At April’s Healthcare Real Estate Conference in Chicago, the panel on “Strategies In Medical Office Space” included notable comments from Michael Noto, SVP Management Services Group at Healthcare REIT. Since the REIT space is where a property business sector overlaps with finance, it’s a great place to find important perspectives on history and the trends either supported or broken by that history.
In the case of healthcare office space, Mr. Noto’s own career history, which includes 13 years as an executive in banking, helped to contribute a compelling forecast concerning the culture of healthcare as an industry and its parallels to banking. Consolidation, cultural shifts, and the rising role of competition in healthcare come together here:
In a question posed to the panel concerning Chicago’s position in the reconversion market – a key to the retailization of healthcare lies in the reutilization of existing office inventory for outpatient services – Mr. Noto took the angle of consolidation to describe the market:
“I agree that [consolidation trends mean there is] going to have 50 healthcare systems in this country. I have the perspective of being in banking for 13 years. When I started in banking there were 13,000 banks. Today there are 4,000. The concentration of assets in the top ten is overwhelming. Back in those days, banking was a gentleman’s game. Very little competition – believe it or not, in New York if you wanted to open a branch across the street or next to a competitor, you’d actually call them up and ask “is it okay to open up a branch over here?” To move it to health care: hospitals have been run by gentlemen. Suddenly, a lot of community hospitals, facing what is happening around us in terms of the economy, health care reform.
“Another analogy is that banking is a highly regulated industry. Suddenly hospitals have to respond to what’s going on around them, so they decide to plant the flag close to a competitor. That has now ramped up big-time. To the point where you see all over the country billboards sitting out in front of competitor’s hospitals touting the emergency room waiting time. competition has driven the tremendous growth of outpatient healthcare facilities . Given what’s happened in the retail real estate business over the past 5-6 years, there are lots of opportunities for highly visible locations that tout that brand.
Healthcare And Finance Property: Not The Best Neighbors
“There are challenges. Retail space is not usually built to the same quality as is needed when you would build a medical building, and when you get past all the physical challenges that exist, in terms of converting either general office or retail, on the general office side, the biggest challenge we’ve had is tenant relation management. Because if you have a general office building full of accountants, in the case of Florida, a lot of wealth management companies, retirees are visiting their financial advisor every day – the last thing they want to see when an elevator door opens is someone in a wheelchair with an oxygen hose in their nose.”