Health Care/Life Sciences Development: Both Sides Speak

The Urban Land Institute’s new Health Care and Life Sciences Council formed to bring private sector developers and investors together with institutional representatives, as well as architects and other consultants, in order to share knowledge and ideas unique to these asset classes. Three of the council’s organizers, on both the developer and the institutional sides, offer some best practices for successfully developing and managing medical and life sciences real estate.

How can developers and investors create successful partnerships with institutions?

Peter Calkins, executive vice president and chief operating officer of Forest City’s Science + Technology Group in Cambridge, Massachusetts:

It’s important to understand the objectives of the institution that you’re working with—both the practical and the financial objectives. Are they looking for a partner, or just a service provider? Try to understand their long-term and near-term goals. Do those coincide? One institution we sought to work with, for example, appeared to appreciate our suggested approach for partnering with them to strategically address a long-term campus objective, but in the end simply opted for meeting the immediate perceived need at the lowest proposed cost. Once the goals have been established, consider how you, as a commercial developer, can structure your approach to achieve those goals in a way that works for both you and the institution.

Some institutions think developers are a magic bullet—that we can deliver to their project the technology companies who have leased space in our previous projects. Although we may have established some strong connections with users, we don’t have control over tenants. They will decide on their own where they can best locate to support the needs of their business in the foreseeable future.

If you’re going to partner with an institution on a life sciences or research park, it is important to make sure the project has the strong support of the top leadership at the institution. And there are a number of other key players—vice presidents for research, provosts, tech transfer, deans of the major academic facilities—all of whom need to be fully committed to the enterprise. We’ve been involved in situations where this hasn’t really been the case, and it’s much more challenging. Finding ways to spend time with these individuals, and to strategize together about what success looks like to both the institution and the research park, is a critical and highly worthwhile activity.

Eric Fischer, principal of Trammell Crow Company in Washington, D.C.:

First of all, you need to have a strong commitment to the sector. The developer’s knowledge and understanding of the inherent development and capital risks in medical real estate development are essential. The margin for error and the chance of having unsuccessful projects are amplified, given the high cost and specialized nature of the product. A long-term commitment to cost-effective and adaptable ownership, in conjunction with a deep and creative understanding of innovative use, form, and function, will generate successful projects and solidify long-lived relationships with institutions.

Once a medical facility is built, if it doesn’t meet the institution’s needs, it can’t be easily adapted or redeveloped. We recently assessed an opportunity to redevelop an on-campus medical arts facility that had originally been developed under a restrictive condominium structure. The challenges were great. Specifically, it had poor floor-to-ceiling height, which prevented the ground level from efficiently being used as a much-needed outpatient surgical facility, and the underlying ownership structure resulted in a near-impossible ability to cost-effectively create a contiguous floor of uninterrupted space. The health system was hamstrung in its ability to expand its campus because of this poorly developed building.

For health care institutions, what are some best practices for managing real estate development and operation?

Kathy West, vice president of real estate and facilities for Partners HealthCare in Boston and assistant chair of the Healthcare and Life Sciences Council.

At Partners HealthCare, we have a fairly small corporate real estate operation, and we leverage our internal capabilities by using preferred outside consultants. So for example, we have one real estate firm that helps us find properties to lease or purchase; we have one preferred vendor who conducts environmental due diligence for us. They know how to work with us and how we think. That’s more efficient than having a large real estate staff, although we do have our own project managers and construction managers. We also have a core cadre of managers with expertise in architecture, planning, real estate, facility information systems, and energy management—which makes us better consumers and users of the services we purchase outside.

Particularly on the construction side, we are relying more and more on process improvement initiatives that take advantage of technology. For example, we use Microsoft project management software, and we use SharePoint software for collaboration and file sharing. And our architects and contractors are increasingly using building information modeling technology. Of course, that’s becoming more common with all building types, but health care facilities are much more complex than conventional ones. There are so many more components to the infrastructure—more cables, pipes, ducts—that it’s very important to digitally model that ahead of time, and avoid conflicts.