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It’s Not Just an Office Building with Doctors: How Managing Healthcare Assets Differs from Other Commercial Assets

By Lorie Damon, Managing Director

Staff in Hall

A parade of screaming, sick children. A dead body on a gurney in a public hall. A mother giving birth in an elevator. It’s not a movie, but simply another day in the life of a medical office building.

Managing any commercial office building or public facility has its challenges. Medical Office Building (MOB) property managers, however, encounter a unique set of trials and tribulations not seen in garden-variety property management. An informal survey of Cushman & Wakefield MOB property managers reveals a few common themes: MOBs are very busy—seeing much heavier foot traffic than traditional commercial office buildings; proper cleaning is critical; and leasing activities are highly regulated.

In contrast to conventional office buildings, medical office buildings are often high-traffic spaces. Physician tenants receive a constant flow of patients, beginning very early in the morning and continuing throughout the day. A high percentage of building visitors are children—sick children—unhappy with their circumstances, escorted by directionally challenged and frazzled caregivers. Depending on its location, an MOB may receive visitors from across a broad socio-economic spectrum, highlighting the importance of convenient public transportation and a supportive building staff. With all of those visitors, MOBs use a tremendous amount of paper products and hand soap!

Considering all that traffic, medical office buildings are bound to get dirty. Janitorial services are vitally important in any building, but in a medical office building, proper cleaning could be a matter of life and death. Exam rooms exposed to infectious diseases, bed bugs, and dangerous viruses must be sealed and methodically cleaned from floor to ceiling before another patient is seen. Blood, vomit, and other body fluids are common clean-up calls and must be handled according to stringent protocol. Most MOBs have a greater hard floor-to-carpet ratio compared to a typical office building, extending the overnight cleaning time and subsequent cost. Spaces housing sensitive medical records may require special scheduling or supervision for cleaning. Also, of course, disposal of medical waste—aka “red bags”—has its own set of critical rules.

Finally, unlike ordinary buildings, leasing space in a medical office building is a highly regulated affair. Federal law requires health systems leasing space to physician tenants to comply with strict guidelines controlling referrals and kick-backs to hospitals. Stark law and anti-kickback regulations require lease rates to mirror Fair Market Value (FMV) rates—typically determined by a third-party evaluator. As a result, room for negotiating lease rates is small, and factors that might not impact commercial leases, such as access and use of diagnostic equipment (MRI, CT scan, lab services) may be factored into the lease rates. With these regulations and requirements, managing an MOB lease portfolio can be quite labor intensive with multiple layers of oversight, ensuring the client remains compliant and avoids costly fines. Timeshares—space sharing by physicians, particularly in remote locations—add lease administration intensity.

Managing a medical office building is not for the faint-of-heart. Although maintaining a strong relationship with tenants, developing a deep bench of well-trained technicians and service providers, and harboring a flexible attitude can make the craziest of days a little easier to manage.

Contributors:
Jane DiCampo, Marketing Coordinator, Healthcare Practice Group
Renee Audet, Senior Property Manager, BJC Healthcare account
Trey Boyd, Associate Vice President, Account Manager, HCA
Susanne Ingegno, Senior Vice President, Account Manager, IU Health
Scott Sindall, Senior Property Manager, Account Manager, Anne Arundel Health System

 


Damon, Lorie-croppedLorie leads Cushman & Wakefield’s Healthcare Practice Group, working with team members and clients across the country to promote leadership and best practices in leasing and asset management across the continuum of healthcare assets.

 

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