(As originally published on LinkedIn, 28 February 2017)
Real Estate and Healthcare: A Roadmap to Optimization
By: William Jegher, Senior Vice President and Associate Partner, Transaction Adivsory Services at EY Canada
The real estate of a healthcare facility or hospital simply serves as a means to an end. More specifically, these organizations need real estate simply to serve a need, and owning and operating the real estate is purely a by-product of the core “business.” As a result, few operators spend time considering how to properly optimize their real estate. But it’s certainly worth some thought, as optimizing the real estate footprint of a healthcare facility can often result in cost reduction or even revenue generation opportunities.
Optimizing hospital real estate
The real estate footprint of your typical hospital is usually not optimized, and this isn’t a knock on hospital administrators. Most administrators are bogged down with day-to-day operational concerns and therefore, having the ability to “get up on the balcony” in order to look at the real estate from a strategic angle is difficult, if not impossible. The result is that most real estate management taking place in the healthcare space is not proactive, but reactive.
Master planning your hospital could help ensure a proactive approach toward the optimization of your real estate footprint. Think of a real estate master planning exercise as the following: you would like to put together a 300-piece jigsaw puzzle. Before putting together your puzzle, you need to group the puzzle pieces by colour, by shape or by size, to make it easier to put together that puzzle. Once the pieces are grouped together, you can then begin.
The real estate master planning exercise is quite similar. It would look at the different ways that real estate is being used in a hospital and figure out how to render that real estate as efficient as possible by taking a strategic approach toward the layout of the hospital. This exercise would involve examining the various uses of real estate, understanding if they’re properly optimized and working in concert with each other. In addition, the exercise would evaluate space requirements for existing needs and couple these space requirements with vacancies that may exist.
The long-term real estate plan
Creating a 5 or 10-year real estate master plan is a worthwhile strategic initiative. As part of the master planning exercise, the following could be examined:
- Does a space standard exist for doctors’ offices?
- Are we properly using common areas?
- Is there vacant land that we could use for an expansion project, or if this land is deemed to be in excess of what we need, could we sell it off or sign a ground lease with a complimentary user (for example, a hotel or medical clinic) and generate funds that could be invested back into operations?
- Have we optimized our retail footprint?
The last point noted above is an interesting opportunity for most hospitals. Since beginning to work with hospitals across the country on optimizing their real estate, I’ve been looking at the normal hospital layout through a different lens. I look at it as if it were the ground floor of any office building, or perhaps even a hotel. For example, should there be administrative offices or conference rooms on the ground floor, which you often find to be the case at a lot of hospitals? The answer is no. Your most highly trafficked pedestrian areas should have retail opportunities available that would meet the needs of your users. In this case, that would be hospital administrative employees, doctors, nurses, patients and visitors. While not all retail is appropriate for a hospital, many are -- think coffee shops or restaurants, flower shops, a book store, an optometrist, or tenants of a similar vocation. Optimizing the retail footprint is a great revenue generation opportunity for most hospitals.
Hospital parking up for discussion, too
Many other real estate related opportunities could be looked at in the healthcare space. For example, is your parking operation as optimized as it could be? Several facets related to parking could be examined. Firstly, on the management side, parking operations are often managed by third party managers. However, we have seen success stories with hospitals that have in-sourced parking operations and generated significant savings.
Secondly, are your parking rates for visitors and employees following the specific ministerial guidelines for parking rates for hospitals in your province? Thirdly, is there an opportunity redevelop surface parking lots and then integrate underground parking into this new development? Studying the management of your parking operation can likely result in both revenue generation and cost reduction opportunities.
These are but a few examples as to how the real estate at hospitals could be better used and optimized. After all, creating revenue generation opportunities and implementing cost reduction initiatives will ultimately serve one objective that is a unifying force across all communities: using these newly found funds to invest in patient care.