By: Paula Fowler, Principal, Senior Vice President of Cresa Atlanta
This originally appeared on Cresa Atlanta’s blog.
The nature of the healthcare business is profoundly changing, and trends in the healthcare real estate market are clearly reflecting these changes. The metro-Atlanta market is no exception. As discussed at this month’s CREW Atlanta meeting, large health concerns like WellStar are snapping up huge swaths of property, and non-hospital/medical practice businesses—like Athenahealth, a healthcare IT firm—are proliferating across the metro area. In a reflection of trends city-wide, Athenahealth, which makes internet-based solutions for healthcare providers, currently occupies about 100,000 square feet at Midtown’s Ponce City Market and is considering a 40,000-square-foot expansion.
Speakers at the CREW meeting included Christine Gorham, CCIM, CEO and Partner at Eastwood Real Estate Services, LLC; Michael A. Noto, Senior Vice President, Real Estate Services for Welltower; Robert Simmons, Vice President of Real Estate Management for Piedmont Healthcare; and Thomas E. Rhodes, Chairman and CEO of Meadows & Ohly. As these speakers noted, in addition to companies like Athenahealth, equipment vendors, pharmaceutical companies, and other ancillary healthcare firms are having a decided impact on the metro-Atlanta market.
Meanwhile, healthcare behemoths like WellStar, Northside Hospital, and Children’s Healthcare of Atlanta have learned that, in the hospital business, size matters. A larger enterprise has the leverage to strike favorable deals with health insurers and to negotiate better prices for supplies and equipment.
So, in the interest of getting bigger, the market is seeing quite a bit of consolidation and expansion. For example, two of Atlanta’s biggest hospital systems are planning to create Atlanta’s next “Pill Hill” at Interstate 85 and North Druid Hills Road. According to the proposed plan, Emory University would develop a mixed-use campus on 70 acres at the south side of North Druid Hills in Executive Park. The project’s 2.3 million square feet of new development includes up to 950,000 square feet of new office space; 786,625 square feet of residential development; 337,875 square feet of retail; and 190,860 square feet for a hotel.
Then, on the north side of North Druid Hills, Children’s Healthcare of Atlanta (CHOA) has filed plans with Brookhaven for a 250,000-square-foot, eight-story medical office building and 1,000-space parking deck. Sources familiar with the project say Children’s plans further expansion later to develop a health-care campus along North Druid that could be as large as what Emory is developing, says the Chronicle.
Additional examples of massive real estate deals in the metro area include:
- Nashville, Tenn.-based Healthcare Realty Trust Inc. has agreed to buy 15 medical office buildings in the Atlanta metro area from Meadows & Ohly, LLC for a total purchase price of $612.5 million. Totaling 1.3 million square feet, the properties are located on hospital campuses or are fully leased to three leading health systems in Atlanta. They are 96.2 percent occupied, the Atlanta Business Chronicle reports.
- Duke Realty Corp. has agreed to sell its entire portfolio of medical office buildings, including 11 in Georgia, for $2.8 billion to Healthcare Trust of America Inc.
- Healthcare Realty will buy nine medical office buildings totaling 772,400 square feet on the campuses of WellStar Health System; three medical office buildings totaling 276,700 square feet on the campuses of Piedmont Healthcare; and three medical office buildings totaling 269,400 square feet on the campuses of Gwinnett Medical Center. With this deal, WellStar now has the largest hospital footprint in the metro area.
Additionally, Northside Hospital and Gwinnett Medical Center have been talking for two years about a merger. The deal is far behind schedule, but insiders say that it will come to fruition. Rumor has it that physician contracts at Gwinnett Medical have been difficult to resolve, and that Gwinnett is dissatisfied with the benefits it would receive in the deal.
These projects and deals demonstrate the changing nature of the healthcare business here. Big providers like Northside, Emory, Kennestone, and others used to operate in different areas, maintaining their own markets and refraining from encroaching on others’ “territory.” Various trends, such as the consolidation of the industry and healthcare companies’ acquisition of doctors’ practices, have changed this. Doctors are locating next to the patients they serve, so the hospitals affiliated with them are extending into new locales and competing with other companies in the same area. Moreover, healthcare is becoming more outpatient-based, so healthcare companies are planting their flags in new markets by setting up outpatient facilities. A final reason for expanding into new areas is the fact that many large healthcare systems in Atlanta are becoming landlocked; the only way to expand is to move into new markets.
As Atlanta’s population grows, the demand for healthcare services will grow along with it. Large healthcare systems will likely continue to move toward the patients they serve, rather than requiring patients to come to their large hospital campuses. The industry is constantly in flux, so future trends are hard to predict, but for now, it seems that Big Healthcare will keep getting bigger.
Paula Fowler is a strategic leader and has managed the Cresa Atlanta office for the past 10 years. She is an active member CREW Atlanta and currently serves on the Membership and Networking Committees and is Co-Chair of the Mentoring Program. For more information, contact Paula at firstname.lastname@example.org or 404.446.1589.
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