Medical Real Estate Booming Along

ALBUQUERQUE, N.M. — Shifting demographics, an aging population and an increasing need for medical services are driving significant activity in the Albuquerque health care office sector.

Some current and future projects include a large hospital system investing in outpatient clinics to reduce the patient crunch in emergency rooms; a dental practice expanding its fast-growing pediatric business; an out-of-state investor opening a skilled-nursing facility; a health care support company taking a large footprint in a Downtown office building; and a new-to-New Mexico Medicaid provider backfilling an empty Northeast Heights office building.

Developers like Scott Throckmorton are well aware of how strong demand has been for health care space. His firm, ARGUS Investment Realty, has been an active player in medical real estate leasing, sales and construction for more than a decade, bringing health care-oriented companies and properties together.

Health care-related tenants’ appetites for properties in the area are not abating, Throckmorton said. He estimated the value of the new construction and remodels in recent years in “the tens of millions of dollars.”

There are particular advantages to specializing in health care real estate, Throckmorton said, not the least of which is capitalizing on the continuing demand. Those needs are skyrocketing due to demographic trends and legislation that has brought many more New Mexicans into the insurance fold.

“It’s been a pretty resilient market,” Throckmorton said.

The development sector in general is profiting from the demand. That includes businesses like Throckmorton’s – matchmaking tenants to new buildings like the Lovelace Clinic in Independence Square or helping them find office space to support expansions – along with architectural and design firms and builders.

Filling up spaces

The latest addition to one of ARGUS’ Downtown properties – the Bank of the West Center – is Carenet Healthcare Services, a Texas-based health care support company, which is expanding to Albuquerque with plans for 244 jobs over the next five years.

The San Antonio-based firm will invest $3 million in the property at 303 Roma NW and an adjoining building, where Carenet employees will occupy nearly 24,000 square feet of space. The sum includes a 10-year lease, tenant improvements, furniture, fixtures and equipment, according to information provided by Albuquerque Economic Development Inc.

“Carenet has a particular challenge: They want all their employees on the same floor,” Throckmorton said. The design and construction team had to get creative, figuring out a solution that involved connecting to the third floor of an adjacent building at 500 4th NW.

Already in the 230,000-square-foot Roma building is DaVita Medical Group, which located its New Mexico corporate headquarters in the building after extensive tenant improvements. With Carenet leasing up, Throckmorton said 35 to 40 percent of the building’s tenants are medical/office focused, and the 10-story structure is now 93 percent leased.

Throckmorton recently brokered another deal across town for Western Sky Community Care – the New Mexico entity of Centene Corp., which will help manage the state’s Medicaid program, along with Blue Cross Blue Shield of New Mexico and Presbyterian Health Plan, beginning in January. Western Sky is taking over a vacant, 60,000-square-foot office building at 5300 Homestead NE, with Klinger Constructors handling extensive tenant improvements at the site.

According to the Kaiser Family Foundation, New Mexico now has the second-highest percentage of residents served by Medicaid, and it’s estimated that in the near future that one in two New Mexicans will be served by Medicaid.

Throckmorton said Western Sky is projecting 350 employees at the Albuquerque site once the insurer is fully ramped up.

Not far from that project, Presbyterian has wrapped up a $20 million addition to its corporate headquarters in North Albuquerque to accommodate several hundred new employees expected to handle Medicaid management services for a future North Carolina venture.

“Back office medical (as a category) has really been strong, what with the Presbyterian project” and others coming on line, said Dan Newman of CBRE in New Mexico, whose crew represented the landlord on the Centene deal.

“A lot of staffing goes along with that,” he said of the insurer’s arrival in New Mexico.

Also benefitting from their entry in the market: construction services providers, IT vendors, and sellers of office furniture.

Crunching the numbers

How much space is devoted entirely to medical-related uses in Albuquerque is a hard number to crunch. When CBRE New Mexico compiles its quarterly research reports, its statistics do not include medical office buildings owned and occupied by entities like Presbyterian and UNMH or buildings 100 percent leased to medical users.

However, the numbers do include medical users leasing general office buildings.

For example, Lovelace leases a sizable space in Altura Building at 4101 Indian School NE, which is included in CBRE’s office statistics. Smaller medical users, such as dermatologists, dentists, and eye doctors, are also included in the numbers if they lease general office buildings.

CBRE said it doesn’t have the exact square footage occupied by medical users but hazards a rough estimate: approximately 3 percent of the 13 million square feet of office space the firm tracks in the metro area.

In its first-ever report on U.S. medical office buildings, national CBRE research notes that the vacancy rate for MOBs has tightened steadily since 2010, to its current level of 8 percent, a record low for the sector and well below the 13 percent average vacancy rate for the U.S. office market.

Cushman & Wakefield in a recent report said 11 million square feet of projects affiliated with health systems were under construction in 2017, along with another 13 million square feet of standalone health care projects not affiliated with any health system.

In Albuquerque, that would include the recently completed Smiles for Kids orthodontics building at Eagle Ranch Road and Paseo del Norte NW, which is right next door to an existing Smiles for Kids pediatric dental practice.

Helming both projects was Insight Construction. Damian Chimenti, the company’s CEO, said remodels of medical spaces as well as new construction in some years accounts for “easily half our business” in terms of annual revenue.

“It’s a niche that helped build Insight,” said Chimenti, whose company was born in the recession of 2008.

He said the business has benefited from renovations and expansions for clients like Lovelace and Presbyterian. Some of Insight’s other clients are Eye Associates in Los Lunas and HME Specialists in the Journal Center, and the firm also recently transformed a former office building in Uptown into an outpatient physical therapy clinic for New Mexico Orthopaedics.

“The work has been steady,” Chimenti said. “We’re pleased that there’s a perception in the marketplace that we have this level of expertise,” he said. “It’s a little more stressful than working at a strip mall,” he said of the remodels for medical clients. For example, “If we’re working in a hospital (during business hours), we have to be very careful not to kill the power or hit the wrong pipe,” he said.

Outpatient facilities

CBRE researchers note that providers are attempting to stem perennially increasing health care expenditures by moving more patient volume away from hospitals and toward more cost-effective outpatient facilities, such as medical office buildings and urgent-care centers – a trend that is catching on in Albuquerque.

For example, three freestanding medical clinics are being planned by Presbyterian Healthcare Services, each of which will offer urgent and emergency care under one roof: one at San Pedro and Paseo NE; another on the West Side at Coors and Learning NW in the first half of 2019; and an Uptown location that has not yet been chosen. Construction costs for the 12,500-square-foot clinics will be between $3.5 million and $4 million each, according to a Presbyterian spokeswoman.

While it’s a hybrid model that’s caught on in other U.S. markets, combining urgent care and emergency medical services in the same building is a concept that’s new to Albuquerque, said Dr. Darren Shafer, Presbyterian’s medical director of emergency medicine. The emergency clinics will be open 24/7, and the urgent care side will be open into the late evening hours.

Also looking to expand services soon will be a 1,665-square-foot outpatient rehabilitation clinic operated by Lovelace UNM Rehabilitation Hospital at 4250 Coors SW. The clinic will begin seeing patients on June 11. Lovelace/UNM invested $250,000 in tenant improvements.

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