Hospitals create additional demand for use of land and existing buildings

While competition is alive and well in the healthcare industry, the congregation of facilities in close proximity to each other at the site level is usually driven by some form of working partnership between the users, said Hank Kelley, CEO of Kelley & Flake Commercial Inc., a real estate firm in Little Rock.

“Having a ‘Medical Corridor’ like we have in Little Rock brings a regional rather than local emphasis to each facility and the city, as well,” Kelley said. “When we introduce new business owners to our region, we point with pride to the excellent medical facilities that line up on I-630 starting with Children’s Hospital in the downtown area, The Veterans Hospital, the University of Arkansas for Medical Sciences (UAMS) and CHI St. Vincent in the Midtown area, and CARTI, Baptist Health and the Arkansas Heart Hospital in West Little Rock, all connected by I-630 and I-430 for ease of access.”

Kelley said this medical corridor and the individual healthcare facilities within this area are one of the most important distinguishing characteristics to the economy in Central Arkansas and the state.

The economic development does not end at the doors of the healthcare facilities. Large healthcare facilities serve as anchors to the neighborhoods where they locate.

“There is no doubt they create additional demand for use of land and existing buildings in the area,” Kelley said. “An example of this is the new NEA hospital in Jonesboro. A healthcare facility serves as a different type of anchor than a large retail user, but they do attract other businesses. Medical users want to be in the same area.”

Restaurants and other specialty service retailers are particularly drawn to the traffic associated with medical facilities. Medical specialists who admit patients to the healthcare facility are also attracted to locate in the area.

“Some medical users who admit patients to more than one hospital will resist locating on a specific campus location to avoid the view they are exclusive to a particular hospital,” Kelley said. “But healthcare systems are active in the acquisition of medical practices and those clinics will likely locate as close to the healthcare facility as possible.”

The old real estate saying that it is all about “location, location, location” is never more true than with healthcare real estate. It is vital that the facilities be located near major roads or interstates.

“It is extremely important that a regional patient can find the facility with minimum instructions and turns from the primary highway system,” Kelley said. “Patients can be intimidated by secondary road systems and congested traffic if they are not accustomed to it in their daily life. We always evaluate the ease of access and visibility of various sites before making a recommendation to our medical clients about the real estate they need.”

Proximity to major roads or intersections is particularly important in largely rural Arkansas, which has Little Rock as the medical hub for the state.

“Many patients come in from rural locations outside of the central Arkansas area so, geographically, the easier the access, the better,” said James Harkins, a partner with Flake & Kelley. “This would be especially true for those patients who are coming in for life-saving treatments such as those needed for cancer. The location of the CARTI is a prime example of a well-located facility as this is located just off of I-630 at the Barrow Road exit. As people come into the community for these types of treatments, there is already enough stress in their lives. This does not need to be exacerbated by having a treatment facility that is hard to access.”

Healthcare real estate is some of the more expensive property. In addition to needing to be located on major roads, costs are driven by the specialization of the finish of the building with more mechanical and electrical needs than a traditional office space. This category of real estate also contains risk when dealing with the retrofit of space from one clinical user to another as leases expire.

Companies building new hospitals usually buy additional land surrounding the facility.

“They want enough land to be able to expand, as well as potentially sell outparcels for groups where it is mutually beneficial,” Harkins said. “The hospitals really want physicians on their campus who can generate revenue for the hospital, as well as grow their own practice.”

Because of recent changes in healthcare laws, there is increased interest by physician groups in locating near hospital campuses.

“Physicians are interested in close proximity to hospital campuses,” Harkins said. “There are additional guidelines that physicians are required to follow, additional back office needs, and additional compliance needs. What you see is physician groups, especially specialists, moving closer to campuses and partnering up with other physicians to have a set referral base. Having a referral base, hospital and other physicians together helps offset the additional cost of compliance and instability in not having that referral in place.”

Expansions for medical office buildings can be driven by hospitals.

“We have seen hospitals themselves be the catalyst for medical office buildings, and some physicians chose to be employees of larger medical system in order to really focus on what they do, which is to treat patients, not get bogged down with compliance and administration issue,” Harkins said.

There can also be synergies from a number of varying specialty healthcare facilities being in close proximity. Specialists can benefit from a robust referral base.

“And the benefits to the patients are positive in that if numerous treatments are required, their travel time can be cut down substantially if they are able to remain on one campus or in one location for all treatments,” he said.

Right now in Arkansas there is a lot of excitement with the new $90 million CARTI Cancer Center that is expected to be complete in the fall. The facility is being leased and managed by Flake & Kelley. Harkins said there is also a lot going on in Conway where a new Baptist Health Hospital is planned.

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