Malcolm Sina, president & CEO of The DASCO Companies, a medical real estate development firm, discusses hospital construction after the recession.
Q: The combination of a depressed bond market and fear of decreased reimbursements after healthcare reform have created an almost perfect storm of uncertainty for hospital finances. Are you finding this is making hospitals more conservative with construction and renovation plans?
Malcolm Sina: The bond market has certainly improved since the end of 2008 after the Lehman Brothers collapse and the global financial crisis, but it's still not all the way back. With healthcare reform, you have a lot of uncertainty in the market place regarding physician and hospital reimbursement as the specific rules governing reform have yet to be written. At the same time, returns on hospital investments have been depleted because of the stock market crash. All of this limits capital spending by hospitals, and creates an opportunity for third-party development companies to provide their resources and expertise to help hospitals deliver capital projects that may have been shelved or deferred.
Q: How do third-party development firms help hospitals that wish to conserve their capital?
MS: Hospital construction projects involve a variety of complex activities including feasibility studies, financing, site plan approvals with municipalities, selecting an architect and hiring a contractor. Hospitals typically have a very limited amount of people who can dedicate themselves to these projects, whereas development companies have these resources. The use of a third-party developer really comes down to what is the best use of a hospital's capital. In most cases the hospitals determine that rather than use bonding capacity on something they can outsource, they'd rather use that on their core businesses.
Q: If a hospital decides to outsource a construction project, what are some considerations for selecting a third-party developer?
MS: Hospitals should look for groups that have been in business a long time and have experience specifically in the healthcare real estate market. In difficult economic times, there tend to be newcomers coming in from various markets. The real estate market is very depressed right now, except for healthcare. As a result, a lot of office building and some residential developers are entering the healthcare space. Hospitals need to be aware of that and look for firms that have a track record in closing properties they are awarded in the particular project type they are looking to develop and have a history of maintaining strong relationships between hospitals and physicians.
Learn more about The DASCO Companies.
Q: The combination of a depressed bond market and fear of decreased reimbursements after healthcare reform have created an almost perfect storm of uncertainty for hospital finances. Are you finding this is making hospitals more conservative with construction and renovation plans?
Malcolm Sina: The bond market has certainly improved since the end of 2008 after the Lehman Brothers collapse and the global financial crisis, but it's still not all the way back. With healthcare reform, you have a lot of uncertainty in the market place regarding physician and hospital reimbursement as the specific rules governing reform have yet to be written. At the same time, returns on hospital investments have been depleted because of the stock market crash. All of this limits capital spending by hospitals, and creates an opportunity for third-party development companies to provide their resources and expertise to help hospitals deliver capital projects that may have been shelved or deferred.
Q: How do third-party development firms help hospitals that wish to conserve their capital?
MS: Hospital construction projects involve a variety of complex activities including feasibility studies, financing, site plan approvals with municipalities, selecting an architect and hiring a contractor. Hospitals typically have a very limited amount of people who can dedicate themselves to these projects, whereas development companies have these resources. The use of a third-party developer really comes down to what is the best use of a hospital's capital. In most cases the hospitals determine that rather than use bonding capacity on something they can outsource, they'd rather use that on their core businesses.
Q: If a hospital decides to outsource a construction project, what are some considerations for selecting a third-party developer?
MS: Hospitals should look for groups that have been in business a long time and have experience specifically in the healthcare real estate market. In difficult economic times, there tend to be newcomers coming in from various markets. The real estate market is very depressed right now, except for healthcare. As a result, a lot of office building and some residential developers are entering the healthcare space. Hospitals need to be aware of that and look for firms that have a track record in closing properties they are awarded in the particular project type they are looking to develop and have a history of maintaining strong relationships between hospitals and physicians.
Learn more about The DASCO Companies.