The Health Care Real Estate Boom

Michele GonzalezBlog, Land DevelopmentLeave a Comment

healthcare real estate boom

As the U.S. housing economy continues to recover, new players are getting involved in the commercial real estate development game, hoping to follow in the successful footsteps of popular mixed-use communities across the country. Even community colleges have sought to increase their revenue by partnering with developers to build apartment complexes with ground-floor commercial space and amenities designed to appeal to trendy urbanites.

The most prominent new player, however, is the health care sector. Hospitals and medical centers are not only able to attract new development projects to the neighborhoods where they establish themselves; they also sometimes play a direct role in assisting local homeowners to increase their property value.

Why Health Care?

By 2025, one quarter of the U.S. population will be over the age of 55. This demographic shift is the driving force behind the rise of health care as the largest employer in the nation, according to a recent article published in The Atlantic.

Obviously, an aging population requires more medical attention, fueling increased demand. Moreover, compared to jobs in manufacturing and retail, which are vulnerable to recessionary spending and technological advances, health care is immune to economic downturns and the effects of globalization. It is subsidized by public monies — think Medicare and Medicaid — and stubbornly local; a person cannot, for instance, outsource their primary care physician. Finally, careers in health care are broader in scope than nurses, physicians, and other medical workers. There are a growing number of administrative positions as well.

The emergence of the health care sector as the nation’s largest employer means that commercial development projects like hospitals, medical centers, and outpatient clinics are quickly becoming a routine feature of the urban landscape. As such, they have a profound impact on the neighborhoods that host them.

Parkland Hospital: A Case Study

Back in 2004, the 60-acre area that houses Dallas’s new Parkland Hospital was desolate, a brownfield of defunct factories and fuel depots. The hospital gradually purchased this land, using a $747 million bond issue to help fund the development and construction of the new facility that, in the end, cost $1.3 billion.

“We’ve been landlocked since 1954,” explains Dr. Ron Anderson, the former chief executive of Parkland, to The New York Times. “We learned that we really needed to be in the real estate business. We bought enough land so in the future we won’t be landlocked.”

A consequence of the ambitious move has been Parkland’s impact on the surrounding community. A DART (Dallas Area Rapid Transit) light rail line stops right outside the hospital, guaranteeing an easy commute, especially for hospital employees who live near the facility. Multifamily developments have followed suit, turning an urban “island” into a more vibrant work, live, play district.

In a move that will bring things full circle, the old Parkland facility, a 36-acre compound located across from the new hospital, is also slated to be converted into a mixed-use development with apartments, office space, retail stores, and a hotel. Although the developer, Sam Ware, missed a key deadline to purchase the complex, he still hopes to be able to purchase the property — and if he does not, some other developer will likely move in.

The Lynchpin Effect

Parkland is hardly unique. When the former Robert Mueller Municipal Airport was closed and Austin-Bergstrom International Airport opened in 1999, the City of Austin retained the land.  The goal: partner with a master developer – Catellus Development – to create a public-private partnership that would ultimately transform the RMMA property into a significant mixed-use development. A lynchpin in this project was a medical facility, in this case Dell Children’s Medical Center of Central Texas, owned and operated by Seton Healthcare Family. The Medical Center complex helped seed other local shops and restaurants to the area, revitalizing surrounding neighbors, and helping to weather the Great Recession era.

Something similar happened in a derelict part of Columbus, Ohio known as Southern Orchards. In 2008, Nationwide Children’s Hospital began to invest in their host neighborhood, renovating vacant homes, building affordable housing, and even providing loans to families whose homes were in desperate need of remodeling.

The hospital chose to become involved when their staff experienced first-hand the link between health and poverty in the patients they saw, and they seized the chance to make an impact on children’s health by removing toxic elements from their home environment.

Their initiative, Healthy Neighborhoods Healthy Families (HNHF), is one-of-a-kind because the hospital invests directly in the real estate projects rather than relying on outside developers. But the lynchpin effect is playing out in cities across the United States as hospitals and medical centers become key to the revitalization of whole neighborhoods.

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