Investing in new real estate

As the federal government continues to cut reimbursements and private insurers follow suit, many CFOs are having a hard time justifying buying new property to expand services, however, in some cases, it shouldn’t be ruled out.

As a general rule, Jeff Hoffman, a senior partner at the consulting firm Kurt Salmon, has been discouraging clients from buying new property or building new facilities, but during an interview with Healthcare Finance News, he readily admits there are always exceptions to the rule. “If you have a depleted asset, if you have an old hospital or an old ambulatory care building and it’s not very functional,” it makes sense to spend capital to rebuild them, he said.

Another scenario in which hospitals should invest in new buildings is when you need to create a highly specialized treatment facility, said Marisa Manley, president of Healthcare Real Estate Advisors in New York.

One hospital she is familiar with made the decision to build new facilities because very costly equipment was needed and specialized structures to control radiation exposure needed to be created.

But building or buying new is not the only option for hospitals looking at adding real estate.

Repurposing or adaptive reuse of other types of buildings is a trend cited by Duke Realty, a large player in commercial real estate headquartered in Indianapolis. “Repurposing enables health systems to more quickly and cost-effectively go to market than if they were to build a new facility,” the Indianapolis-headquartered company noted in a press release about real estate trends in healthcare. Another option is buying medical facilities that have closed and repurposing those.