Healthcare Real Estate Developer | New Construction Has Its Advantages

Here is an outstanding guest post from James Ellis. James is a Medical Real Estate Developer. Involved in acquisition, entitlement, financing, design, construction, leasing and property management.  He cranks out great content on his blog. Please take some time  to read all of his posts. I think his writing style is so kick ass that I had to ask if it was really him writing…he said “yes” of course. Finding more interesting,smart,engaging and  brilliant CRE people everyday!

Healthcare Real Estate Developer | New Construction Has Its Advantages

Recently, at the Interface Medical Office Conference, influential hospital executives stated that investing their capital in infrastructure needs and health information technology (IT) took priority over building new or renovating existing hospital ancillary facilities. The health IT requirement mandated by the government is an immediate pressing obligation. However, the many advantages to  new facility construction support unique hospital long term growth strategies while integrating health IT directives.

The two notable examples of construction as a long term growth strategy encompassed within healthcare reform are Massachusetts and California. Massachusetts, which passed state healthcare reform in 2006, experienced a 14% increase in medical office construction from 2006 to 2009. California, an early participant of healthcare reform,  saw a spike of 450,000 square feet new construction during the first half of 2010 – primarily in Sacramento, Riverside-San Bernardino and Orange County.  The expansion of healthcare in these two regions has naturally energized a free market revival of new construction.

There is no question that renovating existing facilities in most circumstances is more cost effective as a short term solution to more expensive new construction. However, as real estate developers we pride ourselves on long term goals, not short term solutions. Building new facilities offers a wide range of opportunities and preparedness that many renovations cannot.

Renovating means to modernize. Updating an existing facility can be difficult as a reflection of a building’s maturity. Older facilities were not designed with today’s delivery of healthcare in mind. Older facilities are continually requiring “updating” no matter how much “renovation” is done. Older facilities are not green. Older facilities have tired and inefficient mechanical systems, ill-equipped to accommodate the specifications outlined for internal data centers. Older facilities are not New.

New facilities are designed with preparedness for the future. New facilities provide for new services and future concepts. New facilities offer original space configuration and construction models. New facilities appeal to recruits, current employees, and hospital patrons such as donors. New facilities promote growth and community commitment. The cost of new facilities can be amortized over an extended period of time creating a better long term economic plan.

Overall, renovation in many situations may be the only choice. New construction is often considerably more expensive, but renovation is a short term solution. When considering these options remember to review the organization’s Mission Statement and Strategic Plan to more completely consider the organizations goals.

Duke Long