out there and many that we are fortunate to work for on the management leasing side.

Brannen Edge: What we think we bring to the table is because we are private, we’re not correlated with the public markets. So, for investors who want to have an allocation to healthcare real estate, we think we provide that and maybe provide a better representation of the value of our healthcare real estate assets, as opposed to whatever’s happening from day to day in the stock market. So, it is almost like putting on a tailored suit or a tailored sport coat. When we got to the launch of Flagship Healthcare Trust four years ago, it felt like we were putting on a sport coat that had been tailored, it just fit, and our investors feel the same way. So, we’ve continued to grow and new capital, but just as importantly, attract additional capital from our existing investors who continue to believe in what we’re doing.

Andrew Dick: It’s a great story and I can appreciate why you selected the private REIT structure, right, it’s not subject to the whims of the market. That makes a lot of sense. So, talk about the REIT, number of properties, how much equity you currently have, things like that, that you’re able to share?

Brannen Edge: Sure, sure. Absolutely. So, we are structured as a Reg D private placement. All that means is that our investor base are considered accredited investors. We have about 350 shareholders. A number of those shareholders have been with us for many, many years, even predating the REIT’s launch. When we converted our legacy closed-end funds, all of those investors and the legacy closed-end funds had the option to either cash out of those funds and take their money and go elsewhere, or contribute their interests into launching the REIT. We had 94% of our investors by capital say, “This is exactly the structure that I want.” So when they joined us in the launch of the REIT, back in late 2017, we were about $55 million of equity. Since then, we’ve grown to where we are today, which is right at $250 million of equity, and about $600 million of gross property value. That’s about two million square feet in the REIT across 73 properties, and in 10 states in the Southeast and Southern Mid-Atlantic.

Brannen Edge: That’s in addition to about an equal number of properties and approximately three million square feet of properties that we manage for third party owners. And those are institutional investors, those are public REITs, and those are private individuals, or healthcare practices that want to own their own real estate but don’t want to have the headaches of property management or leasing. So we gladly do those services for others, as well as for our own account.

Andrew Dick: Terrific. I’m assuming that the REIT follows your investment philosophy, that it’s primarily MOBs, outpatient healthcare facilities, ASCs?
Brannen Edge: As exactly right, it’s ASCs and MOBs, are the predominant assets. We have a blend of multi-tenant buildings and single tenant buildings, a number of practices who make the decision in this current environment to lock in attractive pricing on their buildings, but they don’t have any desire to move. We’re doing a number of sale lease pack transactions with practices, both groups that are independent, as well as groups that are affiliated with healthcare systems. An interesting unexpected benefit of our REIT structure is that the vast majority of those sale lease back transactions, the selling groups, if they’re groups of physicians or investors, are electing to UPREIT a portion of their sale into Flagship. So, essentially a seller of a medical office building who chooses to work with Flagship, they can receive cash when they sell us a building, or they can receive operating partnership units in our REIT, and essentially it’s tax deferred in most instances, and it provides diversification for those sellers.

Brannen Edge: So, an investor who owned 100% of one building can UPREIT and all of a sudden, they’ve got that same value spread across a much more diversified portfolio of more than 70 assets. Meanwhile, they’re locking in their current valuation on their building and able to decide on their timeline, when to recognize that taxable gain on their own terms. So, it’s been something that we didn’t expect would be as popular as it has been, but it’s been a major source of our growth as we continue to grow our footprint. But it is all clinical healthcare outpatient. So, ASCs and MOBs are our primary investment targets.

Andrew Dick: Got it. So, let’s transition for a minute and talk about the healthcare real estate industry in general, over the past five, six, seven, eight, years, the asset class has really come into its own and becoming more and more attractive investors of all types. Talk about cap rate compression, trends in the industry. It seems like there’s an awful lot of demand for these assets right now. How does a company like Flagship through its REIT, compete for assets in a market that just seems very hot right now?

Brannen Edge: You’re exactly right. It is overwhelming the amount of capital that is chasing the healthcare real estate industry right now. It’s coming from traditional real estate investors who hadn’t previously been exposed to the healthcare sector. It’s coming from international investors, both individual and sovereign wealth funds. Everybody it seems, wants to get into healthcare real estate. So, the secret is out. Now, when we started in this business, plus or minus 20 years ago, healthcare real estate was really not its own asset class. It was lumped into other asset classes. Was it part of the office market, or was it part of the retail market, or do they just lump it as other? Now, it’s a clearly defined asset class and it’s clearly defined for good reason.

Brannen Edge: Through the great financial crisis, our portfolio and that of most healthcare real estate performed really, really well. And of course, values were impacted across all sectors in the great financial crisis, but we really didn’t see tenants that were handing over their keys and shutting their doors. It was a very resilient asset class. We’ve had bankers that would come and visit with us back during the Great Recession and saying, “Look, the credit folks say I can’t lend to anything unless it’s government backed or it’s healthcare-related or student housing. So what do you have for me?” When you fast forward the movie through the pandemic that we’re going through now with COVID, the portfolio did extremely well. Our tenants were extremely resilient and I describe the industry as it’s now more akin to a consumer staple than it is to something that is voluntary.

Brannen Edge: Americans want and demand and deserve healthcare and a pandemic’s not going to get in the way of receiving care. So, it was really impressive to see how these healthcare providers adapted to the global pandemic, whether it was changing the way they were having patients wait for care or alternating how they were seeing patients. But what didn’t happen was stopping seeing patients. Telemedicine had a big boon and folks wondered, “Is this going to replace the need for medical office buildings?” The answer was a resounding no. It became an additional avenue for providing care to patients but it was an additional outlet, it wasn’t a replacement.

Brannen Edge: So we saw a surge in telemedicine, but not one that overtook or replaced inpatient face-to-face visits. It’s interesting, we are really agnostic at Flagship of whether we’re buying on campus buildings or off campus buildings. We’re seeing really a proliferation of off campus buildings as healthcare providers recognize the three Cs in healthcare, of care, convenience, and cost. It is much more convenient and able to be delivered at a much lower cost when you have outpatient settings. So, I think last year, there were 60 plus million surgeries that were done in the US and over 60% of them were done in an outpatient surgery center environment.

Brannen Edge: So, 20 years ago you would be going to the hospital campus and having your knee procedure, or your wrist procedure done inpatient and on the campus, today, it’s generally not happening that way. Medicare and Medicaid are increasingly approving, and even requiring some of these procedures to be done in an outpatient setting, which is really good for both the providers and for the patient. So, that’s going to continue to grow and that’s why we’re laser focused on that outpatient setting.

Andrew Dick: Yep and I would add, through the pandemic, we saw that patients were hesitant to go to a hospital campus for fear of picking up the virus or contracting the virus. So, those outpatient facilities that are off campus seem even more attractive during difficult periods like we’re living through now.

Brannen Edge: You’re exactly right. That hospital acquired infection has all always been present but in the age of COVID in the pandemic, it got much greater scrutiny. So, I don’t think there’s any going back from this shift.

Andrew Dick: So Brannen, we’re near the end of our interview. Let’s talk a little bit about advice for young professionals. We’ve got a lot of folks who listen, that are starting out in the healthcare real estate profession. What advice would you have, someone who’s getting started in the business?

Brannen Edge: Gosh, that’s a great question. I guess I would say, try to figure out what you like and work toward achieving that. Oh, by the way, that’s a lifelong learning. So what you like to do at 21 and are working towards then, may be different than when you’re 31 or 41 or 51. So, continue to try to figure out what it is that makes you tick and gets you excited to go to work in the morning, I’d say, do every job to the best of your ability, even if it’s not exactly where you want to be and maybe especially if it’s not where you want to be. If you can focus on knocking the ball out of the park, opportunities will find you. So, do everything that you can to the best of your ability. Ask questions, that’s something that … that natural curiosity, I think, is a benefit for everybody.

Brannen Edge: It’s okay to not have the answers and shouldn’t be afraid to ask for help or ask questions to learn more. And finally, don’t be afraid to fail. A little bit better to fail quickly if you can, but you are going to make mistakes and it’s fun to find an environment where you can be supported when you make those mistakes and learn from those mistakes and move on. But healthcare real estate industry has got great tailwinds. We’ve got demographics that are providing a huge lift to the industry. So, for young folks that are looking at careers in various sectors, I think this has got a great next few decades in front of us.

Andrew Dick: Well, that’s good advice. So as we wrap up, where can our audience learn more about you and Flagship Healthcare properties?

Brannen Edge: Sure, please, we’d welcome visitors to our website at, or our sister website for the REIT at We’ve got an active social media presence, so follow us on Instagram and Facebook. If you have questions or we can provide any support, feel free to reach out to us. Call us, email us, text us.

Andrew Dick: Terrific. Thanks, Brannen. Thanks to our audience for listening on your Apple or Android device. Please subscribe to the podcast and leave feedback. We also publish a newsletter called The Healthcare Real Estate Advisor. To be added to the list. Please email me at

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Health Care Real Estate Growth Strategies in Mergers and Acquisitions or Joint Ventures

Health Care Real Estate Growth Strategies in Mergers and Acquisitions or Joint Ventures

Hall Render Advisory Services’ advisor John Marshall talks with Victor McConnell of VMG Health, Matt Robbins of Kaufman Hall and Clayton Mitchell of Thomas Jefferson University Hospitals. Their discussion highlights several real estate factors that implicate the overall JV or M&A transaction: Fair Market Value (“FMV”); facility compliance (regulatory and use); property taxes; facility ownership options; asset disposition or acquisition; new facility development; licensure; and other issues.

Podcast Participants

John Marshall

Hall Render Advisory Services

Clayton Mitchell

Thomas Jefferson University Hospitals

Victor McConnell

VMG Health

Matt Robbins

Kaufman Hall

– Coming Soon –

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Hospital Property Tax Exemptions – The New Jersey Statute and Beyond – An Interview with Neil Eicher of NJHA

Hospital Property Tax Exemptions – The New Jersey Statute and Beyond – An Interview with Neil Eicher of NJHA

In this interview, Joel Swider sits down with Neil Eicher, Vice President of Government Affairs with the New Jersey Hospital Association, to discuss a recent bill that was signed into law in New Jersey related to property tax exemptions for nonprofit hospitals. The law brings resolution after almost 6 years of uncertainty in the wake of the NJ Tax Court decision in the Morristown Medical Center case which jeopardized hospital property tax exemptions in New Jersey. The interview covers the New Jersey statute as well as strategies for protecting property tax exemptions in other states through legislative efforts.

Podcast Participants

Joel Swider

Attorney, Hall Render

Neil Eicher

Vice President of Government Affairs, New Jersey Hospital Association

Joel Swider: Hello, and welcome to the Health Care Real Estate Advisor podcast. I’m Joel Swider an attorney with Hall Render, the largest healthcare-focused law firm in the country. Our guest today is Neil Eicher, who is vice president of government affairs with the New Jersey Hospital Association. We’re going to be discussing legislation that was recently signed into law to restore property tax exemptions for nonprofit hospitals in New Jersey, but which also requires nonprofit hospitals to pay certain community service contribution payments, which we’ll get into in more detail. Neil, welcome back to the podcast.

Neil Eicher: Thank you, Joel. Thank you for having me and you guys do great work on this issue, so I appreciate being a part of it.

Joel Swider: Well, thanks Neil. So before we can understand and appreciate the text of the bill itself, that was recently signed into law, I think it would be helpful to explore some brief background of hospital tax exemptions in New Jersey. I think that there’s really a broader applicability here in other States where we’ve seen the gradual chipping away of property tax exemptions for nonprofit hospitals. And so I think the process is in some ways, just as important as the result, particularly for those who are looking at this case and who’ve been watching it as we have from other States looking to see what that’s going to look like in New Jersey in the future and how it might be translated or mistranslated in other States and other contexts. So, Neil, could you give us a little bit of a lay of the land? What did the landscape look like pre Morristown, which was the case that really sort of brought this issue to a head in 2015?

Neil Eicher: Yeah, sure thing. So the Morristown Memorial hospital tax court decision was a pivotal moment for the industry. As you said in summer of 2015, it’s sort of unexpected rolling from one tax court judge in New Jersey, challenging Morristown property tax exemption. Now, they had been in litigation for almost 10 years with a town that included, multiple mayors moving in and moving out, even a change in administration at the hospital level. So it did kind of predate when the decision was actually made. But the judge in that ruling, as I said, stated that Morristown should be paying property taxes. It wasn’t precedential, but it was certainly influential. And then it resulted in NJHA as the advocacy wing to start pushing for a legislative solution because the judge did actually make that statement.

Neil Eicher: And his court decision was that although they should be paying property taxes, the legislature needs to step in. And it’s interesting because our statute on tax exemption, property tax exemption goes back. I want to say 70 or 80 years. And in that exemption, there was no carve out for for-profit medical providers within a nonprofit hospital. So while we disagreed with the rolling for a variety of reasons, the fact that the judge said we need to step in and get a legislative solution is what changed the landscape for us.

Joel Swider: Okay. So what did happen after the Morristown Medical Center case? What has happened sort of bring us up to this current bill that was passed last month and signed what’s been happening in the intervening years. I know you guys have been working at this for a long time.

Neil Eicher: Yeah. So after the decision was rendered, we knew we had six months or so until the end of our legislative session to pass a bill. And again, this is in 2015. So we did pass a piece of legislation, very similar to what has been signed into law six years later. But unfortunately it was vetoed by the governor at the time and what we were afraid of and what actually happened was with the beginning of the tax year in 2016, we saw a flurry of litigation. In some cases, it’s the town putting the hospital on the tax rolls. And it’s the hospital that initiated the litigation. Sometimes it was the reverse, we had to deal with omitted assessments, which is just a clever way of kind of looking back at retroactive tax years up to two years prior to put entities back on the tax roll.

Neil Eicher: And then I think when we’re all said and done, we probably had 40 to 42 of our 59 nonprofit hospitals engaged in litigation. Now I should note that some of them settled, they had agreements with their towns. Ironically enough, many of those agreements were similar to the community contribution fees in this law, but they had expiration dates. Other hospitals were just involved in litigation and then some other hospitals didn’t see any lawsuits at all.

Joel Swider: So then leading up to, you mentioned there’ve been other attempts over the years, leading up to the current bill that was finally passed and signed. Even that once it was introduced in January, 2020, took over 13 months until it was finally signed. Was there more give and take at this time around as well?

Neil Eicher: Yes, absolutely. It was a very arduous legislative process. We’re happy with the result so we can kind of look back at it and figure out what worked and what didn’t, what started, having the speaker of our general assembly as the prime sponsor and only sponsors, five or six bills in a session that was a positive signal and also getting our Senate, President and Governor on board early, at least conceptually was important. What happened in practicality is as the bill started to move, we started to hear, or the legislators started to hear from very influential mayors who had problems with what this bill might mean for them, at least according to what their tax assessor told them, what they could get out of the hospital, if there was full property taxation on the facility.

Neil Eicher: So we did a lot of behind the scenes work with local mayors, local hospitals tried to resolve very territorial type of issues, but it actually worked as a benefit because what we were seeing was the creation of an adversarial relationship between the towns and the hospitals that didn’t exist prior to this Taxport decision. And having this discussion kind of helps move that smooth that over. So some of the amendments in the law dealt with, for example, walking in or grandfathering in current agreements that are in place between a town in a hospital, that would be the floor. If the legislation, or I guess the law will say, if it has to be greater, the hospitals is obligated to pay more. But that took care of a couple of towns. We made some changes to the offsite for-profit medical providers made it very crystal clear that the medical provider had to be exclusively working with the hospital for a hospital purpose.

Neil Eicher: That was an issue from some legislators previously thinking that non-profit hospitals would all of a sudden purchase a bunch of for-profit medical provider buildings, take them from tax paying entities to non tax paying entities. That was not the way we read it. And it’s obviously was not our intention, but we needed to make necessary changes. And then the last thing I’ll say, Joel, is you might may have noticed if you follow this at all, we went from $2 and 50 cents per bed, per day, contribution to the town, to $3 per bed per day contribution. That was because the governor’s office wanting to get a little bit of a higher rate from hospitals to towns. So that obviously we had to discuss that for a while, but we ultimately agreed to it. And there are other small changes, but those were the main ones.

Joel Swider: Well, Neil, let’s dive into the meat of the law a little bit, this nonprofit hospital property tax bill, or a 1135, as it’s been called, going through session, let’s start with what type of property or property owner is subject to the new law?

Neil Eicher: We first specifically to a nonprofit hospital. I’m sorry, nonprofit general acute care hospital. That’s important in case you’re a specialty hospital, rehab hospital. And according to your State’s definition of licensure for a general acute care hospital, that’s important, but for our purposes, for New Jersey’s purposes, a nonprofit general acute care hospital. So it’s that building in any other building that’s utilized by the nonprofit hospital solely for hospital purposes. As I mentioned previously, if it’s a for-profit medical provider, it has to be exclusive to that hospital who does this apply to and in all practicality, it’s your ER groups that maybe you contract with, maybe you have an anesthesiology group or wing cardiology, all the wrap services, pathology, those that may have for within your hospital, maybe it’s an attached wing of your hospital, but this is an important point of clarification because this had stalled the bill as well.

Neil Eicher: If you have, let’s say a for-profit medical provider group that is renting space or attached to the hospital or attached to the hospital and renting space, and they provide some assistance to patients from the hospital. So if it’s a cardiology group and let’s say they do 40% of services for the hospital, but they have 60% of patients come as walk-ins, they would not allow that part of that wing, that building would not receive a property tax exemption. They would still be required to pay property taxes. The normal arrangement is through the lease agreement with the hospital.

Neil Eicher: So we made it very clear. It has to be pretty much, well, it has to be a hundred percent of what that group does is for the hospital purpose. It also, if you have a McDonald’s, if you have a Starbucks within your hospital, that will remain taxed. Usually again, it’s done between the lease agreement with the facility that will not change. The cafeteria, however, would fall under the property tax exemption.

Joel Swider: Okay. So if you have an exemption, you qualify, you’re a general acute care hospital, you qualify for exemption, but there’s also this element of a community service contribution. What does that mean? And what does that look like?

Neil Eicher: So because of the statute that we were dealing with about the inability for Eddy for-profit activity to occur in a nonprofit entity to get property tax exemption, we recognize that with for-profit activity occurring in these hospitals, that we needed to modernize the law. It could be those groups that I mentioned previously, or it could be a specialist that has privileges in a hospital, whatever it may be, at least in New Jersey, there are for-profit entities working in a nonprofit entity and it puts our statute in jeopardy. So recognizing that things have changed, what we agreed to was that in exchange for, I guess, the codification or update to our property tax exemption, we would pay a fee to the town because we are also getting bigger. We are utilizing more municipal services. So as a recognition and actually just from the get-go trying to be a good player with the towns and not just try to railroad through something, we thought we would try to find that fair balance and at $2.50 at the time, the contribution will be $2 and 50 cents per bed per day, to each town.

Neil Eicher: I will note that you are, as a hospital, able to deduct any agreements that you already have. We call them voluntary agreements. Most people know them as pilots. We stayed away from the word pilot because there’s a strict definition in New Jersey statute that may have brought on issues after this became law. So we just call them voluntary agreements, voluntary arrangements. So if your obligation of now it’s up to $3 per bed per day, is $500,000 to your town. You have an agreement for $300,000 each year, maybe to pay for a public nurse in the school system, redo a park, whatever it might be, or just general money. You’re able to deduct that 300,000 from that 500,000, therefore you would owe $200,000 a year.

Neil Eicher: It would never go reverse. If your agreement is more than the requirement here, you can’t obviously deduct that. But that was again, a good faith effort by us. We just wanted to turn the spigot off of all these lawsuits, put something in there that was a fair that the towns would get something. And then we wouldn’t be spending money on legal fees. So that, that was the purpose of the community contribution that we thought it was important to be a good partner with our towns.

Joel Swider: That makes sense. And Neil, I mean, this applies to a lot of hospitals. I know you, you gave a couple of specific examples in some sort of variations of the general acute care hospital, but I mean, that’s a majority of New Jersey’s acute care hospitals will probably fall into the ambit of this statute. Is that right?

Neil Eicher: Yeah. Correct. We have 59 non-profit hospitals and 71 acute care hospitals.

Joel Swider: Okay. So are there any carve-outs from the ambit of the statute or other clarification’s that we should be aware of in terms of how this shook out?

Neil Eicher: I mean, I think it’s important to understand kind of your for-profit medical providers, the buildings associated with your nonprofit hospital, how it’s structured under your license. I think that’s very important. So I did talk about that, but I will say we did get abdication carve out. We have a specially cardiac hospital in New Jersey that doesn’t bill patients. They have a special OIG opinion from the federal government to have this exemption, not to, for example, go after Medicare patients for balanced billing. So we did insert a section in there that exempted them and that actually made it into final law.

Neil Eicher: So let’s say, other than that, no other real carve-outs, no hoodwinking that we were trying to do, we try to be as transparent as possible, where we needed the clarification, like I said on off-site for-profit medical providers and whether we’re going to buy them up and switch to property tax status, we made it very, very crystal clear that that wasn’t the intention. But it was very important to us on the for-profit medical provider to get that exemption for the emergency department. For example, if you have a for-profit medical group, if you have the third floor of your hospital has a cardiology group, that needs to be exempted. So other than that it’s pretty straightforward with, again, nonprofit general acute care hospitals.

Joel Swider: So Neil, as I read this statute and I’ve read now a number of them from other States, I find it to be pretty comprehensive in terms of, it’s pretty clear about its scope. It’s pretty clear about how it applies and how it works. There are two things that caught my eye though, as potential wrinkles, I guess you could say in terms of how this is going to be implemented, one of them is that there’s language requiring the New Jersey healthcare facilities, financing authority, and the director of the division of local government services to adopt regulations, to effectuate the bill, where do you see that going? And it sounds like it has to be done within four months following enactment and which may or may not end up taking place, but any thoughts on the regulatory aspect of this?

Neil Eicher: Sure thing. And I think it’s good for listeners to consider that in their own state. A lot of times when we have legislation going into the water, there is a requirement for the promulgation of regulations, but it’s very clear, from previous experience, that a statute is a statute. So you still have to implement it, still the letter of the law, even if the regulations don’t come. So you’re correct. There needs to be regulations within four months. I doubt that our department will meet that deadline. It’s been very difficult previously. And then of course we’re still trying to get out of COVID and a lot of other things that are affecting the work of the department. So I personally do not expect them to meet that four month deadline. However, what was important to us and maybe another consideration for your list just to make the language as specific as you can.

Neil Eicher: And even some of these provisions need further clarification. After six years, we tried our best to make it as clear as possible, but we still need some guidance on a few things from the various departments, but we did make a conscious effort to make it as specific as possible. So that once the bill was signed into law, we knew what to expect. Our members certainly knew what to expect following this for years and most of the towns as well. So I do think they’ll get to regulations eventually, but right now, we’re just kind of moving forward with our interpretation of the law until we get that guidance.

Joel Swider: So near the other wrinkle, if you will, that identified as I was reading it was, there’s a non-profit hospital community service contribution study commission, which has set up, which has as its goal, sort of looking at the financial impact, analyzing, analyzing the financial impact on effected hospitals and municipalities among other things. And I guess, again, as an observer from another State and who represents clients in additional States, I think it’s really interesting. I will really be curious to see how the study commission reports shake out and what is found, but could you give me a little bit more color to why that was in there and what the goal of it is?

Neil Eicher: Yeah. Yeah. You and me both, I’m interested to see what they come up with. We thought again, because a lot of this language was actually taken from our original bill that went forward in 2015. And the purpose of this bill, originally, I guess it still is, was to provide a stop gap, to put a pause on a lot of the legal suits because no one has really examined the role of healthcare entities, hospitals in particular, and how it relates to property taxes, New Jersey, by the way, has the highest property tax rate in the nation because we, variety of reasons. So property taxes are very, you know, interesting phrase here. So we needed, you know, some experts kind of sit down and take a view of the changing landscape of healthcare changing landscape of towns and property taxes.

Neil Eicher: So, that was the purpose. At the time the $2.50 now $3 contribution was meant as a stop gap. We knew that we needed to start paying something two minutes to Powell these, and by the way, it’s pretty much, it’s about 20 to $21 million a year annually, collectively in New Jersey. But we want this commission to review everything. And if they say, you know what, $3 is too low, we’re going to have to swallow that and accepted. Luckily, we have some good representation. One of the amendments that the governor’s office asked for some additional person from the governor’s office to sit on ex officio. So I do think this will be helpful and understanding kind of as we move forward. However, one thing I neglected to mention about the community contribution fee is that each year it goes up with an inflator of 2%.

Neil Eicher: So at minimum, it goes up 2% moving forward. So again, for the hospitals that are listening, this might sound like a good deal for the towns, even though they lobbied against it, but this bill and this law is essentially the floor of what hospitals must pay. Things will always continue to go up. So we needed to make sure the study commission was there, but at the same time, it is balanced. So it’s not swayed one way or the other, but Joel, kind of to your question about regulations, when that’s going to come, I know there are strict deadlines for this, but it’s possible that this doesn’t meet in a timeframe that the put in the bill.

Joel Swider: So Neil, let’s turn to the subject of sort of the effect or the fallout, if you will, both positive and potentially negative of the legislation. I think in some ways beauty’s in the eye of the beholder, but Kathy Bennett, who’s the president and CEO of the New Jersey Hospital Association, seemed overall positive about the new law in the news reports that I read. She said it was the right solution. And I do think that, I mean, just my personal opinion is that NJJ has done a great job of taking into account the various perspectives here and coming up with a solution that is equitable, but also puts New Jersey hospitals in your membership, in a better position than they were for the past five, six years and maybe more. Do other healthcare leaders in community organizations feel the same way about the bill or what sort of the anticipated effect?

Neil Eicher: Sure. So we were very as an association and by the way, where we represent all the hospitals in New Jersey, I know that’s somewhat unique in many States, so it’s-

Joel Swider: So it was sort of everybody

Neil Eicher: Everybody. Yeah. So we have a for-profit non-profit that adds up to 71 hospital members. We have 250 to 275 post-acute specially care type of maybe not core members, but affiliated members, business members, et cetera. So we count over 400 members in our membership, but of course our core membership is mostly general acute care hospitals for-profit and nonprofit, but we also have some behavioral health facilities and other post acutes that are core members. But to your point, everyone, all the non, all the acute care hospitals supported this, membership completely supported this. It was difficult at times going from $2.50 to $3 to make sure everyone’s comfortable with that. I should note I won’t name, but there was one health system that had four hospitals in New Jersey that had no pending litigation that wasn’t very happy with it. They were fine with MGHA pursuing and they were absolutely great partners in it, but they just made it clear that they didn’t support it.

Neil Eicher: It would mean over a million dollars to them each year that they would have to pay. There are other categories of members who may not have had lawsuits, but also knew that they could be next and we’re supportive. I think it was also supported by maybe not very publicly, but nursing home health associations, others that were nonprofits, but thought that maybe they could be next. Educational institutions also were supportive. We got the council, the center for nonprofit hospitals or sorry, center for nonprofits in New Jersey to be supportive because of kind of the snowballing effect that could happen watching what would happen to our hospital. So we did have some kind of ancillary support and really the only, the only opposition was the advocacy group that represented the towns, it kind of depends on your perspective.

Neil Eicher: They were making a case to their mayors, that hospitals needed to be taxed, a hundred percent of the market rate. We believe that we shouldn’t have need to pay anything, but at least we came up with a compromise, the pay something, again, over $20 million a year, the other side just fought it and wanted a full payment. So I think in general, just some of, I think in general, a lot of the healthcare leaders understood this was important to get this codification, even those who are advocacy groups for patients, et cetera, knew that we were spending money on legal fees. And as a nonprofit, you have to report to your board, you have certain community benefit requirements. So they knew we could put that money back into care. So I’m glad we got this done. And I think we had the right amount of support.

Joel Swider: So Neil, maybe to close here, I’m curious as well, you mentioned the towns and the advocacy against this effort, which sort of surprises me in some ways since the statute previously allowed for exemption. And it really wasn’t until Morristown, that was even in question, but what is the anticipated effect on legislation, excuse me, on litigation that was ongoing at the time that this was signed or maybe really everything that’s kind of come out since Morristown, what will happen with that litigation and what do you see there happening?

Neil Eicher: That’s a very good question. And I’m happy to be able to explain this a little bit. And again, every state’s different, but I think there might be some crossover on this statement, but with the legislation being signed into law, it codifies our property tax exemption. It refines the statute for the exemption. As I mentioned before, requires the community contribution fee. However, everyone wants to meet. Everyone must remember the separation of powers between the executive branch and the judicial branch.

Neil Eicher: So yes, the statute will go into effect, but it cannot throw out the lawsuits and the litigation that’s currently taking place between towns and hospitals. That’s the legal interpretation from our council. However, in all practical sense, since we only have three or four tax court judges, and our counsel has been the ones representing those, the hospitals, she has told us that every judge has been looking at the progress of the legislation and art, and they are going to point to the legislation as kind of the solution.

Neil Eicher: So for those of you, or you may maybe council or are looking at from a legal sense, it’s important to understand that just because you pass a law, doesn’t necessarily mean it overturns a tax court decision, but it will be very influential and making their decisions. So if you’re thinking about going our route and trying to make a lemonade out of lemons and just kind of dealing with a bad situation that was put in front of us, I would encourage you as you go through the legislative process to also think about how you can make sure the judicial branch is aware of what you’re trying to do before moving forward.

Joel Swider: Well, thanks so much for your time and expertise, Neil, and congratulations on getting this bill finally negotiated and signed into law. Where can our listeners go to learn more about the law or about your work at NJHA?

Neil Eicher: Sure. No. And, and thank you for having me. Please visit us. We have a lot of different things that are available for non-members a non password protected that you can visit. My email is an always feel free to send me a note. Again, it’s I’m happy to talk about this. This was six years in the making happiness done, still more to do, but yeah, I’d be happy to talk to anyone who wants to learn more about this.

Joel Swider: Great. Well, thanks again, Neil, and thanks to our listeners for joining us today. If you liked this podcast, then please subscribe and leave feedback for us using your Apple or Android device. And if you’re interested in more content on healthcare real estate, we also publish a newsletter called the Health Care Real Estate Advisor. If you’d like to be added to the list, please email me at

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An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

In this interview, Andrew Dick sits down with Kevin Jones, Managing Director and Real Estate Practice Leader with ZRG Partners to talk about professional development and executive recruiting in the healthcare real estate industry. 

Podcast Participants

Andrew Dick

Hall Render

Kevin Jones

ZRG Partners

Andrew Dick: Hello, and welcome to the Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we will be speaking with Kevin Jones, a managing director and real estate practice leader with ZRG Partners. Kevin helps real estate and healthcare companies with executive searches. We’re going to talk about Kevin’s background, the healthcare real estate industry and what he looks for when recruiting for executive positions within the real estate industry. Kevin, thanks for joining me.

Kevin Jones: Thank you, Andrew. Always a pleasure.

Andrew Dick: Kevin, before we talk about your role at ZRG Partners, let’s talk about your background. Tell us where you’re from, where you went to school and what you aspired to be.

Kevin Jones: Sure. Well, the first part of my career, if you will, is largely uninspiring. I went to Indiana University in Pennsylvania, which spent the rest of my life explaining that’s actually in Pennsylvania and not Indiana. However, I actually joined a recruitment firm right out of school, so I had no industry sector experience. And if I think about my career and my background, it really boils down to three to four significant decisions and changes that I made. The first one is leaving the firm that I started with after nine years to join as one of the partners at Crown Advisors. And crown was only a few months old at that point.

Kevin Jones: And I have a 13 year run to really effectively build that firm, helped build that firm from the ground up. Although at the time, the plan was just to stay there for the next 20 years, I couldn’t see it. The firm, it topped out. And my timing there was that I wanted to do a lot more in the firm, became a lifestyle business, which is great. But it was just focused on the partnership and the lifestyle that the business created. That was the second big risk that I took, is I left just to start the Jones Group. And that’s when I doubled down on my commitment to healthcare real estate.

Kevin Jones: For the next eight years, I focused on becoming a subject matter expert in the healthcare real estate sector, became embedded in the business in that community. That’s where I really understood the value of becoming a specialist. As an insider, you could build meaningful relationships versus just somebody that, who calls into the sector, if you will. So, that was a great run on my own. And I established relationships that I believe will be with me the rest of my career. About three and a half years ago, I was actually approached by a search firm to build a global real estate executive search practice at ZRG.

Kevin Jones: And so frankly, that’s been a heavy lift. But the nice part about ZRG is we have a robust healthcare executive search practice across the board. So I bolted into the healthcare group when I started. And our roots and healthcare as a search firm, we actually have a partner that’s a medical doctor. We focus on clinical academic medical centers and of course health systems, as well as PE backed healthcare firms. So within that group, I was able to use that as leverage to build the global real estate practice. And now, though the real estate practice is anchored in the US, we have outposts in Brazil, London and Dubai and it gives us a legitimate global reach.

Kevin Jones: I still do largely healthcare real estate, but as a practice, we’re doing probably 60, 50 or 60% in commercial real estate. And then I do the balance in healthcare real estate.

Andrew Dick: So Kevin, how did you at some point, and it sounds like many years ago, you identified healthcare real estate as a niche that you wanted to pursue. How did you end up working on searches in the healthcare real estate industry? That’s a pretty narrow niche.

Kevin Jones: Yeah. Yeah. It goes back a while. I was actually at the first BOMA Healthcare Conference in San Francisco. There might’ve been 45 people there. You’d have to, Laurie Damon would have to fact check me on that, but it was very small. And like a lot of people in this sector, Andrew, I had a personal experience that just drew me to healthcare and hospital real estate. So it became an interest. Once I discovered it, it became an interest. And like you build a practice anywhere, you get some companies that are growing and you work really hard to satisfy them and as they grow, your practice grows. And I had done that with a couple of pioneering firms in the sector, where I’d worked closely with their founder.

Kevin Jones: And as they grew market to market, they just tapped me on the shoulder and I helped them open. They went from a local brand to a national brand and I did all those searches. So through that process, that’s how I just became embedded in the business when it was much smaller than it is today. It was an easier effort because when people start to recognize you specialize in their startup sector, if you will, they recognize you. So it was easy to make my way around the block with all the players and as the sector grew, my practice grew. It was really more serendipity than, I did something spot on to make it grow.

Andrew Dick: Sure. So Kevin, give us an idea of the type of assignments you’ve had over the years in the industry. Would this be C-Suite executives or give us some examples?

Kevin Jones: Sure. Yeah. And focusing on the sector, I would say I do C-Suite, as well as the people reporting into the C-Suite. That’s really my strikes zone. And I’ve done some board advisory work, as well. I would say a typical search, it involves… I had done a search for a senior managing director for a group that does healthcare real estate consulting. And the leader of that group, somewhat of a legendary person in the sector frankly, was retiring. So, they engaged us to find that replacement and that’s always tricky to find somebody that’s been embedded and worked with the team for decades to bring a new leader in. And we did just that. It was a very successful search. It took us probably eight months, which was three months too long, frankly.

Kevin Jones: But when you work at that level, you’ve got to work around non-competes, you’ve got to work around other competitive covenants to try to get the timing right. Nobody wants to go against that. But that’s a typical search. And what I see when people come to me often, they’re looking for more than a plug and play person. They want somebody that has deep experience in the sector, but also they have that ability to be the face of the franchise. Somebody that knows how to sell and lead and execute. I see that a lot and I get that a lot. So that’s probably the type of role that I see, because they’re just so hard to find. You really need to know those people first, just to get their attention to consider something because they’re generally well paid, well taken care of because they bring such, three components of value to the organization.

Andrew Dick: Let’s talk about that, Kevin. We have quite a few young professionals who have been in the business maybe a couple of years, the healthcare real estate business. Or young professionals who are looking at getting into the healthcare real estate business. Let’s talk about the skills that you look for and your clients look for when trying to identify talent. You hit on a couple things, the ability to sell, interact well with others, et cetera. Talk more about that. What advice would you give to someone who’s really trying to make a name for themselves in the industry?

Kevin Jones: Sure. And that’s a great question. I actually have kids in that same period in their lives. This is something I’ve thought about. I think it’s, the thing is, it’s not new, right? It’s a generational to generational piece of advice. But I think the first thing is for most people, they need to redefine what sales is to them. Everybody carries around this baggage of what sales is and what it isn’t and the immediate cliches and imagery that comes with it. That’s obviously so old fashioned. I challenge people to, that they really need to just look at that. Do some self discovery and understand really, what’s your hang up on that word and what that means. They need to redefine it because every business is driven by sales and top line revenue.

Kevin Jones: There’s no way around that. And the more you can impact that, the more value you bring to an organization. I think most people, some of the conversations I’ve had with people, they just will tell me, “Well, I won’t sell.” And I think, “All right. Well then, good luck and stay where you are and nestle in, because that takes away a lot of your growth opportunities.” So that’s a little bit of personal work. You really need to evaluate what it is, what your hangups are around it. You need to read on the subject, very contemporary material on what it is, because that really is going to be a game changer. And once you’re able to embrace that and put your talents to use around it, that’s going to change your value to the market. And that changes everything.

Andrew Dick: That’s a great point, Kevin. We have on the team I lead, we have a number of young professionals and we talk a lot about building a personal brand and getting your name out in the industry. And in other words, even as lawyers, we have to sell. We sell a little differently maybe than other industries and we’re subject to ethical rules that prohibit us from doing certain things. But I think you’re spot on, Kevin. I think that in certain circles, when you talk about sales and those types of skills, it can turn people off. But in my experience, individuals who master the art of developing relationships and building a personal brand, tend to rise to the top. And I think that’s what you’re saying.

Kevin Jones: You’re exactly right. That’s what you see across the board. You bring up something else too, is networking is a large part of that. And networking, frankly, networking was real work for me. I mean, I obviously love what I do and it’s a cool business, frankly. But when I would go to a conference, networking would be so challenging. And I probably still haven’t been to a conference in a while, but I still get nervous and feel like I’m intruding. You’ve got to get over all those hangups and networking is an amazing skillset. It’s just that, and it’s like a skillset. You have to practice. You have to do some of the corny role playing. You have to really get outside of your comfort zone and become effective.

Kevin Jones: And that takes, more than anything, the things that I hear now is self-awareness, social and professional awareness, C-Suite and board presence. Those are really important elements and that’s communication skills. That’s style. That’s how you carry yourself, to a T. So you need to keep that in mind. If you want to be in the C-Suite, you really need that self-awareness and social awareness. And if it doesn’t come naturally, even if it does come naturally, it’s something that you need to work on and practice so you’re prepared. I’ve always, I’m going to butcher it, but I’ve always kind of hung on the Abe Lincoln quote. Prepare yourself, for one day, your chance will come. It’s one of those things where you need to be prepared. You need to practice beforehand. And when you find yourself in that situation, you’re ready.

Kevin Jones: Networking’s a big part of that and it’s going to be again. You’ve been in this space for a while too, Andrew. We went from one conference a year to maybe two a month. It is a business in and of itself, or it will be, and that’s fine. That’s a great opportunity to meet people, to sell yourself, to create that personal brand. The opportunities exist and the more you embrace that, the more you get comfortable with it and dive into it versus shy away and just try to back away from conversation… When people talk about coming out of their comfort zone, that’s a perfect example. It really is. And then, that’s when you’d need to develop a self-awareness and have a ready list of conversation points or topics or trends that you’re seeing.

Kevin Jones: Asking questions is always the way to engage conversation. Ask important questions. In those situations, you can start personal, but you really want to be able to learn how to leverage that into business. What do you want to ask about your legal needs, about your recruitment needs and your growth strategies? That’s when you have those conversations. Everybody’s at ease and disarmed, and it really is just a conversation. We both know everybody loves to talk about that. Nobody doesn’t want to talk about their growth plans or their growth strategy or their troubling situations professionally. So, develop a strong list of questions to ask, and that makes it a lot easier.

Andrew Dick: Great advice, Kevin. Let’s dig just a little deeper for the folks who are starting out in the industry. Talk about in your experience. I mean, you hit on a couple things about some individuals are maybe introverted or are uncomfortable networking and putting themselves out there a little bit. What tips do you have in terms of, do those individuals, should they seek out mentors who can help them or coaches? We live in a world where there’s an awful lot of coaching going on, which I find really interesting. What tips would you give? Do you see executives or young professionals seeking out mentorships with more senior level professionals to help them through that journey?

Kevin Jones: Yeah. Obviously, mentoring works, but it often doesn’t work. It’s not like you can be assigned or go up and approach somebody and say, “Be my mentor.” Right? And you might pick the wrong person. You really might. My advice, my approach to that is, and it’s think of it more of not like the old way of I’ve got one mentor and I do whatever that person tells me and I follow them around. But maybe target three people, three types of mentors and define what they are. Somebody that’s just amazing in sales and networking. Somebody that technically has a lot of depth, and somebody that you respect from an integrity standpoint, that seems to have the, I’m not going to use the word balance because I’m not a fan of that approach. It’s somebody that has balanced a career and a family or healthy relationships outside of work, is a better way to put it.

Kevin Jones: You don’t just walk up to the person and ask, but again, you develop your list of questions. And when you are around people like that, whether it’s a cocktail party or a conference, you have your line of questions. So, how did you get into what? Just like we’re engaged in here, right? Where are you from? What do you do? What do you do outside of work? Those are easy questions to answer, and then you feel yourself out. You’re going to resonate with somebody or not, and then you just latch on. And a mentor, that’s not a lifetime relationship, right? Somebody might just, it might be a five-year gig if you will, of where you need that help, and then you maintain those relationships. And they’re meaningful relationships, that you don’t have to just find one person that you follow around for 30 years. That’s an old fashioned way, in my opinion. And I think you can get a lot of value from different perspectives.

Andrew Dick: Good advice. Before we talk about some trends in the healthcare real estate industry, let me just ask one more general question, Kevin. When you’re undertaking a search, I know ZRG has a number of different tools to help find the right person. Maybe talk about how that search process works when you narrow the list of candidates and what metrics are you looking at? I think you’ve hit on some of them, sales and ability to work well with others. But how does that work when you narrow the field?

Kevin Jones: That’s a good question. Well, and look, that’s the reason I joined ZRG. I’ve always been in smaller boutique, real estate focused companies, whether my own or at Crown and when I started. And ZRG is very different. We’re actually the fastest growing search firm, maybe two out of the last three years. Through the pandemic, we’ve added maybe 10 plus managing directors where everybody else was shrinking. So it’s a very contrarian minded search firm and our approach and our thinking is to be the biggest search firm outside of the top five. We’re not looking to then become public or the size of a Korn Ferry or Heidrick because when we compete against those firms, we’re more nimble. We’re more flexible. Our culture is genuinely collaborative and that makes us better as a firm, as we approach these searches.

Kevin Jones: And like any sector, people grow tired of the old guard, of the way they’ve always done things and they want to do something different. And search is no different. And I agree, I’m glad you noticed our tools because they really are unique. It’s more than just a prop that we can set up. The assessments we do, and really, it’s the skills and attributes grid that our CEOs developed and we’ve refined over years. But it weights key skills and attributes, and we’re able to then create data points along the lines for each candidate. So you can rank them, frankly. Let’s say you create a batting order, but we’re very clear that doesn’t make your decision for you. It just gives you data points. You’re still having to hire the person.

Kevin Jones: This creates a very interesting dialogue because some people might score people differently or differently from us. You’re able to pick out what those points are. I think the strongest aspect of using our dashboard of tools, it keeps everybody on the same page where everybody’s interviewing, say on the seven same skills and attributes and what we’ve determined to be keys. In real estate, I find the interviewing technique is click and close. Once somebody clicks with somebody, they try to close them on either side of the table. And this process, it really forces the team because you’ve got to answer back to your team in terms of, this is how I ranked this person on all of these attributes. You can’t just then drift off into sports or family or politics, whatever you might be off topic. It forces everybody on the team to interview from the same criteria.

Kevin Jones: So everybody’s evaluating that candidate. I always think the value of a search firm is we continue evaluation. We’re doing a search right now for a chief revenue officer. There’s a lot of likeability around, say the two lead candidates, but from our process, we’re still in market talking to people. We’re also continuing to evaluate these candidates. We’re not just assuming, this is the person that we’re going to go through and hire. We’re continuing to critique and evaluate and share that with our client. That’s valuable because that’s where mistakes in hiring are made. You have that good first interview, and then you just glide to the finish line versus the continuing conversation, digging deeper. You’ve got this.

Kevin Jones: And I’ll go through frankly, through a process and I’ll re-rank my skills and attributes. The deeper you get to know somebody in the process, they might go from a four to four and a half or four to three, because as you dig and you talk to that person, I might talk to somebody 15 times through the course of a search candidate. You’re continuing to revisit and ask questions and that really helps in our clients just getting that right person in the seat. Does that answer your question?

Andrew Dick: It does. Just one follow up, Kevin. You talked about one search that took approximately eight months. When you’re hiring, I mean that was a special search, you’re replacing a leader of a group. On average, how long does the process take when you’re going, hiring maybe a C-Suite executive? Is it five months, six months? Or how long can someone expect to take, to go through a process?

Kevin Jones: It’s a three month process to identify and get commitment, and then you’ve got to work through the final piece of resignation. But yeah, within three to four months, the heavy lifting will be done and you’ve got one candidate that you’re finalizing. You should have somebody warming up in the bullpen as well, just in case.

Andrew Dick: Okay. And one more follow up, Kevin, because I enjoy this discussion. I find when I talk with professionals in the real estate industry, sometimes I feel like there are folks who are focused on the salary offered by a position. But in my opinion, that seems shortsighted. What are you seeing in terms of individuals looking for growth and opportunity? What’s your advice to a young person? It seems to me that they shouldn’t be focused just on salary or the location of the opportunity, but really, is there an opportunity to grow, to learn, to be mentored? What advice would you give there when an individual’s kind of considering a couple of different opportunities? What do you think is important?

Kevin Jones: Sure. Again, a very good question. It goes back to the advice you’d give. The other piece I would give to somebody that’s looking at a career is, re-examine what work means to you. So many people get hung up on work-life balance and whether they’ll be home and what their commute will look like. I really look at it is don’t even use the word work. You’re just spending your time. You can build a foundation, a professional foundation and a personal foundation to grow and merge those two. There’s a bridge between that. It’s not one or the other. So, I do. And work’s one of those things where we have these concepts that we’ve never questioned. They just kind of come up through our upbringing and we never reevaluate these things that we learned from a young age. Sales and work are two things that I think are worth reexamining throughout your life.

Kevin Jones: But the question is, to go back to your question, Andrew, I would say this, is you’re exactly right. People get hung up on salary and they get hung up on title and things like that. When you’re at that pivot point, and I’d mentioned mine. There were three to four really that were pivotal in my career. I think you need to recognize when those periods are in terms of, this is a pivot move and this is an opportunity. And then don’t ask yourself, what will I make in the next 12 months? But you need to sit and who am I going to be in the next three to five years? How can I grow? Who can I transform into being with this experience? And we see that with our private equity clients all the time, of when you join a growing private equity operating company and take that through a cycle, you’re a different person.

Kevin Jones: You’ve got a merit badge after that because of your experience there. So think about who you can become in this role versus what you’re going to make in 12 months. I think if you step back and take that process, that’s going to be very clear and that helps your answer. Now, comp always comes into play. It’s why we do it, certainly. But if the comp is close and one just has something more exciting to it, then you should certainly take that risk. It’s not a risk-free professional life that we live in, and you need to make smart risks and you need to make sure that the return isn’t so much in 12 months. I’ve made several moves where I actually had to take a step back. What I’ve learned through that process has been, the return is extraordinary. That’s what I would switch around and reconsider when people are looking at that.

Andrew Dick: Good advice. Thanks, Kevin. Let’s switch gears. Let’s talk about the healthcare real estate industry. The industry has grown tremendously. As you mentioned, you were at, I think the first BOMA MOB Conference, a small conference pre-COVID. It’s turned into what I would consider to be a mega conference, thousands of people. And then I think through COVID, we’ve seen even more growth in demand for healthcare real estate assets. Give us your perspective on the industry today.

Kevin Jones: Yeah. Well, it’s certainly different. There’s a couple things. If you recall, Andrew, I remember when the Affordable Care Act was a game changer the first time it came through. And the industry stood still waiting for some sign to act, a green light or red light to have certainty to go forward. And now, healthcare needs to be as nimble and decisive as any other sector. The old school bureaucracy, this is how we’ve always done things. It doesn’t translate into 2021. And we’re seeing a lot of that, frankly. We are seeing that old guard, that old way of thinking, it doesn’t translate and it’s not going to transform into future success, even if its worked in the past.

Kevin Jones: And frankly, I feel it’s an exciting time to be in healthcare if you’re prepared to be part of the change. If you’re clinging to what is, and that’s obviously always scary, regardless of what you’re doing. I’m seeing it. If you look at trends, I would be remiss not to say the words, proptech or data science. Those elements are becoming embedded in every sector, the technology efficiencies and data science. So I’m not minimizing that, but I don’t think that’s an insightful trend right now. That’s an obvious trend. I’m working with some firms that are leveraging machine learning and AI in terms of investment strategy and thesis, in terms of underwriting. It’s really a remarkable, if not scary, the depth that machine learning is coming into real estate from a decision making standpoint.

Kevin Jones: So I think that’s really interesting, where it just takes a more global picture, demographics, returns, all the things you want to put into the pot of stew. And it’s coming out with really smart and insightful answers. That’s really where I’m seeing in terms of technology, the proptech, the data, that’s really important. But there’s more to come and there’s even more forward thinking when it comes to applying technology within commercial real estate. In residential, for that matter.

Andrew Dick: I would agree. I think that there is. I’ve seen an awful lot of growth in site selection technology that’s really interesting. We’ve seen an awful lot of growth in telehealth and retail healthcare. And when you see a lot of private equity firms, as you mentioned, getting into this business, the healthcare business and the healthcare real estate business, I think we’re going to see more and more change. They’re typically very aggressive in trying to implement new models, so it’s exciting.

Kevin Jones: It’s exciting and it is different. The evolution is important. It goes back to my business in executive search. I mean, certainly that’s my day job, but with the changes and the speed of change right now, as a practice, my services have evolved into further introductory services. Whether it’s capital markets, joint ventures, project and pipeline introductions, mergers, team carve-outs. So, people are coming to me less with, “Hey, I need to hire this individual,” though that’s still the business. But more, “This is my larger problem of what I’m trying to solve. How can you help me solve that larger problem?” And it isn’t necessarily… A great example is this. We’re seeing more chief revenue officer searches right now. I think you could quickly just say, “Oh, that’s a head of sales,” but it really isn’t.

Kevin Jones: As you know, so many people that are trying to grow, they’ll hire a VP of business development and stick them in a region and say, “Grow the region.” Market facing people. The chief revenue officer role is transformative because this is a person that comes in that’s part of the C-Suite, and they’re really creating that repeatable systematic revenue process. If you have the right person, they’re not only looking at driving growth in revenue, but they’re creating systems and procedures to work with the sales team. And really, they should be strong assessors of talent to recognize this is the model. This is the model of person that we need to plug into this role, not just a VP of business development to go knock on doors.

Kevin Jones: And then the other component is identifying your client base. And how do you build more revenue from that in a very creative way? And then, how is that sustainable? How do we create revenue when the development market dips? How do we still keep cashflow and revenue expanding? That’s a strategy role, but the skill set really is in sales and marketing. But more so than just being a savvy client facing sales pro, the person brings a next level strategy to the business that frankly, the CEO, COO and CFO, they generally don’t have that background, that technical background. They also are not devoting the time to do that because they’ve got other full-time jobs.

Kevin Jones: So that’s been another trend that we’re seeing of people bringing in that transformative CRO. And that goes to the point, really part of the thing that we’re discussing here is the business is changing quickly. It’s exciting if you’re out in front of it. The problem I’ve seen is so many firms think they’re out in front of it. They feel like, yeah, we’ve got this. We’ve been through this before. But it’s a different, this, it’s a different scenario than it has been historically.

Andrew Dick: So Kevin, I have one more question as we wrap up. We’ve seen a lot of articles in the real estate industry about work from home and what that’s going to mean post COVID. What’s your take? Are we going to see organizations ask their teams to come back to the office? What will that look like? Any predictions?

Kevin Jones: That’s a big one. And this is just my opinion. I’m not an expert in that world. That involves sociology, psychology. The people that think everybody’s, everything’s going to go back to work from the office, largely have large office portfolios. So they can’t afford to even think anything different. I do see people coming back, but in a very different manner and a more effective manner, not just for Face Time. I have got clients and I know firms are looking to bring everybody back full time. I think that goes the way of the tie, right? Once you stop wearing a tie, it’s hard to put one back on. I think we’ve got a great experience on how to do this, but the real factor is having the right person.

Kevin Jones: If you’ve got the right person, they could work from anywhere and be productive. And if you have the wrong person, they can be in the office every day and still not quite get it and get it done. I don’t see office going away. If you look at your office, I think our own personal experiences play to it. I’m in a role where I can effectively work from home, but I’m very excited to get back on the road and work face to face. I still go into my office twice a week right now because I crave that interaction and you can’t create, or even have a culture if everybody’s working from home. I think everybody’s grown tired of the video conferences.

Kevin Jones: They’re very effective and they’ll play a greater role going forward. But I think we all know as a society that Face Time, personal interaction, it’s not healthy to do away with that in any, whether it’s professional or personal. You need to build that into your business plan, frankly, and make sure it’s effective.

Andrew Dick: Well, Kevin, I’ve enjoyed this conversation and I’ve enjoyed getting to know you over the past 12 months or so. Where can our audience learn more about you and ZRG Partners?

Kevin Jones: Sure. Easy to find, is our website. My email’s So those are two very easy ways to find me. I’m all over LinkedIn as well, so I’m easy to get to.

Andrew Dick: Well, thanks again, Kevin. Thanks to our audience for listening to the podcast on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. We also publish a newsletter called The Healthcare Real Estate Advisor. To be added to the list, please email me at


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Strategy Considerations for Health Care Real Estate

Strategy Considerations for Health Care Real Estate

Hall Render attorney Rene Larkin talks with Kelly Adams of SCL Health, Cindy Black of Indiana University Health, Matt Crawford of Bon Secours Mercy Health and Heidi Hohendorf of Spectrum Health. Changing trends, legal updates and population forces are steady factors health systems use to inform their real estate strategy, but evaluating the long-term impact of a pandemic on how and where health care will be delivered ensures significant implications on real estate strategy in the health care industry.

Podcast Participants

Rene Larkin

Hall Render

Kelly Adams

SCL Health

Cindy Black

IU Health

Matt Crawford

Bon Secours Mercy Health

Heidi Hohendorf

Spectrum Health

Rene Larkin: My name is Rene Larkin. I’m a shareholder in our Denver office of Hall Render, and I do real estate transactions, general transactions, and work is kind of a general counsel for some of our small critical access hospitals in the mountain West. I’m going to turn it over to our panelists to let them introduce themselves. So we’ll start with Matt Crawford.

Matt Crawford: Thanks Rene. My name is Matt Crawford. I’m the vice president of real estate and ambulatory facilities for Bon Secours Mercy Health, a Catholic non-profit healthcare system located in Cincinnati, Ohio. I oversee our transactional activity in our real estate portfolio, as well as our ambulatory facility management platform and the administration of our portfolio at large. Glad to be here.

Kelly Adams: Hi, my name is Kelly Adams. I’m in-house counsel for SCL health headquartered here in Broomfield, Colorado. We have hospitals throughout Colorado and Montana. I provide legal support for strategic growth transactions in real estate matters and our joint ventures. My counsel on acquisitions, dispositions development work, and also negotiate leases as in timeshares. Also partner with our real estate management team CVRE to help improve systems that manage our real estate portfolio. I’ve been with the system for just over a year and prior to that, I was in private practice with the Denver office of Ackerman. Thanks for having me.

Cindy Black: Thanks Rene. My name is Cindy Black. I’m the director of real estate at IU health. We’re headquartered in Indianapolis, Indiana, and we have hospitals and we deliver care across the State of Indiana. I work with a team that manages all of the transactions, the asset management and the lease administration partner with internal providers who help us deliver construction services throughout the system. And just happy to be here and talk to you about what we’re doing.

Heidi Hohendorf: Hey Rene. My name is Heidi Hohendorf. I’m sooner legal counsel for Spectrum Health. Spectrum Health is a nonprofit integrated healthcare system serving Western Michigan. We have a presence as far North as Trevor city, Michigan, all the way down to the Michigan Indiana State border. With our corporate headquarters in grand Rapids, Michigan our real estate portfolio consists of approximately 12 million square feet. We’ve got about 10.5 million that we own. And 1.5 million lease that consists of 14 hospitals, including a dedicated children’s hospital, 11 urgent care centers, various different physician offices, and seven integrated care campuses. My role includes providing… I’m involved with reviewing negotiating drafting contracts throughout the system with a primary focus on providing legal support for our real estate team.

Rene Larkin: Great, thank you again for being here. So as we saw who registered, I think we have a wide variety and diverse attendees participating in the webinar today and signing in. So I think it’d be helpful and instructive if each of you would just kind of talk through your real estate department, how it works, how it interfaces with strategy, business development and finance. So as people are kind of hearing your responses they just might be able to take some application and move it forward with their institution. So we’ll start again just with Matt and kind of go in the same order.

Matt Crawford: Sure. As I mentioned, I’m the area of our department that deals with real estate and ambulatory facilities, sort of think of it as your shorter traditional corporate services platform, your transactions, your brokerage, your property management, maintenance, et cetera. And then the overall administration paying the rent, collecting the rent, dealing with expirations and options, et cetera. I’m oriented as part of a broader group, real estate development and construction. And we have in-house development capabilities, we have a design and construction arm and within my group we’re heavily outsourced. We have corporate partnership with Cushman and Wakefield where we outsource a lot of the blocking and tackling and the fundamental stuff we do in service of the organization. We report through finance and broadly interact with obviously our medical group, our hospital leaders, our group leaders, our market leaders, just a host of folks that perpetuate the activity of a system the size of ours. So fully integrated within the organization. But then again, heavily outsourced as it relates to the services we provide to our constituents both internal and external.

Rene Larkin: Great, thank you Kelly.

Kelly Adams: So our internal real estate team consists of VP over real estate, and then we’ve got a planning construction team, and then like Matt, we outsource a lot of facilities management, lease administration services, brokerage services, things like that to CVRE who’s our management company. They also provide some strategic input in terms of the context of new development and some of our existing assets. And then our leaders in various markets and our business development team work really closely together in tandem with this real estate team on projects and initiatives. I’d say generally speaking real estate is a little bit of an output of a strategy at my organization. There are times we sort of develop an operational strategy in terms of what markets we want to be in. And then the real estate team has really pulled in to identify potential properties or areas for development. And because we sort of have a leaner structure at my organization, I’m sometimes pulled into sort of the more front end strategy for the system as well.

Rene Larkin: That’s great. Thanks, Kelly. Tell us about IU Health Cindy.

Cindy Black: Yeah, so IU health has a really robust platform. We have a pretty well actualized real estate department. Our real estate department has a number of verticals. So we have our transaction management where we do all the leasing acquisitions and dispositions. We have another team that manages the lease administration. We have an asset management group that’s growing as we speak and bringing on more and more capabilities. We also in-house have a design and construction group who actually sits outside of real estate, but we partner with them on most of our transactions, wherever we’re missing capabilities. We bring in third party vendors. So again, all of the sort of support services that Matt and Kelly talked about. We’re bringing in brokers and developers and contractors space planners, architects, engineers, wherever we need them that kind of support so that we can deliver a complete capabilities to our team, as far as how we work with our strategy folks and our finance folks.

Cindy Black: The strategies delivered both at a system level, regional level, and a local level it kind of depends on the type and the magnitude of the project. So if it’s a new billion dollar hospital that you’re contemplating that’s definitely going to sit at the system level. But we have smaller less large strategies that will be delivered on more of a regional local level, although we are integrated throughout the system. And as Kelly mentioned strategy really is the guiding light who with what it is we want to be doing, right. They make a decision with all the stakeholders that are involved. We provide input information so that they’re making, they have some real estate leaning information to make those decisions, but they make the decision and then kick that back to us.

Cindy Black: And they may tell us what they want and what in perhaps what geographic area or sub-market we tell them what corner there are opportunities on and what the cost of that’s going to be and how that could be structured, whether an own or a lease type of a model. And then with that information, they’ll go back and together we’ll make the decisions. Finances is feathered throughout all of those discussions. So they’re always at the table. It’s just a real dynamic kind of push and pull through as we deliver.

Rene Larkin: Great. Thank you. Tell us about Spectrum Health, Heidi.

Heidi Hohendorf: Yeah, so our structure is very similar to what Cindy just described. We also have an in-house real estate department. That’s comprised of five contract specialists, including two real estate service leads. We have an accountant dedicated to our real estate functions. They’re overseen by a senior director of real estate strategy and planning, and also a VP of real estate and facilities. So this team is very involved in the real estate strategy and planning. They’re often at the table in those discussions, providing input and actually, driving decision-making to and work very closely with our in-house plant operations and facilities teams. We also have an in-house construction team that includes on staff architects, design specialists. So those teams all work very closely together. We do also outsource construction. We engage with contractors for construction projects and whatnot, but we do have a robust in-house team.

Heidi Hohendorf: All of the senior leadership and our real estate department reports directly to the… Well up through the chain reports directly to our chief financial officer. So he’s very involved in decision-making processes related to real estate strategy as well. So that’s how we interact with facilities or with finance, but there’re processes in place where the operational stakeholders are brought in on relevant projects related to the service line. So I’m not involved in the day-to-day behind the scenes strategy, but the real estate team is very angry and in that process with our finance and our strategy teams.

Rene Larkin: Great. Thanks. Well, and so just let me kind of give a roadmap to our attendees of where we want to go today and use this time. We’re just going to kind of talk through trends, reimbursement. I mean, I think it’s been an exciting year in kind of health care in general. One way to put it and just talk through obviously the pandemic is going to come up, but also, normal kind of implications of regulatory reimbursement other industry trends that we’re seeing and how that’s impacting becoming the output for healthcare real estate strategy. And so feel free. There is a Q&A box at the bottom of your screen, feel free to post questions throughout if we can fit it in, we’ll pop it in timely. Otherwise, we’ll try to leave some time at the end for any questions that we didn’t get to but don’t hesitate.

Rene Larkin: We want to interact with you all as attendees and make this kind of as dynamic as possible. So just in that Q&A box feel free to throw any questions that you might have and we’ll do our best to answer them. So I think the first topic want to hit is… I mentioned obviously we’re seeing regulatory changes, reimbursement changes and those are typical without a pandemic. I think one thing we’ve seen this year too, is telehealth. There’s been a great, I think the pandemic was a catalyst for really pushing telehealth use both on the provider and the patient side. So I think that’s one component, but if you guys just want to talk through what you’re seeing in those areas, those trends and how that’s informing your strategy for real estate.

Kelly Adams: I think Rene as you mentioned, that pandemic has really accelerated out of necessity. Some of the telehealth initiatives that were already in place or that we were working towards as a system and right now we’re operating in a much more relaxed regulatory environment that might be tightened post pandemic. But I think telemedicine for us is going to continue to supplement our brick and mortar operations and is certainly a good tool for early consults and follow up visits. I think ultimately it may actually expand our medical office space because we’re able to reach more rural residents in our Colorado and Montana markets and provide consults that would lead eventually to in-person visits.

Kelly Adams: And then I think the other impact that we’re seeing is on construction. So I think there’s some considerations in terms of how our new spaces are designed and constructed to reconfigure facilities to provide technology enabled spaces and remote health monitoring services. And so it’s impacted space planning as well. But I think overall, I see telehealth really as a compliment to our traditional models of delivering care and not so much a replacement.

Cindy Black: I can kind of reiterate what Kelly said. I mean, there’s obviously regulations have a huge impact in our industry and they’re constantly changing. They impact where we locate and they impact how we deliver and how we design our space. And so everyone in the industry has been asking, how is telehealth going to impact your footprint? And early on in the pandemic, leaders that I was talking to felt that gosh, the advent of all of these relaxed regulations and increased use of telehealth would have the effect of reducing our footprint, but actually as we were starting to work through how care is delivered, some of the realities of that are kind of changing our attitude. And while it’s not fully informed yet, what we’re finding is that physician that is sitting in the office, that’s delivering telehealth care needs a PA or another assistant to set up that call and they both have to sit someplace.

Cindy Black: And if that physician is also delivering care in a clinical exam room to patients in the flesh, but part of his scheduled time is virtual care, then he’s got to have two places to be in that same office. So what those workflows look like and how that impacts the design of our space is really something that we’re trying to flush out. I think everybody on this call understands we’re all living in legacy space that was designed for workflows as they used to be. And so we’re just trying to get our hands around what those workflows are going to become and how that will impact.

Heidi Hohendorf: Yeah. To echo what both Kelly and Cindy said so far, we haven’t seen telehealth as having a major impact on any sort of reduction and it’s spate for clinical space that we need. Telehealth is important as a convenience for the patient. And we have been, and will continue to focus on quality of care and patient convenience. And the way that we’ve done that in the real estate world is still far as we have I mentioned earlier seven integrated care campuses. And for us that those are kind of a one-stop shop where the patients can come. They’re located throughout the service areas that we serve. So they offer a range of coordinated health care services from diagnostic to primary care to specialty care. So a patient comes in they are close to their home. They’re not having to travel an hour away to go to the hospital.

Heidi Hohendorf: They have convenient parking, they can come in and get a lab drawn, get an x-ray, go down the hall and see their primary care doctor. So with telehealth being convenient for patients, that’s kind of what we’re focusing on for real estate perspective is just making healthcare simple and affordable and convenient for the patient. So those are some means that we’ve been doing it. Again, I don’t see telehealth reducing the footprint but we can reconfiguring like Cindy and Kelly said to bring in technology to expand that and expand our convenience to the patients.

Rene Larkin: Yeah, I think that’s great. And really insightful. I think the man on the street would probably, if they were asked would assume the opposite. So another thing, and Heidi, you hit on this and maybe Cindy, if you want to talk about this because you and I had talked about it as we see this regulatory and reimbursement push towards really value-based care, I think you’re going to continue to see possibly the incentives to create more of kind of that integrated care. Cindy, can you just talk a little bit about some of the real estate implications you’re thinking through your team, they’re thinking through as that might become more of a reality.

Cindy Black: So value-based care and population health management they’re all kind of buzzwords that are flying around in the healthcare system. Obviously the goal is how do we improve the health of our patients and reduce the cost of care at the same time. And real estate kind of is a layer over that helps us accomplish that. And as I spoke previously, we’re all living in legacy space and legacy space has a workflow that’s designed around the way we used to deliver care. So now, if we’re looking for a model that Heidi was talking about, we were of an integrated model where we’re bringing all of the different provider types into one place. And for the convenience of the patient, we’re trying to drive them through all of the different service providers that they need and treat the whole patient. Then that looks at a different workflow and that’s going to require a redesign. And so I think this is work that was started pre pandemic, and I think it’ll continue post pandemic. But real estate is definitely at the forefront and helping to figure out how we can make that happen.

Rene Larkin: Thanks, Cindy. And a question just came in and I think one of them is really relevant. Here is those of you that kind of talked on how telehealth might be changing your spaces. Have you seen specifically kind of HIPAA compliance spaces? Is that a concern? And has that taken into consideration for kind of remodeling to ensure that the provider can be providing telehealth services without certainly a violation of HIPAA, maybe something we wouldn’t be considering in a day to day, because they’re seeing a patient in a closed room. Are we taking that same consideration to the telehealth implications for real estate?

Cindy Black: I think HIPAA compliance is always at the forefront of all of our minds when we design our space. We all have specialists and guidance in our organizations that are helping us make sure that we have security and safety in place in whatever form or fashion needed. So I can’t think of a specific example how the telehealth delivery would change that. I don’t know if one of my other panel members can think of something that-

Rene Larkin: I mean I’m thinking no longer… Maybe we’re not providing telehealth in the break room and knew we never were, but right as the pandemic happened, maybe that’s where you were providing it because we just haven’t thought for spaces, but it’s like truly that needs to happen in a private space. Even if the patient’s not there, the provider Neil’s still needs to be giving that in a private space. And I think you touched on that, Cindy I don’t know if anyone else has any other thoughts, but that’s kind of where my I jumped to.

Kelly Adams: And I mean, I think that supports I think Heidi’s comment as well regarding… We’re still using exam rooms to provide the tele-health services. So it’s not separate space. That’s just incorporating it into our kind of existing designs.

Rene Larkin: Right. But just because the patient’s not there doesn’t mean we need less space to deliver that care in a way. No, super insightful. So I think you know, let’s turn to the pandemic, what are the effects? I think there’s two kinds of different ways that we’ve talked about this, that we see it affecting. There’re the effects of the pandemic on non-patient facing space. Our admin space, our space where we don’t necessarily need people to be in a central location. What are the effects that your system kind of seeing because of that?

Matt Crawford: Yeah, it’s big, a little bit to the non-patient facing and even our administrative footprint. I certainly can’t say has it has experienced as much scrutiny as it has over the last year or so. And what I think the learnings are just, ever-changing ongoing. You find out something new about how it’s working or not working for groups, individuals, departments, almost every day, sometimes by the hour. I don’t think just because we’re in healthcare, we’re really any different than other or any other office occupying business. We’ve got administrative space that doesn’t include any clinical function and we’re analyzing how we can be more efficient in that space. It doesn’t mean you can get out of some lease locations that are become less necessary shirt consolidate into what we may have a longer term commitment to occupy.

Matt Crawford: Absolutely. But I think it extends into how we use our existing space and what we need to keep. I think for us what we found is that for a lot of people, this has been okay. It hasn’t been as shocking or as disruptive or as uncomfortable relative to being productive at work. I think there’s a lot of people might’ve anticipated. And I think the question for again, not just us many, many, many other office using companies is what level of this should continue to achieve either cost savings, flexibility, or perhaps more importantly. These days associate retention, just because we are a Catholic non-profit healthcare organization doesn’t mean we don’t want to think like organizations that have to recruit talent, just like we did. When forwarding a work environment or an option to work in a way that’s not everyday onsite in an office makes sense.

Matt Crawford: Then that’s something I think we want to be able to pivot towards. So how we use the space, what we keep and what we don’t, what level of work can be done just as productively from a low room, like the one I’m sitting in right now. I think our questions that are definitely out there and that continue to be answered with new information every day was certainly probably not an end in sight, at least in the next 12, 18 months.

Heidi Hohendorf: I can speak to how it’s affected our administrative space too. And we were actually Spectrum Health was taking a look at how we were going to reimagine use of administrative space before COVID hit. We had been involved in conducting a study where sensors were installed in some of our spaces to see how often the administrative space was utilized and found that in some instances, people were using their space less than 50% of the time. Whether that would be they were offsite and attending meetings and whatnot. And we still do intend to build a new center for innovation and transformation where we’re playing to co-located various different administrative departments. Now COVID has definitely impacted how we’re rethinking, how that’s going to be designed before COVID. So these statistics just came out last week.

Heidi Hohendorf: Our workforce showed that in February 2020, we had less than 1% of our workforce working virtually. So that amounts to about 200 employees as of February 2021, it was 20%, which was 7,000 plus. So we don’t see remote work going away. In fact surveys showed us that 97% of our employees want it to have the option to work remotely, at least part of the time have some flexibility. So COVID has definitely been an accelerant and to use a term that our senior director of facilities planning and strategy says he calls it a positive disruptor. So it’s causing us to think about getting out of the conventional use of space, where one employee had one office and focus more on shared space hoteling space spaces that give people the flexibility. Like I said maybe I don’t need an office in a building dedicated to myself full-Time.

Heidi Hohendorf: Maybe I’ll work from home two days a week and I’ll share it with one of my colleagues. So we’re looking at how we’re going to reimagine, redesign our administrative space. And it’s definitely going to result in a reduction, especially when we have this new building built, because of, as I mentioned, we’re going to be co locating various different departments, and that’s going to free up some space and some cost savings that and if we own that, the space that’s being vacated, then we can repurpose it for other clinical purposes. But I think the work from home really more than anything is showing how administrative space is going to be impacted going forward.

Kelly Adams: Yeah. I think like Matt and Heidi described STL health too, is sort of exploring different ways to consolidate our office space and reconfigure the space to move away from individual offices or cubes and move towards kind of collaborative workspaces. And our response I think, is not primarily being driven by cost. I think that’s certainly a secondary benefit. But we like others have kind of surveyed our associates and recognize that it’s really important for employee satisfaction and retention and recruitment that we allow for that, that flexibility. And so our space planning is really just being responsive to that. And another thing we’re sort of factoring in is, so we are co-located with a technology company on a campus and depending on what their strategy is in terms of return to work that impacts, some of the shared amenities on campus, like cafeteria and gym and things like that.

Kelly Adams: So that’s certainly being taken into consideration as well when we’re planning. I think Rene, you mentioned too, just like other trends from a patient facing perspective. And I think I’ll just add a little bit in terms of what I’ve seen in the market. We are in the process of building a new campus for one of our existing hospitals. And I think as a result of the pandemic and the economic impact developers I think are eager to work with us because we’re financially very strong and we’ve seen, definitely proposals with some very competitive cap rates which has been good to see and is working to our advantage. And then I’d say the other area we’re sort of looking at is retail space. And I think there’s an opportunity there where landlords are eager to get us in as tenants, and we’ve been able to negotiate some pretty strong terms for leases there.

Matt Crawford: Kelly, I would edit what you just said relative to the creativity of landlords across the board. Whether it’s honing in on healthcare as an industry that’s has to survive, or whether it’s just thinking of ways to repurpose space that’s recently become vacant. We’ve certainly been, I would say the beneficiary of some tremendously creative ideas owners in our various markets who are obviously trying to attract a tenant to a property. But frankly, properties that we hadn’t traditionally thought about. As Cindy may have alluded, when we get down to that zip code or that corner what maybe we considered before, because it hasn’t been available or haven’t considered before, because there was tremendous competition for the space. I think there’s certainly a trend towards those properties being put in front of us in a more significant way. And us being forced to evaluate those a little differently than we have in the past.

Rene Larkin: Yeah you’re seeing just nationally kind of this reuse of space that the pandemic probably accelerated like a shopping mall right. I mean, we’re seeing healthcare tenants take advantage of that and move in and repurpose that for maybe integrated care model or what have you. But just with fresh new eyes, looking at that for maybe something you wouldn’t have considered in the past and landlords willing to work with you from the TI prospective or what it may be to make sure that that meets your needs. Cindy.

Cindy Black: I could just jump in there. We’re looking for… We’re trying to be opportunist. Opportunistic and so pre pandemic, everybody was trying to move towards more of a retail model in the delivery of care, get closer to the patient. And retail was very attractive, but anybody working in the real estate industry knows that your retail is pretty high priced. Those corners of prime. And so it’s difficult for some of our operations to support that kind of cost. But as retail starts to see, how it starts to feel some pressure we become more attractive as target tenants.

Cindy Black: And so we’ve we are our long hold tenants. We go into space, we don’t leave and we pay the rent on time and landlords really appreciate that. So if a landlord is under some pressure that might create some opportunity and I’ve seen some really unique applications where they could shopping centers have been turned into corporate headquarters, administrative space. And then again, there are those typical outlaw opportunities or inline retail, where I’d love to put primary care there, but it’s just a really high cost, but maybe there’s a some softness in some particular areas that we could take advantage of at this time.

Rene Larkin: Yeah. And Cindy I know we’re stepping back a little bit, but I thought you had just an interesting experience with kind of the work from home and how the surveying of people kind of changed as the pandemic went on depending on age group too. Do you mind talking a little bit about that?

Cindy Black: Oh, sure. Yeah. Heidi was talking about serving and everybody in the market healthcare typically relies on high-skilled employees. And so we are all in the business of trying to retain those employees because it’s hard, it’s costly to have that turnover going on. So we’ve been serving and we’ve delivered several surveys. And at the beginning of the pandemic my staff, I can speak anecdotally. They were ready to go back, waiting to go back and we have several generations represented on our team. And over the course of time, as our capabilities of working remote have shifted and changed, and people have really come to appreciate the work-life balance that has come along with this. Some of the unexpected discoveries we’ve gotten to know each other better.

Cindy Black: In fact, we as panelists talked about that earlier that I now know who has a cat and who has a dog and what their names are because onscreen. And I hear them in the background and we know each other’s children’s names and that’s been really refreshing. And so and we are also those of us who have any kind of a commute we’re realizing we can have two to three hours added back in our day. Now some of us choose to put that into our work and we never get out of our seats and the others choose to have a little more work-life balance. But my team specifically has now really grown and decided that this isn’t a bad model, but we’re seeing really is a demand by our employees for a hybrid model.

Cindy Black: And what does that look like? That’s the head-scratcher and how do you manage that? So people sharing space in a safe environment, pre pandemic, we were going to more, we were densifying our space. And so we were taking out the walls and pushing people closer together in fewer private offices. And that was wonderful, but we’re not sure how that works in this new environment now. And how many days a week and how do we manage who comes in and out and how do we reserve that space? And so there are a lot of challenges with planning for that hybrid approach, but that does seem to be the preferred model, at least what we’re seeing evolve.

Rene Larkin: And just the question from one of the participants that I think tags onto the end of this, and you guys all touched on it, but do any you at this point have a return to work strategy or that’s still in flux?

Cindy Black: Yeah, I’ll finish and then I’ll throw it to some of my partners here to see what they’re doing. I think it depends and it changes. So earlier in the pandemic, everybody said we were going back at the end of 2020, and then it was June of 2020. And now it’s maybe December, I’m sorry. Now it’s June of 2021. And now it’s maybe December of 2021. And so I guess my answer is we don’t know when we’re going back and we don’t know how we’re going back. I’m speaking for generally for my system, understanding that our healthcare providers they have never gone home. That we are continuing to work and we’re all working. It’s just this remote for workforce. We don’t know when we’re going back and how.

Heidi Hohendorf: Yeah, that’s the same for us too. Like Cindy said, it’s continuously changing. Plans are being put into place, but it’s all science driven based on what is going to be happening with the vaccine. What sort of the herd immunity and what we’re seeing come out of the vaccine and how it’s going to impact people. We kept having guidelines and the targets have shifted. The last I heard was earliest return would be January of 2022 for those of us that are working at that kind of work at home, we’re still having to work from home. And then when people do come back, flexibility will be implemented, and it’s going to be a role based to who has the ability to do this work at home without having to be onsite.

Heidi Hohendorf: So there’s just lots of variables and I think there’ll be pilots put into place. So what does the return to work look like? What’s the space going to look like from a safety perspective. And so I think different groups will kind of come back at like a phased in basis.

Kelly Adams: I would just echo Cindy and Heidi’s comments from our perspective from STL health perspective. Really the plans have continued to evolve over time and just continue to be responsive to new research that’s out there. And then the data that we’re collecting internally as to people’s preferences. I think generally speaking a hybrid model is probably what we’re moving towards, like others have mentioned. But I think it just continues to be something that we’re working on and trying to implement.

Rene Larkin: One question that we’ll ask before we move on from this topic, we’ve all talked about kind of all admin being sent home, the administrative offices. They specifically asked, did that include kind of the administrative associate, so kind of your assistant type, have your systems been able to mobilize them such to work at home or were they returned back to work?

Matt Crawford: I would offer yes and with great success with. I think my one time I was going to say earlier when Cindy was talking about and I said this earlier to this group. It’s almost a shame that it took a pandemic for us to come face to face with our shared humanity. I think that we’ve realized that while we may do it begrudgingly in largely it can be done. And it’s been from the top down certainly in our organization as everyone has alluded to. It’s to what degree will that persist in sort of around the story. And it seems like more than less.

Rene Larkin: Thanks. Well, let’s move on into… I’m going to switch you guys up a little bit, but I think you guys are ready. Kind of just driven by some of the questions I’m seeing in the Q&A box. Let’s talk kind of the pros and cons of leased space versus owned space and especially in light of a pandemic and how that might kind of kind of change the way you look at things moving forward.

Matt Crawford: I have to take a swing at that a little bit as it relates to [inaudible 00:38:52] and the activity across our portfolio. I think in years past the mantra was if you need the flexibility and you’re generally off campus broadly leasing makes sense here too for have we had to take advantage of that flexibility sometimes, but not very often. I think there’s a lot more of these days. We’re analyzing certain locations and saying, nice short remaining lease term. It gives us an opportunity to do something to help ourselves. And I just think that’s really writ large these days, especially as it relates to our newly acquired lease locations. It’s all of those flexibility benefits that come with leasing a space are evermore important. On the ownership side again, it’s really the same analysis.

Matt Crawford: And I think these days, if we’re going to be there long enough, will it make financial sense? Well, once you figure that out, you’re analyzing your capital options, internal, external, et cetera, and trying to figure out whether it makes most sense to deal with something internally and try to control that piece of real estate or whether it makes sense to bring in a partner. And you’ve got an environment now where Kelly, I think you said earlier cap rates are changing rapidly. Demand is increasing substantially and properties are trading at a velocity that it’s startling almost to see that it happening during a pandemic against [inaudible 00:40:20]. And then it’s that type of activity you thought would largely slow down. I don’t know if it’s healthcare specific, but it is most assuredly picked up.

Matt Crawford: And to the extent we can participate in that opportunity to own our own real estate that we populate, you know, we do, I think a lot of organizations do. And again, as it relates to the leasing, just finally taking advantage of that rainy day flexibility that you always wanted but very rarely pulled the string on. And I think that demand for flexibility when you’re negotiating new leases, that demand… I saw a question actually that I might take a swing at answering. We’re seeing a lot of landlords more and more willing to extend the period of time during which we’re obligated to spend [inaudible 00:41:03]. And that’s really nice frankly. Thanks to all you landlords out there.

Matt Crawford: Thank you very much. It’s it gives us the flexibility because the TIA allows doesn’t always go all the way for us. We have to put some of our own capital next to it gives us a chance to wait to spend some of our own money. And if we have to give a little more term in order to gain that flexibility, that’s a hugely beneficial thing for us. Again, going back to what I said earlier, flexibility, the leasing scenario expanding a little bit relative to our own portfolio, I think has as benefit on both sides. And I think as it might’ve said has been accelerated by the pandemic environment.

Heidi Hohendorf: Yeah, I know with our system, we, we definitely have been seeing advantages and owning as of late and for several reasons, one being able to control costs and operating expenses. If we’re leasing five different buildings, we got five different landlords. They’re using five different cleaning companies. They all have their own, different protocols that they put in place. Whereas if we own the building, we can use our own internal environmental services to save just some, efficiencies they’re familiar with our spaces. And with regard to reduction in costs, as far as flexibility goes, I think it goes both ways. There’s definitely flexibility in leasing, but there’s flexibility and owning too. We’re not tied by restrictions that the landlord might have in place.

Heidi Hohendorf: We can use the space within, regulatory confines, how we want to use it without having to get permission from the landlord. We there’s certainty and knowing that what the lease term comes up, we might have to negotiate with the landlord. They we might be at a disadvantage, they might charge higher rent, whereas when we own it we have the certainty that we will have that space available to us. And like I said, it goes both ways. There’s pros and cons for both we’ve been seeing pros in lease or in owning outweighing the cons.

Cindy Black: Yeah. I would add to that from an operational perspective. There are definitely some pros to owning during a pandemic as well, just in terms of having more control over the building and other tenants and really just from an infection control perspective as well. So helpful in terms of enforcing, social distancing mask wearing you know, air flow, HVAC issues, things like that. And, and even cleaning and disinfection processes. And so when the pandemic hit in the spring for the buildings that we own where we have third party tenants, we instituted pretty strict supplemental building rules and regulations around kind of best practices which helped create standards that ultimately, protected our patients that were coming to visit us at those locations. So I guess the flip side to that is that this required deploying a lot of resources on our end.

Cindy Black: Whereas, if we were leasing, the landlords would kind of bare. There are some of those burdens. So another kind of challenge I think has been for us as landlords has been dealing with various issues that have come up with rent, deferral and rent abatement requests for our tenants. And so we’ve had to manage that and we’re in the business of healthcare and not real estate. And so certainly that has, that has shown to provide some challenges for us. And it’s more complicated from a regulatory perspective as well.

Kelly Adams: Yeah. I could just add tag on to that. Some of the things that we found ourselves trying to manage during the pandemic is, hey gosh, we need to stand up a daycare immediately for our employees so that we can deliver date deliver care to our patients. We need to get an infusion going so that we can start delivering some of these different treatments that are now available. We need drive-through testing and we don’t own the building, but hey landlord, do you mind if we start putting tents up and start routing patients through, and we’re bringing them from all over the city, and by the way, we need to change our hour of operations. And we want to control who can come in and not come in this building and under what circumstances they can come in. So you don’t mind if we put controls in, on your building.

Kelly Adams: So these were all interesting conversations that we had, especially when we might be the majority tenant, but we’re not a hundred percent tenant in those buildings. So those were some of the challenges we began to face. I would say that whenever we’re trying to figure out how we’re going to deploy our cash, we have to do have a trade-off question. Do we drive our money first, we assess our financial health. And then are we going to put that money in for business? Or are you going to hire more doctors or providers? Are we going to buy, you know, more x-ray machines and MRIs. So once we get past that hurdle and we have managed our core business, then if there’s still money available, I would say some in response to some of the other comments I’ve heard, I guess we’re developing a framework on when we want to own and when we want to lease and right.

Kelly Adams: And I think a lot of systems kind of had loose framework anyway. And so now we’re just tightening that up. So if it’s on our hospital campus, if it’s attached for a hospital, gosh, our preference would probably be to own. If it’s in an emerging market we’re not sure and we want to retain flexibility. That might be a place where we want to stay flexible in lease. And then there are different product types. Do you want to own your surgery centers, it’s a high cost delivery of care, but it is dealing with landlords who’d maybe don’t manage those buildings to the standards that you would like. It creates that push and pull. And so we are developing that framework so we can better deploy our capital.

Rene Larkin: On that capital question. That question came in and I do think it’s interesting. We didn’t hit it on it feel free to pass, but presumably we might see a lower cost of corporate capital. To your point, Cindy, there might not be a big of a pool of money such that we can then use that for real estate. Is that impacting or hasn’t yet even come into the consideration of maybe a reverse monetization strategy instead of buying back your buildings are you going to now considering going back, has that even entered the realm yet?

Cindy Black: I think the pendulum is always swinging, right. We went through a period of time when everybody monetized. And so we’re now all living through the great reality of working with our re partners. And what challenges those bring. So I do think you’re starting to see some conversations bubble up. I don’t know if that’ll bear fruit. I don’t know if any of my partners on the call have thoughts on that.

Matt Crawford: I think what it’s done relative to analyzing the lease versus own decision and analyzing individual deals is amplified the financial transaction aspect of it. Real estate is a location. It’s a quality of building, it’s a presentation to the community and your patients, but moreover, it’s a deal it’s dollars and cents. You’ve got to understand the very small, changes and things like cap rate that can have tremendous impact on value. And, when the internal cost of capital fluctuates by a half a point that makes a material difference in the way you’re analyzing your given transaction, where there’s that’s always been the case. That’s not new news being ever more important today when those half a point ticks can be daily, weekly, certainly monthly. And so I think the emphasis on considering these real estate deals as financial transactions, far more, really detailed level, far more than really ever before, as at least be prevalent for the workload.

Rene Larkin: Okay. Thanks. That’s helpful. Well, I think we have about five to 10 minutes left, and there’s quite a few questions that are kind of just random if you guys are okay with it, I’ll kind of take through those. And to the extent any of you feel comfortable responding, feel free. I think we answered that one. One of the questions I think that came up when we were talking about reutilizing space in light of the pandemic is how are you guys addressing the need for more technology as it relates to wifi coverage, et cetera? How is that impacting… I don’t think we hit on technology. So maybe if you guys can hit on that expanded use, and if that’s impacting the way you guys are looking at your existing and reutilizing the space.

Matt Crawford: Well, nobody else is jumping ahead. I’m not even sure what I’m going to say, but, what came immediately to mind is something so silly as printing. So many people working from home printing and whether or not you’ve got adequate wifi access whether you can maintain an unfettered video connection for hours and hours on end. I guess what I would say is just challenges nobody ever really thought we think about before and how real estate interacts. We interact with our HR department a lot as it relates to again, that associate experience. I can commend my colleagues certainly in our organization for really paying attention to that, thinking through those things. Whereas you look at a real estate person’s square feet, TEI, the difficult stuff we deal with, having to figure out whether or not the people who work around those administrative locations really can do so effectively from home.

Matt Crawford: Now, how do we accommodate a group that needs to come in and print out a high volume? How do we accommodate a group that has a scanning function that shouldn’t be done in their home office? What are the IT considerations connecting your home printer to your company laptop, things like that. I can’t profess to indicate that we’ve got a solution or that we’ve even begun to answer these questions, but they’re just new challenges that we’re trying to figure out. I would argue that a personal opinion certainly, but the benefit of remote work again, as we said earlier as it relates to being a retention tool, as it relates to attracting talent, as it promotes sort of counterintuitively the work-life balance as some people have experienced.

Matt Crawford: I think those benefits far outweigh the challenges associated with figuring out how to securely print something. And look at those roles require those types of activities, they shouldn’t be remote all the time. And then again, doesn’t that all speak to the flexibility of what we’re trying to provide and still get the work done that is requisite for our organization. I couldn’t tell you the color of the cabling and our office spaces, but I can sure tell you that we’ve thought about what it meant to not have that available in your house in rural Virginia, for example. Certainly something we need to address and tackle that everybody knows.

Heidi Hohendorf: Yeah. Along those lines and I don’t know the answer to the solution either, but I know that we’re certainly considering technology that will allow for a seamless connection between virtual off-site workers and those that are onsite. I know there’s been some struggle with say there’s two folks in an office, and then they’re on a teams call and trying to get everybody and the sound and the interaction between the two that are offsite and the ones… I know that’s been talked about and will be looked at and being implemented into our facilities is how to get some sort of seamless analogy between the off-site workers, the remote workers and the onsite workers.

Cindy Black: All I can say is it hasn’t been an issue for my teams and the teams I work with. So maybe that speaks to the fact that our system and specifically our ISIT folks are handling it really well. I mean, prior to the pandemic, we all migrated to a single platform. Our company uses teams, it’s a really robust platform. It works really well. And I think in healthcare, we’re all used to hand-offs and working as teams to deliver care and our administrative teams are doing the same thing. Somebody’s microphone doesn’t work, cameras are working, or they can’t figure out to do this or that everybody’s been jumping in. So I really has not been an issue for us. I think the question was wifi coverage. And I’ve really not had any experience with anybody in our system, but I don’t work in IT. So I’m sure there’s somebody out there and that is an issue for the ISIT department.

Rene Larkin: Yeah. And to your point, it’s probably driven more by the areas that you serve, rural, urban, et cetera. And then where your colleagues are. Let’s just hit on maybe one last question that we have a couple of questions relating to lease concessions, TI repayment, TI allowances reduced rent, kind of what were you seeing as a landlord, what are you offering especially peak of the pandemic related to those terms if you guys are willing to share.

Matt Crawford: Months and months and months of free rent, unlimited TI, bargain basement rates across the board, it’s been smart it’s been non-skid. I mentioned that again, we’ve been successful in working with our partners and landlord partners to get again, longer periods of time to spend TI allowances. Some of those flexibility provisions we talked about, some of your typical deal terms, termination on longer-term deals with termination options with penalties, et cetera. Maybe it’s not a deal term, but something Cindy, you said earlier, that kind of stuck with me more over the landlords would be great. Maybe that’s a shocking thing to hear from the mouth of a tenant, but it’s true. Landlords have been great as it relates to the difficulties we’re experiencing in the healthcare system and what we have to do to keep our patients safe in buildings, where we might not be the only occupant or whether we might be the only healthcare organization using the space.

Matt Crawford: I can honestly say that we’ve got 12 and a half million square feet of ambulatory real estate alone, not including the hospitals. The number of landlords we interact with is incredible. And I could not make any single one, nor would I that was anything but accommodating as it related to our need to set up a tent or to provide testing or to lock down a door to make sure there was a temperature taken, those sorts of things. We really enjoyed a lot of really nice collaboration. I think it made a substantial difference, or it changed our interaction with a lot of our landlord partners, largely for the positive.

Matt Crawford: Again, maybe that’s just another positive unintended consequence of having to deal with something like this. That’s worked out great. But generally speaking, I think maybe more of a willingness to accept the short-term going on the middle Eastern stuff. I mentioned the flexibility. I’ve said it a thousand times, but we don’t always do the five-year deal. I’m not going to do a three-year deal. And a lot of times it’d be a short conversation when that came out. That’s not the case anymore. And really any term commitment associated concessions is on the table whether it’s helping the organization because demand has been impacted accordingly. I’ve surely observed that in our lease portfolio.

Cindy Black: So yeah, to Matt’s point, I can tell you our landlords have generally taken the stance that short term is better than no term. And because of the pressure that they’re seeing in the market, they have more of an appetite for those shorter term leases. And obviously we as the tenants were looking around saying, are we at the top of the market here? Do we really want to go long in a lease right now at this rate? So we’re both sides of the table are seemingly willing to take that shorter term. They’re also willing to again, extend the amount of time to deploy, attend improvement dollars, recognizing that when you have pandemic restrictions in place, you can’t start swinging hammers if you can’t even go in the building.

Cindy Black: So they’ve been very amenable to that and they’ve been very good to work with. You’re starting to see some softness in the market in particular assets and particular asset classes, perhaps. But I would say healthcare real estate is healthy and there seems to be people with money that they want to deploy and invest, seem to want to flock to healthcare, because it seems to be a stable market in this economy and that’s putting upward pressure on rates. So I can’t see that we’ve seen really any kind of softening in rates as of yet, hopefully, but I haven’t seen it.

Rene Larkin: That’s great. Thank you all the panelists, it’s been a great and robust discussion.

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Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

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

Libby Park

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

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 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 Thanks again for tuning in, and have a great day.

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An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

In this interview, Andrew Dick sits down with Connor Siversky, Research Analyst, Real Estate with Berenberg Capital Markets to talk about publicly traded healthcare REITs.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Connor Siversky

Research Analyst, Real Estate, Berenberg Capital Markets

• BCM is making a market in Ventas (VTR)
• BCM is making a market in Medical Properties Trust (MPW)
• BCM is making a market in Omega healthcare (OHI)
• BCM is making a market in LTC properties (LTC)
• BCM is making a market in Caretrust REIT (CTRE)
• BCM is making a market in Healthcare Realty (HR)
• BCM is making a market in Healthcare Trust of America (HTA)
• BCM is making a market in Physicians Realty (DOC)
• BCM is making a market in Community Healthcare Trust (CHCT)
• BCM has no company-specific disclosures on Alexandria (ARE)
• BCM has no company-specific disclosures on Welltower (WELL)
• BCM has no company-specific disclosures on Healthpeak (PEAK)
• BCM has no company-specific disclosures on Sabra Healthcare (SBRA)
• BCM has no company-specific disclosures on National health investors (NHI)
• BCM has no company-specific disclosures on Global Medical REIT (GMRE)

Andrew Dick: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we are speaking with Connor Siversky, a REIT research analyst with Berenberg Capital Markets. Connor currently covers nearly all of the publicly traded healthcare REITs, which gives him a unique perspective on the healthcare real estate sector. We’re going to talk about Connor’s background, the different healthcare REITs that he covers, and a variety of other healthcare real estate topics. Connor, thanks for joining me today.

Connor Siversky: Thanks for having me, Andrew.

Andrew Dick: Connor, before we jumped into the discussion, talk about your role at Berenberg Capital Markets and your background.

Connor Siversky: Yeah, sure. I was born and raised in New Jersey, town of Montclair. Stayed in the state, went to Rutgers New Brunswick as an undergrad, got a degree in finance. And then I think in the fifth grade I said I wanted to be an investment banker ski racer, so I think I got pretty close to one of those goals.

Andrew Dick: How did you end up at Berenberg Capital Markets? It’s an interesting niche covering healthcare REITs.

Connor Siversky: Yeah. For sure. For sure. I took a bit of a backdoor to get into the securities business. Immediately after college, I was doing construction. There was a little ferry New Jersey based GC called Mobile Construction. We did all sorts of projects throughout the state, a lot of municipal work. Incredible learning experience to see how those boots all work on the ground. And then I moved to a property manager called Solstice Residential in New York City. I was on the special projects team there. We had an excellent boss and mentor, in some respects. His name was Ken Lupano. We did a whole slew of projects in and around the borough, so Local Law 11 projects, roof replacements, facade replacements, leak repairs, all sorts of things like that.

Connor Siversky: I got to see a lot of different parts of the city, whether that was from the roof of 220 Madison Ave or maybe on the trains going to the different boroughs. It was a very interesting experience as well. Around spring, summer 2018 I got a recommendation from a buddy I actually went to college with and took on the associate role in the real estate team at Berenberg Capital Markets. Definitely a bit of a learning curve coming from the construction side of things, but some aspects of training fell in the right direction. It wasn’t very long turnaround before we were writing notes, building models, and all the things like that. It definitely helped that the lead analyst on the team, Nate Crossett, he’s still there today, extremely knowledgeable in remodeling and equity research in general. He was a ton of help in my development as an analyst.

Andrew Dick: And so how did you get the responsibility of covering healthcare REITs? Pretty narrow niche.

Connor Siversky: Yeah. It was a pretty fast turnaround, too. Nate had started covering the data centers, and then he moved on to the net lease group. He was up to capacity pretty quickly. And right around April 2018 or 2019, sorry, I think I had gotten the mandate to cover the healthcare names. Right after the first level of the CFA that June, I pretty much spent the entire summer working on the initiation report and launched on the eight names September 2019.

Andrew Dick: Got it. And for the listeners that aren’t familiar with how firms like yours review REITs and provide recommendations, how does that work in layman’s terms?

Connor Siversky: Typically, I mean, from start to finish, if we’re initiating on a company, we’ll read through all the 10-Ks, 10-Qs, the quarterly reports. We’ll use the financials. We’ll build out a financial model. We use a four pronged valuation systems. We have an AFFO multiple. We do a discounted cashflow with the AFFO out of 10 years. We do a net asset valuation, an appraisal of the portfolio at a point in time, and then a TV EBITDA multiple. Through the writing, depending on our opinions of maybe the intangible aspects of the company in conjunction with the valuation, we’ll come up with our rating. And we do a traditional buy, sell, hold at Berenberg Capital Markets, so a buy and sell would be a 15% upside or downside, respectively, and then the hold rating is anywhere in the middle.

Andrew Dick: Got it. And right now you’re covering most of the well-known healthcare REITs. I think when we spoke before, Connor, you said there’s really only a couple that you don’t cover. What are the two or three that you don’t cover?

Connor Siversky: Yeah, so we covered pretty much all the healthcare REITs that I would consider really coverable. I think DHC would be the last one, and then there’s another named SNR. Neither of those names have a lot of coverage, so those are ones that we’ve left off the table for now.

Andrew Dick: Got it. You’re covering a pretty wide gamut of diversified healthcare REITs, and then a number of pure-play REITs, for example, senior housing, medical office buildings, some of those pure-play REITs, but you’ve got a lot to cover there. How many REITs are you really covering today? Is it 10 or 15? I mean, the healthcare REIT sector is pretty big.

Connor Siversky: The healthcare REIT sector, we have 14 names in the healthcare REIT sector, and then four more names, the smaller cap industrial REITs, which is something that we’re going to be working on going forward as well. So, it’s 18 total at the moment.

Andrew Dick: Got it. And so when you think about breaking down the sector, when you’re talking to others in the industry, how do you break it down? I mean, I typically think of the big three that are diversified healthcare REITs: Ventas, Welltower, Healthpeak. And then there’s all these other niche players. I mean, is that the right way to think about it?

Connor Siversky: Right. It’s an interesting question because I think when you look at the healthcare REITs from an outside perspective, you want to lump them all together, but they’re really quite different, right? So, maybe if I just run down the list here, you could start with the life sciences assets, laboratory space, biotech, pharmaceutical development. And the real name there is ARE, Alexandria. And you also have Healthpeak and Ventas, which are building out life science portfolios as well. Then you’ve got medical office buildings, so outpatient medical office buildings, surgery centers, things like that. HTA, HR, and DOC are really the dedicated names in that space. Healthpeak, Welltower, and Ventas, they have some MOB portfolios as well.

Connor Siversky: And then when you look at the smaller names, say GMRE and CHCT, they chase after some medical office buildings, probably smaller assets in secondary and tertiary markets where they’re not really competing with those larger names. Of course, you have skilled nursing and senior housing. The important difference between the two of them, so skilled nursing is primarily funded by Medicare and Medicaid, right? The three main names in that sub-sector would be Omega (OHI), Sabra, and CTRE. And then LTC, NHI, they have SNIF portfolios as well. And then senior housing, again, there’s an element of diversity within senior housing in itself, so Welltower and Ventas are really the biggest names here. The interesting element in those portfolios are the operating portfolios where the REIT is the owner and the operator in effect. Sabra has an operating portfolio as well. And then they also have the net lease portfolios as do Omega (OHI), CTRE, LTC, and NHI.

Connor Siversky: You also have hospitals. The only true player in the hospital real estate space, at least in terms of the public REITs, is MPW. They take a unique approach here, an international approach, to investing in hospital real estate. They’ve been growing very quickly over the past several years. Very interesting name to keep track of. And then I think, finally, again, going back to the smaller cap names, more diversified assets, surgery centers, ambulatory care centers, some medical office buildings, dialysis clinics, things like that, and that’s where you’ll find GMRE and CHCT. And these names are interesting. I mean, they’re looking at these secondary and tertiary markets. They’re finding higher yields than some of their larger peers do. And they’re not really competing for those assets in primary market, so they can find higher yields. They have a better spread versus their cost of capital. And they’ve been growing very quickly over the past several years as well.

Andrew Dick: So, Connor, looking at all these different healthcare REITs, which ones do you find interesting right now in the world that we live? Which sectors are you focused on, or which rates do you really like right now based on the interesting world that we live in?

Connor Siversky: Right. The pandemic environment has definitely had a profound impact on healthcare in general and the healthcare real estate owners. There are a lot of different dynamics at play here. I think the names we like right now have an element of safety in them. For example, Alexandria (ARE), they have very strong tenants. Even though they can be grouped as office buildings, there’s still an element of human interaction within those facilities. By and large, all of those facilities are open. ARE has done a very good job on leasing and growing the portfolio with a 1.3 to $1.6 billion development pipeline. That’s one name we like a lot.

Connor Siversky: I do like the medical office buildings. Their share price has been depressed somewhat this year, so their cost of capital is a little bit higher. It’s harder for them to generate growth from external opportunities when they can only manage, say, a 50 to 100 basis point spread against their AFFO. But, they’re very high quality facilities. People are still going out and getting elected procedures. And for the most part, these names have been collecting all of their rents through the entire year, so you can definitely see an element of resiliency for the medical office buildings. Again, that would be HTA, HR, and DOC.

Connor Siversky: I like skilled nursing compared to discretionary senior housing. I think a very interesting name within skilled nursing is OHI. It’s one of the larger names in the space. They have a huge reach in terms of who their operator tenants are. They have the best cost of capital among the skilled nursing names, so when the time is right, when it’s prudent to do so, I would expect these guys to go out and start acquiring assets again and generate some external growth. Interestingly-

Andrew Dick: They’ve been around a long time. We’ve talked about that before.

Connor Siversky: Right. Right. They have been around for a long time. If I remember correctly, I don’t think they’ve had to cut the dividend in either 17 or 18 years. And the management team has been in place for a long time as well. They’re very clear with their messaging. They’ve done a great job managing skilled nursing assets, which is a very tough business to be in, especially in the current environment. And then one interesting takeaway there is that the skilled nursing operators have been the beneficiaries, of some degree, of government support through the pandemic. I would never want to say that they’re completely out of the woods yet, but these are also portfolios that have been collecting high-ninety percents of their contractual rents pretty much every month.

Andrew Dick: Which is impressive. Yeah. How do you look at a company like MPW? We haven’t talked about hospitals, but you made a point that, look, they’re international, they’ve been growing significantly. I find the company to be really interesting. How do you react to it?

Connor Siversky: Right. I mean, I agree with you completely there. They’re really the only name among the public REITs that are going after hospitals. And I think you can take into consideration that underwriting hospitals is quite difficult. I mean, from my understanding, you would have to go in there; you have to underwrite the patient flows to a certain degree; you have to have a familiarity with the physician groups operating in the hospital’s geography as well. And also, who are your competitors within those markets? It’s a very dynamic underwriting process. And I think MPW definitely has a bit of a strategic advantage of being able to underwrite those assets.

Connor Siversky: They’ve been growing very quickly over the past several years. 2019, 2020 in particular, they’ve done multi-billion dollars in acquisition for both years on an international scale as well: Australia, the UK, Switzerland, Germany. They’re even going into Columbia now. They definitely have wide reach. They’re definitely approaching the real estate space in general from somewhat of a unique avenue. And I would expect them … this year, I think they’re going to continue to execute on external opportunities. And it’s also worth noting, too, that hospitals, you can consider them, by and large, critical pieces of healthcare infrastructure. There’s definitely an element of social and government support for those operators and those assets as well.

Andrew Dick: Yeah. Good point. What about diversified REITs?

Connor Siversky: So, the diversified REITs, I mean, you can look at this in two ways. Maybe we could say this is the big three that have MOB portfolios. They have their senior housing operating portfolios, the net lease portfolios, but, to me, I like to look at GMRE and CHCT for these names. They have a lot of smaller assets that they can pick up in these secondary, maybe tertiary markets throughout the United States. And through this business model, which I think is very valid, particularly in the current environment where REITs are coming down, they can acquire at seven, eight, in some cases, nine, ten percent cap rates. And the math just works out as such that GMRE and CHCT, I mean, they can generate 10% AFFO growth if they continue to execute on these opportunities, not withstanding any kind of tenant issues or something like that. But, for the past couple of years, they’ve been pretty stable in that regard.

Andrew Dick: Talk about the impact of COVID on the REIT industry.

Connor Siversky: There are a lot of impacts in a lot of different places. I mean, I think maybe we could rewind to late February, early March when the issue was really coming to a head when we all started to get eyes on it. I think the most profound impacts have been in senior care businesses. In terms of skilled nursing, I mean, you’ve seen the headlines all over the place. It’s a very dangerous situation to be one of those more frail patients in this current environment. The impact has been felt there. Also, in senior housing I think one of the developments that really impacted the real estate fundamentals is that as the virus rolled inland from the coastal cities, it would force the state and the local governments to shut down admissions for these facilities.

Connor Siversky: There’s always a background rate of attrition, as much as I hate to sound morbid, but when you combine that with admissions restrictions and also an element of fear involved in maybe enrolling into one of these facilities or maybe electing to go to one of these facilities as a senior citizen, the impact on the real estate fundamentals has not been good. When we look at the Q4 NIC map data dump that came out a couple of weeks back, you see both skilled nursing and senior housing occupancy is down approximately 10% across the board. Obviously, it varies in different markets, but when you’re underwriting … let’s just say, if you’re underwriting a skilled nursing facility at 83% stabilized occupancy, and now you’re down to 75%, I mean, that’s a very profound difference in how the facility’s cashflow profile looks.

Andrew Dick: Where do you the most opportunities, Connor, for some of the healthcare REIT sub-sectors as, hopefully, over the next six to nine months, we’ll see some recovery as the vaccine is more widely distributed. Do you think that’s going to help valuations? Are these REITs going to recover or is that already priced in?

Connor Siversky: I think for the time being there are still some headwinds at play. I mean, we still see that we’re still getting an element … we’re still seeing rising infection counts in a lot of locales. Vaccine distribution maybe hasn’t gone as smoothly as we would have hoped thus far. I think safety is somewhat the name of the game right now. And I think if you’re looking for yield, you can hide out in some of the skilled nursing names, such as OHI. If you’re looking for stability of your tenant base, you can look at the medical office building names. And if you’re looking for a combination of both, I think Alexandria is a very attractive option where you can get very strong tenants. You can also get internal and external growth, albeit at a bit of a premium valuation. As we make it to the spring and summer months, I think the dynamics will change somewhat.

Connor Siversky: If we can start to see a trough in occupancy for senior housing and skilled nursing, if you can start to see these REITs get more comfortable getting back into the external environment, then we can start to see a reemergence of AFFO growth. And at the moment, these REITs are trading at depressed valuations versus where they were before the pandemic. I think there will be a time when those options become very attractive again, but for now, for safety sake, I think you remain in a holding pattern for most of those names.

Andrew Dick: Yeah. I have one question, Connor. That’s a great response. One question that we hadn’t talked about is we have a pretty diverse group of healthcare REITs that are publicly traded. We’re seeing some growth in these privately or non-public REITs. How does that affect the public REIT market in your opinion? I feel like we’ve got a number of these smaller, regional private healthcare REITs that some of the developers operate. Does that have any impact on the public REITs that you’re covering? Is there competition for investment? What are your thoughts?

Connor Siversky: I’m sorry. You cut off at the beginning of your question there. Could you run that by me again?

Andrew Dick: Sure. So, Connor, what do you think about some of the private healthcare REITs that aren’t publicly traded? Do those compete with the public REITs? I mean, we’re seeing more and more developers and investors create their own funds or REITs. Is it one or the other? Are they looking for … How do you distinguish those private and public rates? I mean, what are the investors chasing there?

Connor Siversky: I mean, I think the reality of the situation is that any investor is going to be going after a high quality asset. When we look into our primary markets, whether it’s a long-term thesis for senior housing, or maybe a shorter term play for something more stable in the current environment, like a medical office building, you’re going to have more eyes on those assets. Without digging into too much specifics where we see maybe private equity funds with these private funds getting involved in real estate, I think the intuitive answer is that you see some cap rate compression. And in one sense, that’ll benefit the revaluations in terms of the NAV. In another sense, if their AFFO multiples aren’t increasing to a level where they can generate accretion based on their financing methods, then it makes it more difficult for them to grow. It’s a bit of a double-edged sword there.

Andrew Dick: Great. Moving on to the end, we had a couple of questions. What advice would you give to someone who’s just getting into the real estate business or the equity research business? You’re still a relatively young guy. You’ve learned the business quickly. What advice would you have for someone who’s starting out in the business?

Connor Siversky: Yeah. It might sound a little cliché, but I think the best advice is just to talk to as many people as possible and act like a sponge in that regard. In finance in general and equity research in general, there’s so much to learn whether it comes from valuation or the narratives you want to push, or how stocks are traded or what kind of different funds or entities look at the stock. I mean, every time that we have a client call, or if I get on the phone with one of the corporates, you always try to take away a couple of key points that help expand your knowledge of what we’re studying and what we’re looking at. Ultimately, you can pick up a lot from reading a 10-K or a 10-Q, and we do that as well.

Connor Siversky: But, sometimes the best pieces of information will come from someone else or a message from someone else, or maybe asking to have a more clear or more detailed explanation for one of the dynamics that’s coming into the market. And that could come from maybe one of our salespeople at Berenberg. It could come from an IR conduct at another company or maybe the funds come from. There are really, I think, a ton of different ways to just keep learning about the dynamics of real estate or healthcare real estate specifically.

Andrew Dick: Great. So, Connor, I know you’re in the business of publishing research on healthcare REITs, where can folks find more information about you and your company?

Connor Siversky: Well, we are operating … I mean, as a broker dealer, the research, it goes to our clients specifically. It’s not exactly publicly available to anybody who wants it. I would definitely recommend if anybody wants to learn more about the healthcare REITs, you always go to the IR websites. You can always take up … the supplementals are full of valuable information like that. In terms of help with the industry, I mean, there’s always LinkedIn, there’s always the Berenberg website, if someone wishes to have access to our research, but I can’t exactly provide it myself like that.

Andrew Dick: Sure. Well, Connor, thanks for being a guest on our podcast. Thanks to our listeners as well. We publish a newsletter called the Health Care Real Estate Advisor. To be added to list please email me at

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The “New Normal” for Managing Medical Office Space

The “New Normal” for Managing Medical Office Space

While the CDC and other governmental and trade groups have issued wide-ranging guidance on “reopening” medical office space in light of COVID, the realities are that these spaces never truly closed, and furthermore, it would be nearly impossible to abide by all of the standards that have been published. This session instead focuses on what hospitals and other MOB operators are actually doing from a facilities perspective to manage medical office space to reduce the risk of liability.
Attendees will:

  • Learn about industry trends and best practices for operating medical office facilities in light of COVID
  • Hear tips on reducing liability for COVID-related legal challenges that may be brought by patients and other users of medical space
  • Have an open forum to discuss experiences managing medical office space with similarly situated individuals navigating this complex issue

Podcast Participants

Joel Swider

Attorney at Hall Render

Julie Carmichael

Advisor at Hall Render Advisory Services and President of Carmichael & Company

Mark Theine

Executive Vice President – Asset Management at Physicians Realty Trust 

Ryan Walters

Senior Real Estate Manager at Providence St. Joseph Health

Today we’re presenting The “New Normal” for Managing Medical Office Space, presented by Hall Render with a few guests.

Joel Swider: Thanks, Julie. And thanks so much to those joining the call for investing some of your time with us today. I’m Joel Swider and I’m a healthcare real estate attorney at Hall Render. Today we have a very experienced and distinguished panel here to talk about The “New Normal” for Managing Medical Office Space.

Joel Swider: We at Hall Render have had clients ask for the past year or so guidance about reopening medical office space post lockdown. And the reality is that most of these spaces never truly closed. And so owners and operators of medical office space have really had to learn and implement new procedures on the fly.

Joel Swider: We’re not really concerned as much anymore with reopening or getting ready for COVID, but we’re dealing with operating in this new reality, which we’ve called the new normal that we all have to navigate. So our goal in our discussion today is that whatever your role is in this industry, that you will come away with new ideas, fresh perspectives. Something that you can apply to be more successful in your day-to-day role, as it relates to COVID preparedness and liability protection.

Joel Swider: So I guess at this point, I’d love to have our panel introduce themselves. Julie, could you tell us a little bit about yourself and your background in this topic?

Julie Carmichael: Sure. It’s nice to be here today. Thanks everybody for logging on. My name’s Julie Carmichael, I’m a healthcare consultant in Indianapolis. I have a consulting business that I started about six years ago. Prior to that, I was the chief strategy officer for Ascension St. Vincent in Indiana. And I had responsibility there for all of our real estate and design and construction. So I have a practical hands-on experience in this area. And then I work today with health systems and private physician practices and get involved in quite a bit of their real estates and medical office issues. So glad to be here.

Joel Swider: Yeah. Well, thanks for being here, Julie. Mark.

Mark Theine: Yeah. Joel, thanks to you and thanks to Hall Render for including us on the panel. I’m really privileged to be here, appreciate it. So again, my name is Mark Theine. I’m the EVP of asset management for Physicians Realty Trust. We are a publicly traded REIT under the ticker symbol DOC. D-O-C go by a lot of times. So our portfolio today is about five million in healthcare real estate investments located in 36 States across the country. About 15 million square feet. So it’s really been interesting managing our portfolio through the [inaudible 00:03:00] and then the care nationwide and watching into this, we’ve had different spikes in different regions. So hopefully can bring a little perspective to that, but day in and day out. My role as the lead in the operations team is release asset management, property management, leasing in capital construction.

Joel Swider: Great. Well, thanks again, Mark and Ryan.

Ryan Walters: Yeah, thanks for the invite. My name’s Ryan. I’m our senior real estate manager for Provenance in the Washington and Montana region. Less are a big Swedish portfolio over in Seattle. So we’re across seven States, each area is broken up with a different real estate manager.

Ryan Walters: So today I’ll talk about our portfolio across Washington, Montana. It’s about 275 properties, mostly MOBs, but we have office buildings, industrial, land, and all sorts of fun gifts that people have donated. So I’ll try to talk mostly about the MOB perspective. We have a team of property managers at CVRE and Kiemle Hagood that are really out, seeing what the differences and implementing all these new best practices for us. So try to talk to some of those and what our technicians are seeing. So before this, I was a property manager and broker at Kiemle Hagood in Spokane, I guess that’s me.

Joel Swider: Great. Well, thanks again to our panel and for your time and expertise, by the way if those of you listening today enjoy our discussion. We have three additional ways that you can connect with us and continue the discussion on healthcare real estate. First is to consider subscribing to our podcast, which is called the Health Care Real Estate Advisor. And you can find it on the Apple Podcast app or on our website.

Joel Swider:The second is we publish a monthly newsletter with news and insights related to healthcare real estate. And if you’d like to be added to that list, please reach out to me by email,

Joel Swider: And third, I want to let the group know that we have another of these round table discussions similar to this happening on February 25th on healthcare real estate strategy consideration. So it’s sort of an offshoot of today’s discussion where we’ll be talking about the impact of COVID, recent regulatory updates and other trends on the broader strategy discussion.

Joel Swider: So I’m very excited to hear from our panelists. I want to give one or two quick backdrop notes from a legal perspective, because I think that we will find through this discussion that this is really more of a practical issue than a legal one.

Joel Swider: From a legal perspective, medical office space is really distinguishable from inpatient space in terms of the regulatory environment. So any certified provider or supplier that’s subject to survey by Medicare has to comply strict infection control protocols. Those require cohorting of positive or negative COVID patients. There’s a guidance level on surveys for social distancing and things along those lines. But outside of the inpatient setting and outside of the ASC setting, there’s not a licensure or accreditation requirement, in most States anyway, when it comes to medical office space.

Joel Swider: And so even though the guidance is there from CDC and CMS and [Ashe 00:06:25] and the World Health Organization and others, there’s no enforcement mechanism in this setting. So in some ways that’s a good thing because it means flexibility for landlords. In some ways it’s a difficult thing because it means it makes it more difficult to discern a reasonable approach when there’s no requirement.

Joel Swider: The last thing that I’ll say on the legal front is we did some research and found that the majority of States at this point have implemented or are advancing serious discussions around liability shield laws. And those generally protect a business owner from COVID liability so long as they act reasonably and are not negligent or grossly negligent.

Joel Swider: So what I’m hoping that we’ll come away with from today’s discussion is some sense of what is reasonable in this setting so that we can all serve our patients while also obviously avoiding liability.

Joel Swider: So with that as background, the first question that I want to pose to the group is, what are hospitals and other MOB operators actually doing from a facilities’ perspective to manage their medical office space? And maybe Ryan, if you could walk me through from the time somebody drives into the parking lot to receive medical care to the time that they leave what changes in protocols would that patient or visitor encounter?

Ryan Walters: Yeah, and I think my general response to this new normal, I think what we’re finding is if the buildings were professionally managed and following best practices pre-COVID, there’s really been minimal impact. I think there was a lot of unknown upfront of, “Oh no, what else are we going to have to do?” But I think we found our best practices have held true through this.

Ryan Walters: We obviously have more coordination, more PPE and some extra signage, but when a patient comes in, you’ll probably see some tents at some of our MOBs for testing facilities. So you might have to find a different parking spot. And I guess you’re used to. You’ll probably see some signage on the building entrance and maybe some directional signage on certain doors to enter or not enter. Please wear masks, social distance.

Ryan Walters: Often though when you walk into our lobby it’s the same friendly face. They’ll just have a mask on. You’ll probably see furniture spaced out a bit more in our waiting rooms. I think you’ll probably see less people in those waiting rooms. Trying to get patients back to an exam room as quick as possible. And we do have less people in our buildings. So it’s a much more coordinated effort. When vendors need to come onsite our technicians or property managers are meeting them at the front door, escorting them into the facility and getting out as efficient as they can. But other than that, for the most part, I think that’s what you’re going to expect to see.

Joel Swider: And Mark or Julie, I know when we talked earlier, you said there were some jurisdictional related items too, that you having a portfolio for example, Mark, that is in multiple States, you might see some variation in that. Any additional thoughts?

Mark Theine: Yeah, absolutely. Certainly. It’s going to be a customized approach based on the size of the building, location of the building geographically, climate, things like that. I guess even taking a step back it’s amazing that, I read an article this morning on [Axial Self Care 00:10:02], that one year ago today there were about 2000 confirmed cases of COVID and most of which started in China, of course. And there was just a handful in the US.

Mark Theine: So I mean what a ways we’ve come in just one year’s timeframe. And I’m really proud that within our company, we sent out our first communication to our healthcare partners around the country at the end of January of 2020, just about the importance of good hygiene. And if you’re feeling sick staying out of medical office buildings. And then obviously we got into March and pandemic started spreading a little bit faster and the awareness of what was coming at us increased.

Mark Theine: And within our team we formed our own COVID task force at that time. And we developed a 32 page building readiness manual for our property management workers around the country. So we could approach this with a customized and plan that we could implement all around the country.

Mark Theine: We also put together a tenant guide for all of our hospital partners with best practices and whatnot. And it outlined exactly what Ryan just said. All of those [inaudible 00:11:13] COVID crisis that we’re so used to seeing now with the importance of PPE, mask, ingress and egress of the building, and then your point about jurisdictional.

Mark Theine: And that was probably one of the biggest challenges that we addressed early on was about screening within buildings, medical office buildings. As patients were coming in, who was in charge of that screening? Was it the building owner? Was in the hospital system? And in the case of our portfolio, we partnered with the hospital system and entered into a license agreement to allow them to use common area space in a multi-tenant medical office building, or use a parking lot for screening or now the vaccine administration.

Mark Theine: But it definitely varied region by region. And we’ve worked with our revenue management teams across the country to implement those best practices that Ryan was outlining a minute ago.

Ryan Walters: And Mark that’s a good point too on who’s doing it. I think if you were to, I’m going to talk strictly from our real estate perspective. So our property managers and technicians, but really it’s our clinic managers that are in the buildings and the operations team that have taken on a bulk of the changes that need to be implemented. Because they’re there at the front door and taking on the temperature screening and those kinds of things.

Mark Theine: I would just say one additional thing we did this Summer was to partner with Julie and her company in a survey of health care consumers in five of our largest markets across the country.

Mark Theine: And we asked them just about their comfort level of coming back to medical office buildings, again, to your opening comments. They never really closed [inaudible 00:12:55] more people back and the volumes increased. But what would make them more comfortable coming back to medical office buildings?

Mark Theine: And one of the answers that didn’t surprise us, but one of the answers we heard loud and clear was, not just telling us the things that you’re doing in the buildings and you’re wearing PPE and you are cleaning, but physically seeing someone in the lobby, cleaning, cleaning the buildings, cleaning the common areas, elevator buttons, door handles, et cetera.

Mark Theine: So we’ll talk a little bit more about that survey, but yeah, those are the things that we’ve adjusted on our team to be very visible, very transparent in the communication and the efforts that we’re doing within our buildings.

Joel Swider: Yeah. I’d love to jump into that. Julie, how can we communicate to consumers that it’s safe to enter, and in some cases reenter, because a lot of people have put off care, right? So how do we get them comfortable?

Julie Carmichael: It’s a question that really puzzled me and why we started back in July with a survey in Indiana to see what consumers were feeling. I had heard a lot of anecdotal examples of patients not going to the hospital with heart attack symptoms. And I wanted to understand why that was and what it was going to take to get them feeling comfortable.

Julie Carmichael: So the results that we found in Indiana, and then when we did the survey for Docreit, really are similar across the country and we boiled it down to five key points. The first being consumers prefer strongly, 75% prefer to seek services not on a hospital campus. I think that’s important for us to think about from a strategic standpoint, especially as we’re trying bring patients back. If we have off-campus locations where medical office buildings and other facilities that are not on our main campus and we can ease people back into that setting. I think there’s an opportunity.

Julie Carmichael: As Mark mentioned consumers told us, “We want to see what you’re doing.” Show not tell. Just this need to visibly see that precautions are being taken and that we’re taking their safety very seriously. So I think that’s going to continue and will really contribute to getting people to come back.

Julie Carmichael: Consumers also want us to go above and beyond the requirements. Frankly, they look at what the CDC and others have said. And it’s great, but if you can do more than that, we would really prefer you to go further. And then when we’re communicating to patients, the last two points really get communication. One is physicians and nurses and clinical staff are the best way to communicate with patients that it’s safe to come back and what all you’re doing to keep them safe.

Julie Carmichael: We found, surprisingly, hospital CEOs were on the bottom of the list for folks that should be out in front and giving these messages. In fact, consumers told us they’d rather hear from their local legislators than hospital CEOs. Which I thought was very interesting. So think about who you’re putting out in front.

Julie Carmichael: And then the final point is, to the extent you can, one-to-one communication is appreciated. So rather than just putting out broad notices, broad marketing strategies, being able to send that email to your patient, kind of a one-on-one communication that, “Hey, these are the things we’re doing. This is what you’ll see. This is what you’ll experience when you come into the building.” I think consumers really like that knowing what they’re going to face, as Ryan discussed. What’s it going to be like when I come back to a health care facility?

Julie Carmichael: So that’s the study in a nutshell, and we can talk more about it and I’m happy to share if folks want to dive into that outside of today. Reach out and let me know. I think it’s helpful as you’re thinking about real estate strategy and just getting people to come back to your medical office buildings.

Joel Swider: Well, and that’s very interesting, Julie. I think one of the things that we’ve gotten some questions about is related to certifications and using that potentially as a way to say, maybe it’s a communication device, maybe it’s a sort of check the box item. I don’t know, but anybody on the panel have any experience with those sort of outside certifications that have come to the market recently? Is there any validity to those? Are they worthwhile or is your money better spent elsewhere? Any thoughts on that?

Ryan Walters: I can kick it off. We haven’t pursued any specific certifications. I mean, we have our employed infection preventionists and the relationship between that team and our real estate team is the strongest it’s ever been.

Ryan Walters: They are meeting with our janitorial vendors, looking at their scope and cleaning products, making sure they’re appropriate. And if there’s ever an issue they’ll run over to a building and meet the real estate team to look at the issue. Other than that, certification wise, we’ve definitely been doing more test adjust balance reports from certified vendors that are capable of doing those to make sure we have proper air flows.

Ryan Walters: But Mark or Julie, I don’t know if you’re seeing anything else on the certification front.

Mark Theine: I think you described it really well. Yeah, there’s a lot of groups obviously popping up now. Claiming to have the latest and greatest new certification and trying to monetize that.

Mark Theine: But back to Ryan’s initial point. I mean for groups that have already been operating their buildings to high level, we’ve already invested in the platforms to improve the patient and physician experience in the buildings. And what COVID’s really done, and managing through this right now, is improved the focus and communication of the operations teams.

Mark Theine: So to Ryan’s point again, we are communicating more and more frequently and sharing data in real time from our systems about what we’re doing for our work orders, for hours that people are in the building, screenings, tracking patient volumes. And these are systems that we had in place already pre-COVID, but the focus has really been on increased communication transparency around the efforts that we are doing. Both to our hospital partners and then ultimately to their patients.

Julie Carmichael: I would just add that our survey results really showed that consumers listened to the CDC more. The CDC and local health departments. So as these companies that do the building certifications have popped up, it’s really been after we’ve done the survey, but I go back to consumers have certain people that they view as experts. CDC, State Department of Health, your physicians. And then I think I’d spend my efforts making sure that what I’m doing is well communicated and visible and not necessarily putting a stamp on a building from an organization that consumers don’t know anything about.

Joel Swider: Yeah. That makes sense. And I guess we haven’t really gotten into, another question that we get a lot I’ve heard from you all so far today on communication and some of the protocols. Which to my mind don’t cost a lot or don’t have to cost a lot. Are there any capital outlays that have been necessitated in light of COVID that any of you have seen or recommend?

Mark Theine: Yeah, I can jump in and help here. So from a capital outlay perspective, certainly we’ve evaluated our entire portfolio form, mechanical systems, where we can improve, fresh air flow. We haven’t gone in, wholesale made changes to existing facilities. Where there’s new development facilities we can of course pick things as we’re in the projects, now with COVID implications in mind.

Mark Theine: But we haven’t gone back to retrofit an entire mechanical system or anything like that. But where we are investing our money now is in, when we’re doing common area renovations we’re putting in touchless sinks or automated doors. Sometimes elevators that you can have just one call button instead of pressing the button on every floor.

Mark Theine: So we’re looking at that. And then clearly on tenant improvements as we’re renewing leases and offering some capital to freshen up the space. We are looking sometimes at the design flow of how the office section lays out one way in and then a separate exit out. So it’s one way traffic.

Mark Theine: Some practices are considering not having as large a waiting room and taking patients straight back to the exam room and wait there, so that they’re separated. But then there’s other systems that want larger waiting rooms to separate everyone. So it’s customized by my practice there, but where we are investing our money, again, is more on the TI and the remodels as they’re coming up in our portfolio. But we haven’t gone back to wholesale [inaudible 00:22:51] yet.

Ryan Walters: Yeah, very similar opinion as Mark. We have design guidelines for our primary care and our specialty care clinics. So our architects have been revisiting those and having some conversations around some of the things that Mark mentioned.

Ryan Walters: So things we’re looking at are, should we have power and water hookups in our parking lots, or maybe a bigger plot of land? Should we need to use our parking lots to put up tents in the future? Should we have bigger entrance canopies if we have lines going out our front door? The automated door hardware and hands-free faucets for patients that Mark mentioned. What do we do in our exam rooms to increase our telehealth capabilities? Do we have some extra negative pressure exam rooms near a separate entrance? And where should the doctor’s workstations be for those telemedicine visits? Should they be in the clinic or elsewhere? Just some things we’re thinking about.

Joel Swider: Ryan, I want to follow up on one point you made. Talking about preparing the parking lot as another potential site of care. I suppose that’s easier when it’s owned real estate. I mean has that been successful on the tenant side as well and saying, “Hey, landlord, you’ve got to do something here.” Or it’s not really a TI issue as much as a facilities issue and amenity, if you will. Has anyone seen that on the tenant side?

Ryan Walters: Yeah, so we own about half our properties and lease about half. And I was just going to say, we do have tents set up. We are the single occupant in the MOB, which helps. But we’re very thankful to our landlords. It’s really come down to just a transparent conversation. Hey, who are the vendors? Show us some diagrams, how traffic flows going to work? What electrical systems are you going to tap? How are you going to restore it?

Mark Theine: Yeah, similar to me. Again it goes back to that collaboration with our hospital partners and how quickly can we help them set up something in the parking lots. Initially it was testing sites in the parking lots, but most recently in the last week or two, we’ve been having conversations about vaccine administration and drive-thru vaccine sites through larger tents.

Mark Theine: And some of the discussions get interesting and maybe you’ll appreciate this from a legal perspective is, some of those sites we own the buildings be simple, but in others we ground lease them. So the hospital may already own the land and we own the improvements of the building, but in those cases the hospital has decided on their campus to set up the tent and we just need to kind of over-communicate on where are we going to display some of that parking in those cars. Because a few of our leases do have minimum parking requirements in the leases.

Mark Theine: And it just creates some challenges operationally, in patient flow, and then again for our property managers to be able to communicate that to everyone. In the multi-tenant building those tenants that are not hospital tenants, so ground leases being reviewed a little bit more as we’ve set up testing sites and now vaccine locations.

Joel Swider: Yeah. I want to delve a little bit more into this idea of transparency. And Julie, you mentioned this earlier, Mark, you echoed it as well. Can we talk a little bit about how do we serve our customers, whether at patients or, Mark in your case, hospitals maybe by providing more transparent data. Have you seen that play out?

Julie Carmichael: Well, I think in a couple of the practices that I’ve worked with, I’m seeing the providers just be much more communicative. More regular communication, whether that’s newsletters, quick emails. That one office that’s done a great job putting out videos where the provider will talk about what’s the latest protocol in the office. What’s changed since the last time you were in.

Julie Carmichael: I think it’s just an extra attention to communicating things that we think that probably people already know. It’s that mindset of over-communicating. So that’s really what I’ve seen with most of the medical offices that I’ve worked with. I don’t know Mark, Ryan [crosstalk 00:27:49] seen something different.

Mark Theine: We’ve had employees before COVID, which really helped us excel in their customer service to the hospital partners during COVID. A work order management system platform, where we could track and measure and monitor all requests that we’re getting from our partners.

Mark Theine: So we could track how long until a work order is dispatched. How long until it’s completed? One of the most useful tools is at the end of the work order we can get a rating on how well we did. So thumbs up, thumbs sideways, thumbs down just like an Uber. You get a four star, five star Uber rating.

Mark Theine: We get real-time feedback on how well we’re doing on our work orders. And then in that system we can also track janitorial schedules, engineering hour schedules. And so we have all this data and we put together a [inaudible 00:28:40] report to our hospital systems.

Mark Theine: We share with them on a very routine basis all this data about here’s how we’re doing on work orders. Here’s our customer service to the physicians. They’re rating of our work order in our teams and then how quickly we’re responding to them. And then also showing them that we’re thinking about adjusting janitorial hours or engineering hours to take care of the team’s health, but yet also servicing the building. Those communication back and forth has just really gone long way to keep these buildings open and then ultimately keep the providers and patients safe in the buildings.

Joel Swider: Thanks one other, I want to switch gears a little bit, because one topic that we talked about on our prep calls was how taking the COVID response seriously when it comes to property management can actually enhance business. It could be an opportunity. And of course I don’t mean to be light of a very dire situation, but how can we, from a business perspective, enhanced business in our COVID response? Julie, I know you’ve talked about this before a little bit.

Julie Carmichael: it does feel somewhat awkward talking about trying to grow and expand market share in this environment. And at the same time, I think this is the kind of environment where there are opportunities to grow market share.

Julie Carmichael: Things that I think are important are looking at your portfolio. And if you’ve got assets that are not on campus, figuring out how to maybe drive more service there. I think consumers now like convenience, smaller offices, it’s just that big campus setting that I think people are a little bit leery of. So looking at where you’re providing services. If you can put services together in convenient locations and convenient packages so that people can do multiple things in one trip. I think that’s a good opportunity right now.

Julie Carmichael: And then just from a general standpoint, I think as you’re serving your competitive landscape there are a number of people that you’re probably competing with that are so focused on just responding to COVID because they’ve had to be. So if you’re not in that situation, or even if you are maybe pulling out a small group of people who you asked to focus on the future and think about where are the opportunities that we have.

Julie Carmichael: If everyone is thinking about today and no one’s thinking about tomorrow, I find that to be a bit dangerous from a strategic standpoint. So I like the idea of having at least a small team of people that are thinking about the future and where those growth opportunities are, because they are there.

Mark Theine: Yeah, I think that’s one of the trends that we’ve seen. Accelerated over the last year is the shift to the off campus buildings. I mean the reimbursement and technology and all those enhancements were already driving more and more care off campus. The COVID continued to accelerate that. As consumers didn’t want to go to the big box hospital where the COVID patients are being taken care of. They’d rather get their care closer to home in a clean and safe environment.

Mark Theine: So I think Julie’s spot on with her comments about shifting care to the off campus setting there. In fact 72% of new construction starts last year were in off campus buildings.

Mark Theine: And I think that historically healthcare has been very hospital centric and in the future, as Julie just said, it going to be very consumer centric. And it’s going to be more about the patients and their preferences. How to get care in a clean, safe, convenient way is the way to be thinking about healthcare in the future.

Ryan Walters: Which may or may not be in an exam room in a medical office building.

Joel Swider: Yeah. Ryan, could you elaborate on that? Because I think from the hospital perspective, I think, we just heard a lot of people are not wanting to come on campus or they’re not, obviously there are certain conditions where you have to, but for an office visit. Any thought from the hospital perspective in terms of how you’re responding or plan to respond in the year ahead?

Ryan Walters: Yeah. There’s lots of interesting conversations that I’m sure everyone’s asking throughout the industry, but with the care that’s being delivered in a car out in front of an MOB. What does it mean to look at a car as an exam room? What’s telemedicine do? And what’s an exam room look like if it’s in a patient’s home? Lots of interesting questions and conversations around that.

Joel Swider: Well, I’d like to wrap up our discussion with exploring the future horizon and what have we learned? What does this new normal look like? What will we keep and what will we discard? Obviously we can’t see the future. Any thoughts on that? On what we’ve learned and where we go from here.

Ryan Walters: I think, so big questions in my role, we oversee all of our leasing, buying, selling. Most of our office employees are remote today and plan to be through Summer.

Ryan Walters: I don’t know of many medical office buildings that have formally closed, at least not for very long, throughout this process. But we did close a lot of our office buildings. So we foresee a need for much less office space or a different type of office space. Where nobody has a reserved desk or cubicle. And we deploy a reservation system where you can reserve a cubicle or meeting room, depending on the type of work you need to do in the city that you’re currently located.

Ryan Walters: So we’re identifying which caregivers are fully remote moving forward. My VP recently told me I’m one of those. So I’m a guinea pig in this effort. And who needs to be in front of a desk five days per week can be assigned cubicle and who’s in between.

Ryan Walters: And then on the medical office side, it’s what is the impact of telemedicine? Does that allow us to see more patients and postpone the next new building a few years? Because we have some more capacity. Do we need a different type of space for telemedicine? Some of the questions we’re asking,

Julie Carmichael: I think it’s going to be a mix in some ways. I think a lot about the fact that people are pretty quick to forget things. And I wonder what the lasting impact on all of our psyches will be after living through a pandemic. Will it change our behavior forever, or will it change our behavior for a while?

Julie Carmichael: And I think there are probably some things that may change forever. I think telemedicine is something that has worked well in certain instances, but there are a number of practices and specialties. I think about obstetrics as an example, and a lot of women’s health where it’s just not practical to do a lot of that care via telehealth.

Julie Carmichael: So I think, to Ryan’s point, we’re going to have to live in both spaces. We’re going to have to figure out, maybe we can delay some additions that we thought we might need to do some expansions. And I also think it’s going to be interesting to watch what happens on the ambulatory surgery side. With changes to Medicare and other insurance companies being willing to pay more and cover more services in that setting. And providers, I think, starting to feel that the quality is comparable. I think we’re going to see a lot of activity in the ASE space going forward. But it’ll be interesting to see. I wish we knew for sure, but I think we’re all guessing.

Mark Theine: I love the optimistic question about thinking about what’s coming in the future, especially given how challenging this year has been. But the truth of the matter is that we are still in a crisis and there’s still a lot of COVID care being developed.

Mark Theine: And it’s really important for us to remain disciplined in our operations of the facilities today in what this new normal is that we’re talking about. It’s very easy to get COVID fatigue and not wear your mask or start settling into the new normal of your management hours and things like that. Your management tasks, but it’s really important to continue to stay disciplined for the very foreseeable future.

Mark Theine: And then further into the future to answer your question though. I, talking to a CFO yesterday of the hospital system, and one of the comments he made that really resonated with me is that they shifted more of their surgery procedures off campus, the AFCs.

Mark Theine: Again, the same capacity in the hospital system. And those procedures will probably now for a very long time continue to be located in that off campus surgery center. So there’s a lot of opportunities for certain off campus surgery centers, [inaudible 00:38:51] future. And procedures that have shifted away from the campus, off campus will continue to stay there in the future.

Joel Swider: Great. Well, that is the extent of my prepared questions here. Julie, Ryan, Mark, thank you so much for your insight and thank you to our audience for joining us.

Joel Swider: We will be sending out contact information to the extent that anybody has questions that didn’t get answered today and you’d like to continue the conversation. We have our strategy discussion coming up on February 25th, which I think will be an interesting follow-up to this one.


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