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In this episode, we talk about…

[2:22] The history of Healthcare Development Partners

Todd started in commercial real estate in the late ‘80s, with an opportunity to work for a healthcare developer in Wisconsin. He spent a couple years there, and then the recession hit. Todd stayed in healthcare, and started Healthcare Development Partners (HDP) in 1992.

[2:52] The biggest changes Todd has seen in healthcare real estate

In Todd’s view, healthcare real estate has become more sophisticated. In the ‘90s, their clients were all hospitals or healthcare systems and “on budget, on time” was a big deal back then. A lot of people had a hard time achieving that, and so guaranteeing a timeline and a budget was a big value proposition. Today, that seems to be an expected outcome and the level of sophistication at the healthcare system and hospital level is much greater.

Their projects have changed a lot, as well. They do more integrated facilities today than they did back then, where they had individual physician suites and some hospital spaces. Now it’s really more of an integrated outpatient facility.

[3:59] How Todd decided to go into commercial real estate and the healthcare real estate space

Todd wanted to be in real estate, and got his start in investment banking. There was a syndicator that had tax strategies that were pretty attractive to investors, and Todd was involved in commercial downtown office buildings in Chicago.  He got into the healthcare field to get more experience in development. He was in his early twenties, and the lenders were looking for him to have more experience.  His projects were getting larger.

The idea was to go up to Milwaukee to work there for two years, then come back and build downtown office buildings.  When the recession hit, he stuck with healthcare.  The commercial real estate office market basically collapsed for a number of years.

He then worked as a minority partner for another firm, and then he started HDP in 1992.  The business has continued to grow, and the industry has exploded. They are excited about the future.

[6:07] Collaboration between real estate and healthcare professionals

In HDP, leadership includes both real estate and healthcare professionals. Todd sees this collaboration as very important. In the ‘90s and early ‘00s, they didn’t do a lot of work that the hospital needed to get board approval on. The projects would sit on drawing boards for a long time, and they did incremental revenue, assessment, and utilization analysis to provide to the hospital at no cost to get them closer to starting their project. They only make money when they build projects, and hospital administrators really spoke that language. They had a level of confidence with other administrators, and those personalities are really different.

People coming out of a healthcare system have different personalities than those coming out of a real estate business. You need both of them.  In addition, a hospital setting is a very sophisticated operation platform, and they have all kinds of different requirements and needs than a typical commercial real estate office building or a project like that. There is a lot that has to happen in order to make a healthcare facility a success, and these people have been a big part of what HDP has done over the years.

When you get more specialized, you can’t just build a medical office building and hope they will come. You have to really build it for the needs of the potential tenants. Understanding how the building is going to be utilized is critical, and trying to build without really understanding that is a high-risk proposition.

[8:21] Healthcare Development Partners’ guaranteed price program

This program has been around since the beginning of HDP.  Being able to guarantee a total project cost and a delivery date is something that gets back to their roots of being at-risk developers. They don’t do consulting work or program management, so they are careful about what they do. These projects are a major investment by these second-tier hospitals, and they are for primary markets too. Removing the risk is huge, because they’re hiring doctors, they’re buying equipment for these facilities, and they need to know that the building is going to be there on the specified date.

HDP has eliminated that risk, and it has been a very successful program. It allows them to align with their clients when delivering projects, and if they don’t do what they say they will do, HDP has to suffer cost consequences and so forth. HDP gives their clients the rent cost on day one, and they live by that number. Even if the project costs go up, HDP’s returns go down.

[10:20] A success story for Healthcare Development Partners

California has allowed nuances that make development very challenging. When HDP developed in Sierra Vista, it was a more traditional medical office building.  The hospital took the first two floors, and then they leased out the other two floors to the doctors. 

They were up in an area that was sort of on the outskirts of Phoenix, north of Scottsdale.  At the time, Sun Health was an independent healthcare system and they were increasing their footprint up north into that corridor. When they started the project, they were basically at close, and Sun Health was bought by Banner.  That created a number of challenges, ultimately leading to them replacing Banner with Vanguard as an anchor tenant in the challenging market during the last recession. There were a lot of curveballs in that process, but it’s filled today and it’s a success story. It’s an example of an unexpected pivot, for sure.

[12:44] Where Healthcare Development Partners focuses its efforts geographically

HDP is definitely national, as they have built in 30 states.  They like to go into growth markets or secondary markets. HDP has a number of projects in Virginia, Texas, Arizona, California, Illinois, Washington, and Missouri.  Their core business has always been the at-risk facility development for healthcare systems.  

In today’s environment for physicians, you have to be creative. Todd thinks physicians are uniquely qualified to understand the medical aspects of this facility and what can go inside of it. One can’t be successful over someone like Todd, and that’s why they always have healthcare professionals team up with them. The physicians focus on the service lines and the medical issues. It’s important, and understanding that they believe those are going to be successful today as well as in the future.

If you make a mistake and something doesn’t happen, it’s a very expensive proposition.  If a project costs $20 million, you can assume it will cost a couple million dollars through architecture, engineering, third-party reporting, surveying, legal – and that’s before you even start construction. Often, you’re not going to be able to open a loan until you have a lot of these items in place because of the lenders.  It’s a good opportunity for physicians to be able to create additional value based on what they do for their career, if they’re careful.

We see a lot of unsuccessful physician-based facilities that just weren’t well-planned or well thought out. As much as physicians need real estate professionals, real estate professionals need to work with physicians as well.

[16:41] Programs for limited partnerships with physicians

HDP has worked with physicians as they build and sign a long-term lease. Todd says he would even take a step further – if anyone is reading this and wants to get advice from HDP, they’re happy to talk about what they think of the project and the likelihood of success at no cost. HDP is well-capitalized so they can put up the equity for the facility. They form joint ventures with physicians and physician groups. Again, HDP are not consultants. When someone calls, they can give their candid advice.

[17:59] Excellence in behavioral health

Behavioral health is something HDP looked at about five years ago with a couple other service lines. They worked to get an exclusive joint venture with an operator that they would feel comfortable with moving forward with an exclusive JV relationship. They have that relationship with Cigna out of Dallas, TX, and they currently operate 80 facilities. They are looking to build facilities, and they have a prototype that takes 15-16 months to develop.  It’s expandable to a hundred beds. 

HDP tried to create some flexibility to go into other markets that others might not necessarily go into, and get started with a smaller facility. It doesn’t fit well in a traditional emergency department, and so there is a lot of disruption for hospitals trying to care for these patients in a specialized facility.

[20:27] Following the market demand: COVID testing labs

HDP got into the lab business because of the behavioral health business. Some of the larger players in the lab business are not very customer friendly. They looked at toxicology and behavioral health, and they made the investment in the labs without knowing that COVID was around the corner. COVID testing is very robust right now, and going forward it will be a big element with senior housing operators, skilled nursing operators, and so forth.

HDP is very interested in acquisition of existing labs to support the demand or opportunities to develop new labs. They would love to talk to anyone who may think there is an opportunity for the lab business, because they see it staying here for the long term.  HDP also has a lot of relationships with smaller community hospitals, and their business will be really tech forward and user friendly. Todd thinks they can do a better job than what is being done right now.

[22:30] How the COVID-19 pandemic affected Todd’s approach to pursuing opportunities

Todd shares that HDP had two big projects that were put on hold, and are just getting going again now.  The biggest aspect of the pandemic, however, was addressing infectious disease in any healthcare facility going forward. Their approach in senior housing is still aligned with hospitals and healthcare systems. One of their biggest assets, according to Todd, is not on their balance sheet.  It’s their relationship with hospitals that they have taken 30 years to develop. Whenever they do a senior housing project, they align strategically with a hospital. The hospital will have software that will see what the residents are doing, and can get in front of preventative care.

[24:42] Todd’s outlook on healthcare in the next 12 to 18 months

There are buildings in Chicago that are office buildings that are a hundred years old. People love those buildings, but almost every seven to eight years they need to be remodeled or have some piece of technology changed out – whether it’s imaging or some type of surgery. With COVID, it’s really going to be a robust time for facility development and new technology.

Senior housing, active adult, and behavioral healthcare are all tenants that are in demand. HDP’s pipeline is full. They have a lot of projects on the drawing boards for the next 12 months. Over the next 3-5 years, Todd sees big changes. They will go into smaller markets and physicians can introduce more service lines in an affordable way.

With technology today, they can do a lot more on an outpatient basis. Facility development can happen closer to where people live, without having to be on a hospital campus. The hospital campus is very stressful in terms of parking structures, signing in, and signing out.  The more that they can integrate patients that have to go to a healthcare campus with an outpatient setting, the better it is for everyone. It is a lower cost of delivery.

[28:33] Todd’s first job

Todd’s first job was with Prudential in investment banking. He stayed there for 18 months and got the job with Equitech after that, and then got into commercial real estate.

[29:22] What Todd would be doing if he wasn’t working in healthcare real estate

Todd says he is pretty competitive, so maybe something like downhill skiing, racing, or something else that would boost his adrenaline.

[29:51] What Todd is reading and listening to for news, information, and inspiration

Todd tries to expose himself to balanced information. He is a fan of David Muir on ABC, the Wall Street Journal,  and Forbes.

[30:27] Todd’s healthy self-care

Todd works out every day. He loves cycling, so he will do road cycling weather permitting. Otherwise he will do Peloton, and sometimes he will go to the gym.

[30:49] Whether leaders are born or trained

Both, according to Todd.  It helps to have a natural personality that pushes you toward the front, but you can certainly have training and management skills taught to you.