As hospitals scramble to enhance delivery of healthcare, improve efficiencies and wring more income from operations, many are re-examining the performance of their real estate holdings. Medical office buildings, in particular, are drawing considerable attention.
- Managing relationships with tenant physicians
- Providing a highly professional environment
- Maximizing occupancy
- Maintaining competitive rates
- Enhancing MOB value through asset management
- Designing and reconfiguring space to achieve optimal patient flow
Third-party managers grow and maintain MOB occupancy through tenant retention, marketing campaigns and collaborating with the hospitals recruiters. Advertising, strong hospital relations and detailed market studies are integral to these efforts.
Third-party management companies that focus solely on medical office buildings have a tremendous advantage. They combine an in-depth understanding of the healthcare industry and healthcare professionals with property management expertise and experience. In addition, they are acutely aware of local market conditions and trends, competitive rates, lease terms, and incentives such as tenant improvement allowances. Their ability to nimbly adjust to market shifts in order to keep the hospitals MOB competitive is one of their greatest strengths. Third-party management companies that specialize in healthcare also excel in achieving optimal tenant mix. They understand referral patterns, so if the sponsoring hospital is known as a leader in orthopedics and cardiology, the MOBs management firm would work with the hospital to bring in generalists and specialists in these fields in order to expand the potential referral network for the hospital and augment the practices with ancillary services such as a physical therapy tenant. Space planning and construction management for new physician tenants is another area where management firms shine. Cost-effective reconfiguration of office space that delivers a top-notch suite not only attracts physicians, it improves retention and the hospitals bottom line. MOBs are often consolidated along with other real estate and business units in hospitals financial reports. This makes it difficult to zero in on a MOBs performance and limits the ability to track trends. When a third-party management company oversees an MOB, asset management is one of the focal points. Budgeting, monthly financial statements, overseeing operating accounts, tax assessment reviews, preparing partnership reports, invoicing, accounting services, risk management, and negotiating contracts with property service vendors are critical to improving and maintaining the MOBs performance. Two examples of how a management firm helped revitalize a hospitals MOB illustrate the value of specialized expertise. In the first case, a hospital MOB was rapidly losing tenants even though the building was in a prominent location and was recognized throughout the surrounding community as an integral part of the hospital system. After the MOBs occupancy dipped to about 60%, a third-party management company was brought in. Following a comprehensive assessment that linked the buildings aging condition to the loss in market share, the management firm received approval to oversee a major renovation. At the same time, the firm launched an aggressive marketing campaign to draw new physician tenants. Three years later, with a newly remodeled building, occupancy approaching 90% with physicians supporting the hospital and a robust financial performance, the hospital sold the MOB for a sizeable gain. Another hospital owned a MOB that was doing well with about 90% occupancy, but it was not generating the expected return. The newly hired management firm quickly concluded that rents had slid well below the market rate, with tenants in some cases paying less than half the going rate. Anticipating physician resistance to higher rents, the management firm convinced the hospital to refurbish the building before rent increases were implemented. When tenants objected to the higher rates, the management company countered by citing market studies that confirmed the rates were comparable to those throughout the area. And after upgrading the building, it was equivalent to the competitors. While there was a bit of grousing, most of the physicians recognized the new rates were in line with the market and renewed their leases. Because the MOB was located on the campus of a highly regarded hospital, physicians were reluctant to leave, particularly after the renovations significantly improved their common areas and suites. With the considerable challenges facing hospitals today, shifting the operational responsibilities for medical office buildings to a third-party management company can bring additional benefits. The hospital now has the opportunity to reallocate personnel away from the MOB and, in some cases, to reduce its payroll expense. Another advantage is that the hospital has the opportunity to conduct an objective study of its existing lease portfolio and may benefit from a lease administration program, which assures that tenants are being billed in accordance with the lease Third-party managers provide specialized expertise in property and asset management, leasing and marketing, financial reporting, and space planning and construction management. These professionals have a thorough understanding of the needs of hospitals and are extremely adept in managing relationships with physicians.
