Our Health Care Real Estate Briefing is your comprehensive summary of weekly health care real estate highlights happening across the nation.

Last week a number of legislative initiatives made the news. A group of U.S. senators are pushing for additional HUD funding to create more affordable senior housing units. At the state level, South Carolina’s effort to repeal or amend its certificate of need law died in committee. This was surprising after what appeared to be a significant push from legislators and stakeholders to change the law. In other news, Advocate and Atrium announced plans to merge. The combined organization will be massive. The Urban Land Institute and HealthCare Appraisers released reports that are full of real estate data and economic forecasts. Both are worth reviewing. Finally, several large health systems announced new projects.

  1. A group of 40 U.S. Senators signed a letter of support asking a Senate Committee for $600M in funding to create 6,200 new affordable senior housing units under HUD’s Section 202 program per McKnight’s Senior Living.
  2. South Carolina’s legislative effort to amend or repeal its Certificate of Need law won’t happen this legislative session. The bill didn’t make it out of committee per The Post and Courier.
  3. Advocate Aurora Health and Atrium Health announced plans to merge. The combined organization will create a $27B health care system with 67 hospitals, 1K sites of care and 7,600 physicians with operations in AL, IL, GA, NC, SC and WI. The organization will do business under the Advocate name and will be headquartered in Charlotte, NC per Blake Madden at Hospitalogy.
  4. Urban Land Institute released its Real Estate Economic Forecast. Cap rates are expected to increase from 4% in 2022 to 4.3% in 2023 and should remain flat in 2024. Price growth is expected to drop from 10% in 2022 to 6% in 2023 and 5.9% in 2024. Total investment returns are expected to drop from 10% in 2022 to 8% in 2023 and 7% in 2024. Inflation is expected to drop to 3% in 2023 and 2.5% in 2024.
  5. HealthCare Appraisers, Inc. released its Medical Office Outlook Report. MOB landlords collected 95% to 97% of contracted rents during the pandemic. Rental rates for new ASCs are $35 to $55 sf and rents for new MOBs are $25 to $30 sf. Average MOB TI allowances vary from $60 to $100 per sf with tenants spending $20 to $70 per sf on top of the landlord TI allowance. Off-campus cap rates are at 5.41%, on-campus cap rates are at 4.97% and development cap rates (rent factors) are often 50 to 100 bps above sale cap rates.
  6. Demand for behavioral health services is up. In a recent Modern Healthcare survey, 70% of health care design firms noted an increase in behavioral health services being proposed in projects. Telehealth is playing an important role in the delivery of behavioral health care services. During the pandemic, 60% of all behavioral health care services were provided via telehealth per Athenium.
  7. Universities and hospitals systems around the country are creating health care innovation centers and districts in their communities. Some of the largest innovation center projects are being sponsored by Atrium Health (Advocate), Children’s National Hospital, Cleveland Clinic, Harvard University, Massachusetts Institute of Technology and UC Irvine. A list of innovation projects can be found at Becker’s Healthcare.
  8. CBRE is hiring an ambulatory network planning consultant
  9. Cleveland Clinic announced $1.3B in new projects, including a 1M sf neurological institute in Cleveland, OH per Cleveland.com.
  10. Baptist Health System KY & IN purchased 55 acres in Oldham County, KY with plans to build a new 90-bed $250M hospital. It may include senior living and a fitness center in the future per Louisville Business First.