6D —September 2023 — Fall Preview — M id A tlantic Real Estate Journal
www.marej.com
H ealthcare
he stark differences be- tween New Jersey and Florida’s business en- By Kim Kretowicz, Colliers Exploring the Healthcare Real Estate Landscape: New Jersey vs. Florida T
Healthcare Real Estate De - velopment. While the rate of inflation has since dropped inflation remains a critical factor for the healthcare real estate development industry. As prices rise for raw materi- als, labor, and other essential inputs, the cost of construct- ing new healthcare facilities escalates. These cost increas- es have the potential to slow or even halt the progress of development projects. Healthcare Real estate Resilience • Rental rate growth for MOBs have been between 2-4% this strong rent growth for medical office can temper the rise of cap rates. • Medical Office Building (MOB) fundamentals remain strong with resilient occu- pancy and steady rent and NOI growth in both New Jersey and Florida and a shift to outpatient care opens opportunities for investment in MOBs and Ambulatory Surgery Centers (ASCs). • Medtail is a Rising Solu - tion for Consumers Providers and Healthcare Developers Consumers can conveniently access healthcare near their homes, restaurants, and stores. At the same time, landlords ben- efit from long-term healthcare tenants who provide income and a steady customer traffic flow through the surrounding area. Healthcare providers can benefit from lower construc - tion costs and enjoy better exposure and patient volume. While much of the world has returned to normal, consum- ers still expect convenience. • Interest in healthcare real estate has grown, and transaction volumes reached an all-time high in 2022 de- spite the present dip in 2023 family offices and REITS show maintain interest with continued souring interest by private equity. Unique Demographics New Jersey New Jersey ranks as the most densely populated state in the U.S. and the second highest median household income across the U.S. as well as one of the largest state economies. Pharmaceuticals, biotechnology, finance, tour - ism, and transportation domi- nate as New Jersey’s largest industries; altogether, the state’s GDP totals well over $500 billion. New Jersey’s researchers
and healthcare providers historically and continue to pioneer the future of medicine. A strong alignment of New Jersey’s hospitals, medical schools, academic institu- tions, and the private sector has helped make the State a “hotbed” for innovation. As a result, companies located here are on the forefront of bringing breakthrough treatments and products to market. In 2021, 39% of FDA novel drug ap- provals came from companies with a footprint in the State. New Jersey is home to many leading healthcare systems. Among the State’s 113 hospi- tals and 72 acute care hospi- tals, 13 are nationally ranked according to U.S. News & World Report’s 2021-2022 Best Hospitals rankings. Topping the list is Hackensack Uni- versity Medical Center and Morristown Medical Center. Demand for Medical Office Space in NJ looking for large blocks of medical space is leading to the rise in adap- tive reuse with outdated office buildings as well as vacant shopping mall de- partment stores fueled by competing leading health systems from New York, Con- necticut and Pennsylvania. Sample New Jersey Healthcare developments • Valley Hospital / Valley Health’s acute-care hospital /$800M 875,000 s/f Paramus NJ • The Cancer Center at Cooperman Barnabas Medi- cal Center /RWJBarnabas Health and Rutgers Cancer Institute $225/137,000 s/f Livingston NJ • VillageMD paid $9 bil - lion to acquire New Jersey- based Summit Health, the parent of urgent care clinic chain CityMD • Hackensack Meridian Health’s 80,000 s/f ambulatory care center at ON3 Clifton NJ • RWJBarnabas Health and the Rutgers Cancer Institute of New Jersey, New Bruns- wick NJ $750M/ 520,000 s/f cancer hospital • Hackensack Meridian Health’s surgical and intensive care tower $714M/530,000 s/f Hackensack University Medi- cal Center Hackensack NJ • The Summit Health Mul - tispecialty Hub in Clifton, New Jersey — an office-to- healthcare transformation 100,000 s/f Clifton, NJ • Valley Health System 60,000 s/f lease/ North Market,
a redevelopment of Mercedes- Benz headquarters mixed-use development Montvale, NJ • Hackensack Meridian 80,000 s/f facility Paramus, NJ • RWJ redeveloped an 80,000-square-foot mall pad site Eatontown NJ • Cooper Health Moorestown Mall 165,000 s/f conversion Moorestown Florida Florida’s population grew almost 2% in 2022, making it the fastest- growing state in the na- tion for the first time since 1957, according to U.S. Census data, as families and businesses are drawn by lower taxes and growing numbers of jobs. Florida was the top state for migration from within the U.S. in 2022, contributing to its population growth. The influx of businesses can be attributed to Florida’s pro- business tax laws, thriving economic climate, innovative development projects, as well a diverse and educated labor force. Florida’s popu- lation growth is breaking records as employees follow businesses to the sunshine state. The lack of personal income tax in Florida is part of what is attracting some of the nation’s wealthiest to the area. Companies like Citadel and Related Cos. have moved into the Florida market, signaling that the once-transient area is at- tracting long-term investors. In addition to the influx of residents and businesses, two years ago the state Legisla- ture repealed the “certificate of need” requirement, which restricted new hospital open- ings and expansions. . In Central Florida, the growth of Freestanding Emergency Departments (FSED) by the area’s “big three” systems (HCA, Advent Health and Orlando Health) have been ongoing for years. However, FSEDs did not require a CON and were, therefore, a great way for a system to plant its flag in the market while go - ing through the lengthy CON process. The repeal, mixed with Florida’s business and residential influx, resulted in a flurry of medical related de - velopment. Floridians contin- ues to see more free-standing emergency facilities ,smaller community-based hospitals and micro-hospitals.
More than 1,440 establish- ments operate within the Flori- da biotech, pharmaceutical and medical development scene, with a foundation of more than 46,000 healthcare establish- ments. The state offers these companies and R&D centers a broad range of industry expertise. Florida is home to the nation’s second-largest medical device manufacturing industry, second-largest phar- maceuticals manufacturing industry and the fifth-largest biotech R&D industry. Major players in the field that in Florida include Johnson & Johnson, Bausch + Lomb, Bris- tol-Myers Squibb, Medtronic, Arthrex and the Mayo Clinic. Hospital for Special Surgery (HSS 60,000 s/f center across from Good Samaritan Medical Center in West Palm Beach. HSS cited serving some 3,000 Florida residents in their New York facility prior to opening a local hospital and Walmart cites Florida as one of its big- gest markets with three new clinics in Jacksonville, Fla and 22 coming to the state by fall 2023. Sample Florida Healthcare developments • Moffitt Cancer Center 498,000/s/f $400M Tampa • Universal Health Services (NYSE: UHS) / Alan B. Miller Medical Center / hospital cam- pus 365,000 s/f 150 room hos- pital and medical office space • The Advent Health Win - ter Haven Hospital Campus 42-acre -20,000 s/f Emergen - cy Room/ 192-bed Hospital/ MOB, Winter Haven Florida • UF Health Jacksonville / Rethink Healthcare Real Estate / Rendina Healthcare Real Estate - Three Emer - gency Department & Ur - gent Care (ED/UC) Facilities Jacksonville,Florida • Jackson Health System emergency department ex- pansion $300M/130,000 s/f Miami, Florida • AdventHealth Palm Coast Parkway hospital 158,000 s/f $167M Palm Coast, Florida • Wiregrass Ranch/ Or - lando Health and multi- specialty physician group Florida Medical Clinic (FMC) are planning a new 300-bed hospital /5,000-acre master- planned community Wesley Chapel, Florida. • The Jupiter Medical Cen - ter Surgical Institute 90,000 continued on page 10D
vironment, political en- vironment and climate are blurred with the not so obvious synergies created by the intense competition
Kim Kretowicz
within the healthcare indus- try. The rapid consolidation and competition within the health-care sector has led to increased demand for well- located, modern medical facili- ties with strong demographics. New Jersey and Florida offer strong albeit unique demographics. Florida previous imbalance of “the graying” has shifted with strong migration and appeal of low state taxes with New Jersey maintaining its position of the most densely populated state in the country. Local, regional and national Health systems, Physician groups, Developers/Investors are looking to raise brand awareness by strengthening their reach in these communi- ties with specialized medical facilities and properties. Many health-care systems are look- ing to expand outside of tra- ditional markets to compete with other health-care pro- viders and grow their patient base, so they want maximum visibility and modern facilities to brand in both New Jersey and Florida. Neither New Jersey no Flor- ida have been shielded by the historic disruptions of 2023 but uniquely the states demon- strate the strengths of health- care commercial real estate. Shared Economic Environment Historic Disruptions • The bid-ask spread is limiting transaction vol- ume, as sellers’ pricing ex- pectations are adjusting to the higher interest-rate environment. • Rising interest rates, large domestic banks mini- mizing or halting lending activity and higher capital reserves imposed by the Fed on large banks and debt ser- vice coverage ratios have hin- dered lending and slowed the MOB investment landscape. • Inflationary Impacts on
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