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Better to be on campus or off? Debate grows

For real estate investors, buying or developing properties on a hospital campus has long been considered part of a strategy to reduce risk.

But as health care systems and medical office developers figure out how to best deliver services in the era of Obamacare and changes to federal reimbursements, one of the debates emerging within the industry is whether to locate new facilities off campus.

In some cases, health care systems are now looking to create a “hub-and-spoke” system, says Greg Venn, CEO of Denver-based medical office developer NexCore Group.

In that scenario, the systems deliver a wide range of care in outpatient facilities in the community to extend their market share, but still perform major procedures on campus.

“I think health care will be located in retail-like locations, especially where there's newer suburban growth around the country,” he says.

Moving off campus could become a preferred strategy, says Marisa Manley, president of New York-based Healthcare Real Estate Advisors, which provides consultation services and tenant representation for health care space users.

“Hospitals think that their primary revenue growth is going to come from ambulatory services, which means they could be provided off campus,” she suggests.

Some of the earliest opportunities to establish a satellite presence are occurring at vacated retail centers. In December, Knoxville, Tenn.-based Mercy Health Partners completed a $2.3 million renovation that transformed a former Food City grocery store in south Knoxville into a 37,000 sq. ft. medical office and diagnostic center.

Similarly, in 2009 the Vanderbilt University Medical Center rehabbed nearly half of the 880,000 sq. ft. 100 Oaks Mall in Nashville. The $64 million project converted a part of the struggling mall into clinical and support space while conventional retail tenants continue to lease the balance.

A widespread shift toward off-campus locations is far from certain, says Shawn Janus, managing director with the national health care group for Chicago-based Jones Lang LaSalle.

A successful investment in off-campus medical offices or other facilities will ultimately hinge on the quality of the health care system anchoring the property, adds Janus.

“Investors are really evaluating whether they need to be on a hospital campus,” says Janus. “It's an interesting dynamic that's being sorted out as we speak.”

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