Tag Archives: use

Planning a Medical Real Estate Development

Posted on by
Reply

Land development for the purposes of building a facility is a complicated process with several stages involving multiple parties and encompassing many financial risks. The process consists of a series of actions from that of land purchase to leasing, construction and sale, but most of the items that pertain to development occur prior to land acquisition.

While the process of healthcare real estate development planning will differ based on medical type, the preferred series of events is one which eliminates risk early through pre-construction commitments for leasing, permanent financing and potential final sale. Prior to initiating the development process, it is necessary to analyze how the development will assimilate into its market. Planning for a medical development requires the consideration of these general principles:

Land Analysis – A potential medical development site has physical characteristics that make it more or less adaptable for a specific use. These include the terrain, dirt composition for land, its shape and size, accessibility, neighboring residential areas and appearance of surrounding land uses.

Planning Commissions – Zoning and city planning will limit certain types of medical development that may be permitted or refer to the process for change to these requirements. An aspect for the approval of a project consists on how the community will accept the development and what will be received in terms of quality, appearance and use. In most cases, developers will be required to identify who the principals are and how approval and how the structure is arranged for project completion.

Market Analysis – Because the market ultimately determines the success or failure of the developed medical project, initial planning should assess demographics, patient or trade area, competitive projects and supply of demand.

Financing – Identifying the potential lenders, equity participants, terms and interest rates, along with the developers level of participation should be outlined early in the process. All too often the original plan is modified or entirely changed by lending requirements.

Uses – While specialized medical development is difficult to reconfigure for alternative uses, determining whether the facility may be re-adapted easily should be outlined early.

Site Selection – Consideration for the medical site’s capacity should includes tests of layouts and site coverage arrangements required by zoning and certain users. Analyzing parking areas, access roads, utilities, floor and common area ratios and building-to-site ratios are specific requirements that will alter the original development.

Highest and Best Use – A few tests may help to determine the feasibility of a medical development for a certain area. Whether the development is physically possible, legally and economically achievable and maximally productive should be applied to the site analysis. This examination should take into consideration development costs, assumptions for financing and potential revenues, and subject to multiple variables.

Development Plan – The healthcare real estate master plan embodies the assemblage of land, the layout of the development and its phases, parcel configuration(s), and ingress and egress from on and off-site components.

Visual Identification – Initial architectural drawings and graphic layouts of the medical project should be prepared to illustrate the results of each item within the master plan.

Financial Proforma – With the specific items and costs identified, the planning unit must ready a financial projection that chronicles such costs, the project’s funding sources, project revenues and investment returns for the entire project.

Marketing Strategy - The marketing procedure chosen for the project will help to identify the project’s place in the market. It will highlight the themes of the marketing plan and provide a strategy for marketing implementation to ensure the success of the project.

Implementation - Lastly, the itemized agenda includes all of the development steps, time management goals, the members to the development and responsibilities of each.

In January 2013, MREA will highlight the process of securing, permitting, construction and potential sale of a medical real estate development. If you have not already, please click the orange RSS icon at the top right of this web log to have our posts delivered to your inbox or preferred reader.

About these ads

Healthcare Facility Leasing FAQs

Posted on by
Reply

We are commonly asked questions that pertain to concerns which are healthcare industry-specific, yet we can always find a way these issues relate back to the contractual obligations of real estate commitments.  As a courtesy to those that are seeking guidance explicitly for when the rubber meets the road (real estate meets healthcare), we have provided some fairly uncomplicated scenarios that will likely exist in a health facility lease transaction.

Landlord Vs. HIPAA
Commonly, a lease agreement will allow the landlord entry onto the premises for the purposes of inspections and repairs.  HIPAA provides guidelines to protect medical records and personal health information.  A lease within a medical facility will typically provide that the landlord may not enter an exam room with patients present.  Further, most leases will indicate that any location within the spatial premises leased by the tenant, if entered, will have the potential to breach privacy or confidentiality of patients or medical records.

Tenant Vs. Medical Waste
A medical lease agreement will typically include a provision that prohibits a tenant from using or storing any hazardous materials on the property without the consent of the landlord.  If the tenant will require the use of such materials, the lease will commonly indicate that the materials commonly used in concert with the permitted use of the leased premises will be allowed, as long as the materials are stored in compliance with strict regulatory commitments.

As for the disposal of hazardous waste, leases commonly provide that the landlord will be responsible for janitorial services, but will require the tenant to arrange for its own disposal of medical waste.

Stark Law Vs. Landlord/Tenant
It is important to consider if a relationship exists that has the ability to breach Stark laws, or potentially, Texas law.  The Anti-Kickback Statute deems it a felony to offer, tender or receive fee, or compensation, if the payment is determined to influence referrals for patients.  So, it is important for a lease to exist and to comply with the following:

  1. Be in Writing
  2. Identify the Premises
  3. Term of Lease at Least 1 Year
  4. If Interval (Time Share, etc), Lease to Specify Schedule and Rent for Interval
  5. Rent must be Fair Market Value

Permitted Use Vs. Technology
A lease agreement will include a permitted use provision that restricts the use of the space to certain business operations.  Yet, a tenant wants to maintain flexibility, especially with the newly minted technological changes that are required to adapt and compete within a specialty.  So, a tenant wants the provision to be as broad as possible, while a landlord seeks to restrict the use to improve tenant mix and provide other tenants with exclusive rights.  While a rare bone of contention today, technology will eventually force tenants to seek very general, or highly specific opportunities.

Building Vs. Equipment
The medical industry has some of the most cumbersome and demanding equipment.  It requires specific attention when placing on the premises of a multi-story structure.  Thus, some buildings have special provisions for weight distribution or electrical capacity.  The location and installation of necessary landlord and tenant is commonly addressed in lease.

Improvements Vs Landlord/Tenant
The lease agreement will provide how each party will become responsible for design, materials and installation of the tenant’s improvements.  While a highly negotiable item within the lease, it should determine the control of implementation and ownership of improvements.

Lease Vs. Physician Practice
A greater number of leases are requiring personal guaranties from key members within a physician group for the purposes of adherence to contractual obligations.  With more physicians defecting to hospitals, merging practices, or even leaving certain jurisdictions, we are noticing considerations for physicians to be released from guaranty if the leave the practice, while including those that enter.  Other limits include guaranty amounts proportionate to ownership share of practice.

These are abbreviated responses to a few common inquiries pertaining to medical real estate, none of which constitute legal advice.  Please make sure to contact Robert S. “Bob” Lowery for guidance with your healthcare real estate decisions.