he health care industry continues to evolve and prosper as
the baby boom generation ages
over time. Broadly defined, baby
boomers are people born in the
United States between 1946 and
1964. As a result of this boom, each day for the
next 16 years, about 10,000 people will be turning 65 years old, so it appears that there’s a substantial supply of future medical patients.
Major regulatory changes have created a whole
new game for the health care sector, however,
and these changes have potentially major consequences for the commercial real estate industry.
Will more patients mean more demand for medical office buildings? The answer is not so clear.
With most of the provisions of the Patient
Protection and Affordable Care Act — more
commonly known as the Affordable Care Act
(ACA) or “Obamacare” — taking effect this
past January, it’s still anyone’s guess if the new
law will be a factor in increasing or decreasing
the long-term demand for medical office buildings. What impact will the regulations have on
the number of health care professionals working in the medical arena?
Many doctors publicly threatened to retire
early because of their concerns about costs and
insurance reimbursements this year and beyond. Although it’s difficult to say how many
of these doctors will carry out their threats,
this and other questions about the future of the
health care industry come to mind as a result of
the new regulations. Will up-and-coming medical students be able to start practicing in the
current regulatory climate after incurring skyrocketing university costs? If not, will there be
a shortage of available doctors for the growing
number of patients seeking health care?
Exact numbers of previously uninsured
Americans who will have health insurance as a
result of the ACA are difficult to pin down, but
ACAsignups.net estimates that more than 9
million people signed up by the end of this past
READING THE FUTURE OF
MEDICAL OFFICE BUILDINGS
The Affordable Care Act and aging baby boomer generation may impact this niche
By Rick Tobin
Real estate financier
First Financial Bancorp
Illustration by Dennis Wunsch
Rick Tobin is a real estate financier at First Financial Bancorp. He’s had an experienced and diversified background in real estate and financing for more than 25 years and has been published nationally in magazines, newspapers, websites and newsletters. Tobin also appears as a primary guest on
television shows. He and his associates can finance residential and commercial properties around
the United States with debt, equity and mezzanine money. Visit thecreditcrisis.net. Reach Tobin at
year, and original projections from the Con-
gressional Budget Office estimated that 32
million Americans would gain coverage over
the life of the ACA. Time will tell if these numbers are accurate.
In any case, much of the health care industry
is in a “wait and see” mode regarding the ACA’s
short- and long-term effect on their profession.
In addition, there are mixed opinions and projections from mortgage professionals and commercial real estate brokers in regard to current
and future investment opportunities in the medical office building sector. Will this niche thrive,
stagnate or even regress because of the new
health care rules and guidelines?
Although there are many significant questions
and concerns about the ACA’s overall long-term
impact on the health care industry, there’s no
question that the number of patients requiring
health-related services will increase. With about
10,000 citizens reaching age 65 each day, statistics point to the total number of medical visits
in the United States increasing exponentially.
Per the U.S. Centers for Disease Control and
Prevention, Americans age 65 and older averaged about 6. 9 annual visits to physician offices,
hospital outpatient departments and hospital
emergency departments, in contrast to 3. 7 visits for ages 45-64 and 2. 3 visits for ages 44 and
younger. The health care implications of this statistic and the aging baby boomer demographic
point to tremendous future investment, brokerage and funding opportunities for the mortgage
professionals and lenders that focus on the medical office building sector.
Medical office building construction has
trended upward during the past few years after
a sharp decline following the economic downturn. Marcus & Millichap recently reported that
developers were on pace to complete 7. 5 million
square feet of new medical office space in the
past year, with a number of major projects to be
completed or to break ground this year. More
than a third of these new properties will be at
least 100,000 square feet.
Other sources are even more optimistic about
the future. The Urban Land Institute projects that
the aging population and its health care needs —
in addition to the potential influx of more than
30 million formerly uninsured Americans into
the health care system — will increase the demand for medical office properties by as much as
19 percent by 2019. This could add as much as
64 million square feet to the current amount of
medical office buildings in the United States.
Location and type
Medical office buildings are considered by
many commercial mortgage brokers and
agents to be the most solid and consistent
commercial property type outside of the multifamily sector. Besides the upward trend in
new medical office building construction,
this is backed by statistics showing that vacancy rates in many regions have declined to
single-digit percentages as tenant demand
continues to increase. In addition, numerous
major real estate brokers and agents believe
that the medical office building sector may
be almost as “hot” as it’s ever been in relation to new development, purchases and sales.
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