MOBs: From The Ground Up
Largely driven by healthcare reform and the cost efficiencies of delivering noncritical healthcare at off-campus settings, the booming medical office building (MOB) market is at an all-time high. Considered to be one of the most sought-after product types in commercial real estate today, MOBs saw record sales in 2012, according to Jones Lang LaSalle’s Healthcare Capital Markets practice reports, which project the same for 2013.
With close to $6 billion in MOB sales, totaling 8 billion aggregate square feet, this more than doubles the value of MOB deals closed in 2011, and beats out the market’s former investment peak year in 2007.
“The industry is undergoing fundamental changes that demand higher-quality care, increased integration and collaboration of caregivers, improved efficiency, and reduced costs. To keep pace with these changes, providers are racing to develop MOBs and other outpatient facilities that are designed to better support those objectives,” says Bill Mooney, senior vice president, development, Duke Realty (Indianapolis).
As providers work to develop a continuum of care that’s in sync with emerging reimbursement platforms—where providers receive a bundled payment for fully treating patients from diagnostics to treatment to rehabilitation—MOBs are a great place to house the independent physicians’ practices merging into their networks to provide the full continuum of primary, specialty, and post-hospitalization services.
At the same time, MOBs are morphing from traditional office towers with exam rooms to more developed healthcare spaces with outpatient surgery centers, imaging departments, and other specialty services.
These facilities are also placing providers geographically closer to their patient populations. And in cases where providers lack the capital to develop these properties, there’s no lack of third-party MOB developers willing to step in, develop, and lease the buildings.
When it comes to getting a new MOB project off the ground, Paula Crowley, CEO of national healthcare developer Anchor Health Properties (Wilmington, Del.), explains that the process must include strategic planning that covers knowing a hospital’s market needs, understanding the competition, and completing the necessary financial planning well before the design phase takes place.
Part and parcel of this strategic planning is establishing the right location. Although the property footprint size will vary from project to project, as a general rule, on-campus settings typically require at least two acres for a building pad, while greenfield sites may span 10 acres or more.
John Buescher, senior vice president of healthcare at McCarthy Building Cos. (St. Louis), says that the capacity of surrounding infrastructure like access roads and utilities, not to mention high exposure to passing traffic, will make a particular site more desirable.
Campus planning should also consider parking volumes. Duke Realty’s general rule of thumb for off-campus settings is 10,000 to 12,000 square feet per acre, and a minimum of four cars per 1,000 square feet. The master plan should also include respite areas and outdoor amenities available to patients and staff, Crowley notes. Although such areas don’t need to be large, they should be thoughtfully considered during the project’s early planning stages.
As for assembling the building team, a high level of expertise and healthcare-specific experience is essential, Mooney says. “With the pace of change in today’s healthcare industry, this team also needs to be nimble and able to adjust as development proceeds.”
Focus on MEP
While business-occupancy MOBs, where the building houses mostly offices and basic exam rooms, are quite similar to office buildings from an engineering perspective, these properties are evolving into much more medically intensive environments and may house services such as imaging. As such, specifications like higher air change requirements and more robust fire protection have become part of the equation.
Along these lines, floor-to-floor heights are typically higher in order to accommodate greater mechanical and electrical needs, air flow, and exhaust. Electrical and plumbing loads are also more significant, and emergency power and special equipment must be factored in, as well.
“Medical office space should offer a more modular approach with structural column layout to allow for changes in future use,” says Mike Pedersen, construction executive at Mortenson Construction (Minneapolis). “These buildings are often part of a health system’s campus plan, which can challenge the project design team with the integration of traffic and pedestrian wayfinding, as well as the marriage of office and hospital campus aesthetics.”
In cases where the facility will house imaging equipment, there are major ramifications for structural design. Additional steel support for the equipment or placement of the equipment in a specific location within the building may be required, Crowley says.
For example, it may be strategic to place the MRIs and CTs on an exterior wall on the ground floor to both minimize structural needs and enable easy maintenance and future equipment replacement access.
In addition, imaging equipment rooms will have higher HVAC loads in order to deal with the extra heat produced by the equipment and ensure a comfortable room temperature for patients. As such, the structural and MEP engineers must collaborate on the location and design of these spaces.
Regardless of which medical services and equipment are housed inside, MOBs are viewed by owners as revenue-generating properties. As such, developers and providers have a keen interest in expedited project delivery.
In order to accomplish this, Buescher recommends a design-build approach where the building team, including subcontractors, are involved in the process early on. Speed to market and low cost are main drivers, especially on projects that are investment properties.
In addition, Crowley stresses the importance of making sure that all building team members understand the strategy, design intent, and budget from the project’s inception in order to make sure that things run smoothly.
This includes qualifying all team members to deliver on expectations, work through design charrettes with stakeholders, and ensure regularly scheduled opportunities to communicate with one another, Mooney adds.
Mortenson often establishes “critical elements of success” project goals, which are developed by the team and ultimately used to evaluate project decisions. “Key goals often include providing a welcoming environment to support the continuum of care, designing a flexible facility to accommodate growth and change, and developing the most operationally efficient space,” Pederson says.
On the horizon
Looking at the big picture, the Urban Land Institute projects that the healthcare market will require approximately 64 million square feet of additional medical office space within the next decade.
“This trend toward outpatient care and wellness is expected to continue, so these facilities will continue to be hot over the next few years,” says Brian Garbecki, healthcare COE leader, Gilbane Building Co. (Boston).
Case study: Good Samaritan Regional Health Center MOB
As part of a major $237 million replacement hospital project for Good Samaritan Regional Health Center in Mount Vernon, Ill., a 141,000-square-foot MOB houses outpatient diagnostic services and a surgery center, opening in January.
“The first item that the construction team had to coordinate early, from a cost and schedule perspective, was if and how to segregate the services required for the MOB, including mechanical, electrical, and fire protection systems,” says John Buescher, senior vice president of healthcare, McCarthy Building Cos. “It was determined that the MOB would have all of its own systems, separate from the hospital’s.”
Even though the MOB was connected to the hospital, it was treated like its own project with dedicated supervision and control. As such, the project team involved key subcontractors in the project’s early phases and, in some cases, captured significant savings.
For example, by bringing in the rebar installer early on and pooling expertise with the structural engineer, the team hit upon the idea of going with a different layout, which was more efficient to install, while still achieving the same performance results.
In another case, “When a limestone seam was missed on the geotechnical reports, McCarthy incorporated changes to the drilled pier foundation that resulted in less additional drilling through the limestone and less cost to the owner,” Buescher says.
Barbara Horwitz-Bennett is a contributing editor for Healthcare Design. She can be reached at email@example.com.
For more on MEP planning for MOBs, see “MOBs: Systems for Growth.”