Discussing the possibilities and future of the intersection of healthcare and commercial real estate
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Trisha’s guest this week is Jay Heald, Vice President, Business Development and Managing Broker with MedProperties Group. MedProperties Group delivered beautifully designed, functional, and high-quality medical office buildings to the market. Jay shares how they are developing according to trends and demands, as well as their flexibility to offer physician ownership for those practices interested in building equity.
[2:36] The story behind MedProperties Group
The CEO and founder of MedProperties started rolling out same day surgery centers throughout the Chicagoland markets. They got to around 20-25 surgery centers throughout the area, and once those were all up and running he exited to USPI, one of the large acute surgery center providers. Same Day Surgery started around 1994, and MedProperties has been around since the early 2000s.
[4:38] How Jay started his career in healthcare real estate
Jay started out in tenant rep and had a couple former co-workers that were at MedProperties. Through some connections, he started working with MedProperties in early March of 2020 – right as the COVID-19 pandemic was beginning. He sees this as fortunate timing, as his job in tenant rep would have been even harder during this time.
[5:41] MedProperties Group’s geographic focus
MedProperties is headquartered in Chicago and they have assets in Arizona as well. They have expanded in the midwest, as well as in the Phoenix metro area. In general, their goal is to maximize the states around them as well as the relationships they have. They are currently working on a development in Oak Brook, outside Chicago, that will start as a spec building. The demand would likely be there to do something similar in Arizona.
[7:57] Physician ownership
Jay notes that physician ownership seems to be very common, and almost a requirement in Phoenix. MedProperties has offered this opportunity in the past, particularly with some of their surgery centers. Having partners requires alignment from everyone and it can make exiting tenants more of a sticky situation. It is becoming more common practice at this point in time.
[9:08] One of Jay’s interesting transaction stories
Since Jay started a little less than two years ago, a lot of the development started right after he came on and they are still hoping to finish them. They are close to finishing with a handful of them, and he thinks the most interesting one is probably the aforementioned spec building in Oak Brook. They have had a bunch of groups that were very interested in it, and some were interested in discussing physician ownership as well.
Jay shares that it seems like a lot of healthcare systems these days, at least in Chicago, are less focused on getting in the JV structure, but they seem to be interested in long-term ownership.
[11:13] Accommodating what tenants are looking for
Getting everyone aligned can create a stronger partnership. When everyone has the same goals, it makes working with and accommodating tenants much easier. Some tenants may be very interested in ownership, and others may just want tenant improvements.
[12:01] Focusing on medical office buildings
MedProperties has really tried to focus on medical office buildings. Typically the ASC is part of the building, rather than a standalone. Jay wouldn’t be surprised if, down the road, their future projects have a wider range of services provided. They may delve into a micro hospital or emergency room. The tenants, right now, drive their decisions more than anything else.
[12:54] How the COVID-19 pandemic has affected MedProperties Group
Jay reports that, while everything slowed down a bit for 6-9 months, nothing came to a stop. Everything they started or had planned to start has either been completed or restarted again. At this point, the fear of things totally shutting down is not really in the back of their minds. If anything, Jay feels like the pandemic ramped up the need to bring care to where the population is. The projects may be a bit smaller, but the velocity seems to be there still.
Healthcare real estate took a pause, but it is incredibly sustainable. It has a very specific purpose, and the tenants need the physical locations to do their jobs. Telehealth can happen, but it can’t fully take over like virtual options can in other industries.
[16:11] Jay’s outlook on healthcare in the next three to five years
Jay sees healthcare getting out into the patient bases and communities. In a panel he listened to six months ago, a panelist said that in the future they imagined a hospital being only for trauma, a pandemic type event, or a very complicated procedure. Everything else should be done outside of a hospital. Jay thinks we will continue to see healthcare moving off hospital campuses and into smaller medical offices. There might be more deals and more activity in healthcare real estate, but he thinks the average size will go down as well. There will be more accessible clinical spaces for patients.
In Arizona, spreading out is more of an option because there is still a lot of land. In Chicago, it is certainly more dense. There is not a lot of land, and even the parking lots are on land per system. A lot of the demand is moving out toward the suburbs.
[19:58] Construction costs and economies of scale
Construction costs are fluctuating and increasing, and with that it might make sense to do more volume in a concentrated area to get economies of scale. Jay says that no one has called yet asking for five new buildings, but it would be great if that happened.
Construction costs are certainly an issue, and steel has been a big concern lately. You can still get concrete, fortunately. It is going to be tough for everyone. The saving grace, as Jay sees it, for the developer doing a new construction ground up development is that the competition of an existing facility is going to have the same constraints. Leasing from an existing building or building a new building will both have increasing costs associated with it.
[22:34] Jay’s first job
Jay was a caddy at a local country club in high school. His first job out of college was in tenant rep.
[23:55] What Jay would be doing for a living if he was not in the healthcare real estate industry
Jay is into aviation, so he could see himself being a pilot. He is also into automotive stuff, so something in the racing industry would be a good fit for him as well.
[24:46] What Jay is reading for news, information, and inspiration
Jay likes The Wall Street Journal. He also enjoys watching TV and reading home magazines.
[26:29] Jay’s daily self-care
Jay makes sure to spend as much time as he can with his daughter and his wife. He doesn’t have as much time to work out as he used to, but family time is great for mental health.
[27:26] Whether leaders are born or trained
Jay thinks that some people are born better leaders than others, but he also believes that you can be trained to be an effective leader. Working hard to be a good example can make you a good leader, without being born with a big voice or big energy. You can make up for it in other ways.
Links to resources:
Jay Heald, Vice President Business Development & Managing Broker
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