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Asset & Property Management
NexCore executives share their expertise at the BOMA Medical Office Buildings conference
Posted November 23, 2021
Two NexCore Group executives shared their healthcare real estate (HRE) expertise during two educational panels at BOMA International’s 2021 Medical Office Building + Healthcare Real Estate Conference Nov. 1-3 at the Omni Dallas Hotel in Dallas.
Steven Smith, Chief Acquisitions Officer for the Denver-based national healthcare real estate developer, was a panelist for a session titled “Notable Transactions and Deals,” and Tom Kelly, Vice President of Real Estate Development, was on a panel titled “Lingering Impact of COVID-19 on Stark Law Compliance, Medical Office Space and Workforce.”
Notable Deals: NexCore-Nuveen portfolio
Mr. Smith discussed the August acquisition of the $620.4 million, 1,165,173-square-foot IRA Capital portfolio by NexCore and partner Nuveen Real Estate.
“Initially, the portfolio was 31 properties in 14 states. The portfolio included investment grade tenancy with healthcare systems in the medical office building portfolio and established companies in the life sciences portfolio. Our strategic partnership with Nuveen really helped catalyze our growth in life sciences and this acquisition gave us a significant presence of life science headquarters locations. It also gave the partnership stabilized core play across multiple states and multiple markets in the MOB space.”
Mr. Smith continued, “We were interested in the portfolio for a number of reasons. The dispersion of assets offered a lot of geographic diversification. Also, most of these markets had a mission critical nature to the assets. In some cases, the healthcare systems were serving an underserved market or they had outpatient facilities that were important nodes of referral for that healthcare system. Importantly, 20 of the assets were in Certificate of Need states.”
Asked what the biggest hurdles NexCore faced with the acquisition, Mr. Smith said, “Probably the biggest challenge for us was determining how and what we were going to acquire. We ultimately acquired 29 of the 31 assets. We didn’t acquire one of the life sciences assets, and then one of the medical office buildings had a right of first offer/first refusal with one of the systems, which purchased the asset. So that created a little bit of a last-minute curve underwriting.
“Then it was just really rolling up our sleeves to close the deal. We had to look at the pricing and credit of the assets, the inherent and intrinsic values of the assets, the markets, the systems themselves and metrics like bond indices and what the bond and credit markets were doing because at the time, the bond markets were down. It was very extensive – a team effort.”
Mr. Smith concluded, “It was a very good process, it was a very streamlined process and we ultimately took it down over a series of months.”
Development flexibility, caring for caregivers and managing through supply chain issues
During the “Lingering Impact of COVID-19” discussion, two of the other panelists provided an overview of a range of compliance and other legal issues, and how they have been complicated by COVID-19 temporary waivers and other regulatory changes.
Then the panel turned its attention to how the pandemic is affecting healthcare real estate development.
"It's all about flexibility," Mr. Kelly emphasized. New healthcare facilities should be designed with the flexibility to adapt to use by different medical specialties and to handle surges of patients, he said.
"So it's creating more flexibility in these (facilities) as healthcare evolves, as regulations evolve," he said. "And certainly, with infectious diseases, we've all received a steep learning curve on making sure that you can adapt to things that we can't contemplate or foresee at this time."
Although future needs might be unpredictable, he said, healthcare providers and developers must make sure they're not "pigeonholed" into developing facilities that can't adjust to unexpected developments.
Mr. Kelly said COVID also accelerated changes to lobbies and waiting rooms, where registration desks are giving way to kiosks and apps for patients’ mobile devices. Those spaces are becoming more like lounges and more patient-friendly, he said.
Mr. Kelly also urged that the needs of caregivers be given more consideration in the design of medical facilities.
“They were kind of forgotten in some of the past design,” he noted, such as when exam rooms were designed with large windows and natural light while staff spaces went without. He pointed out that patients are in exam rooms only briefly, while staff are on duty for hours, day after day. “You don’t need to be standing in an exam gown looking out of a window,” he said.
“It’s the care team that has really been stressed over the pandemic,” he added. But even under ideal conditions, staff can benefit from more windows and natural light. It can also be a recruitment and retention tool for the provider organization.
“Those little things really, really add up,” he said.
Mr. Kelly also commented on rising costs and supply chain issues, such as the fact that it can take six to eight months or more to get structural steel for a project. He explained how NexCore is managing through some of those issues, such as by ordering steel earlier in the development process. But he said that some delays are unavoidable during this unsettled time, so it is important to be “nimble” and to set realistic expectations of the part of clients and capital partners.