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INDUSTRY KNOWLEDGE: Navigating Healthcare Real Estate Development – A recap from Sorep’s april breakfast panel

Apr 29, 2024

On April 23RD, we had the pleasure of sponsoring SOREP’s (Society of Real Estate Professionals) monthly Breakfast Panel where our Business Development Vice President, Robyn Huber, had the opportunity to moderate the discussion on the current state of healthcare development and construction in Florida. During the panel, we gained insights from industry leaders on the challenges, shifts, and opportunities healthcare projects are facing across Florida. The consensus? Healthcare isn’t going anywhere.

Thank you to the panelists (Carleton Compton, CCIM of Healthcare Realty Group, Connor T. Lewis of Onicx Group, and Matt Hatfield of MD Healthcare Partners) and SOREP for creating an insightful panel discussion and sharing your expertise and forecasts.

As the landscape of healthcare real estate continues to respond to economic factors and evolve, industry professionals are exploring innovative financing models, repurposing existing spaces, and addressing regulatory challenges to meet the growing demand for healthcare facilities. As the moderator for Tuesday’s panel, I’m excited to share with you a summary of my top takeaways – to get the conversation started, we kicked off with the topic of financing in a capital-restrictive market.

Innovative Financing Models for Healthcare Real Estate

We are well into the inflated economy, fueling the necessity for developers to adopt creative financing strategies in today’s lending environment. Interest rates remain high, and banks aren’t as generous with lending, causing traditional proformas for project deals to fall short. Developers must think outside the box to secure capital for their projects. Public-private partnerships, consolidations, healthcare REITs, and other alternative financing avenues were highlighted as viable options for funding healthcare real estate ventures.

Connor Lewis, EVP of Healthcare Development at Onicx Group says “Developers have to get creative with sourcing capital in a capital-restricted market. There’s still financing available out there, but for really great projects”.

Challenges and Opportunities in Repurposing Healthcare Spaces

There are several factors that play into the viability of repurposing facilities as they often present a mix of challenges and opportunities that developers must carefully weigh. While retrofitting older structures may seem cost-effective in theory, panelists emphasized the complexities involved in ensuring compliance with Medicare standards and ADA accessibility requirements. Developers should consider potential utility updates and access as well as potential parking complications. Furthermore, developers should consider the facility’s land position – does the site hold value for the opportunity to be cost-effective after renovation?

Despite some of these challenges, panelists agreed that repurposing facilities can be a viable option, particularly when considering the potential cost savings and accelerated revenue generation compared to ground-up construction.

Ultimately, for the most cost and time-effective process repurposing healthcare facilities, complete the proper due diligence to assess the viability of your project.

Tenant Improvement Costs

Demand for retail healthcare and wellness clinics remains, however tenant improvement costs remain a significant consideration for both landlords and tenants in the healthcare sector. The specialized buildouts required to meet the unique needs of healthcare providers often clashes with the expectations of retail landlords, leading to negotiation challenges. Economic uncertainty, compounded by factors such as recessions and economic downturns, further complicates lease negotiations and lease rate setting, necessitating flexibility from both parties. In essence, retail still operates as retail, which is challenging for providers to adjust their needs to.

Having your contractor on board to assess improvements in the pre-construction process will help explore efficiencies and identify cost-savings in tenant-improvements design.

Economic Uncertainty

Optimism prevails as the potential for interest rates to drop could create a spike in development and construction. Healthcare professionals and hospitals are increasingly interested in investing in healthcare due to the recognized opportunities in real estate. Suburban healthcare markets continue to experience growth, highlighting the resilience of the healthcare real estate sector. Consolidations are viewed positively for their potential to enhance efficiency and address challenges we face as patients.

“Embrace the new norms so we can set market expectations” recommends Matthew, General Counsel of MD Healthcare Partners.

The Positive Punch

As we drew the panel to a close, it was evident that healthcare real estate remains a resilient sector with ample opportunities for growth and creativity. By embracing new norms, staying informed about regulatory changes, engaging their project team early, and adopting creative financing strategies, industry professionals can navigate the challenges and capitalize on the opportunities presented by the evolving healthcare landscape.

At Diaz Fritz Group General Contractors, we share the optimism for the outlook on healthcare development and construction.

Thank you to SOREP for hosting such a wonderful discussion on the state of healthcare!

As a leading general contractor for healthcare projects across Florida specializing in ground-up and interior renovations, we’re passionate about strengthening relationships and supporting business prosperity for our clients and partners. We were honored to support this Breakfast Panel to help our audience access intel on the state of healthcare in commercial real estate in Florida.

If you have questions about navigating your healthcare project or want to get the conversation started with our team, reach out to me to schedule a meeting!

CONTACT ME

ROBYN HUBER

VICE PRESIDENT OF BUSINESS DEVELOPMENT

T: 813.254.0072 x. 76
C: 813.460.4015
E: rhuber@diazfritz.com

ABOUT DIAZ FRITZ GROUP GENERAL CONTRACTORS

Diaz Fritz Group is a reputable mid-sized, regional general contractor specializing in ground-up and interior renovation projects across various sectors including senior living, retail, office, healthcare, private education, storage and industrial warehouse facilities.

We place a high value on relationships and integrity. Our commitment to fairness and honesty governs every interaction with our employees, clients, vendors, and partners. At Diaz Fritz Group, our clients count on our dependability, drive, trust, and especially our integrity. We embrace a culture of continuous learning, growth, and improvement, both individually and as a team.

Press Contact

Robyn Huber
V.P. of Business Development
C: 813.460.4015
E: rhuber@diazfritz.com

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