Health care and life sciences continue to yield strong returns for real estate investors as both sectors benefit from several trends: baby boomers who want to age on their own terms, the drive to improve quality of life through innovations in biotech, and the decentralization of health care from hospitals to community-based settings.
Yet these sectors can also create economic value through their physical footprints, anchoring mixed-use developments that attract a diverse workforce while spurring further development and opportunity in adjacent—and sometimes underserved—neighborhoods, according to an expert panel at the 2015 ULI Spring Meeting in Houston.
Moderated by Mindy Berman, managing director of health care capital at JLL, the panel discussion was framed by the fact that health care spending continues to constitute a sizable share––between 17 and 18 percent––of U.S. gross domestic product. Health care continues to drive employment, constituting almost one of every ten jobs in the United States, according to the Bureau of Labor Statistics. In the small- and mid-sized markets where Berman has brokered deals, “it’s not uncommon that the hospital is the biggest employer in those small towns,” she said.
In the case of the Science + Technology Park at Johns Hopkins, an 88-acre (35.6 ha) biotech campus north of the Johns Hopkins University medical campus, Forest City Enterprises aims to use a science park to spur much-needed change in Middle East, a low-income, high-crime, and blighted East Baltimore neighborhood where portions of the gritty urban drama, The Wire, were filmed.
“How do you take a failed neighborhood and turn it into a neighborhood of choice?” asked panelist Peter B. Calkins, Forest City’s executive vice president and chief operating officer. He said it’s a question easier asked than answered, as the development’s progress has been slow.
Heightened expectations of the project have attracted a measure of public scrutiny and negative publicity. Along with Forest City, several partners including the city of Baltimore, East Baltimore Development Inc., and the Annie E. Casey Foundation are backing the project and rolling out a marketing campaign, Around Eager Park, to spark interest.
Despite generous public subsidies, recruiting companies to the park has been a challenge. While more than a dozen biotech firms have signed on as tenants, “Johns Hopkins is not an automatic magnet for pharmaceutical companies,” Calkins said. Still, local residents and workers are reaping certain benefits: the new 5.5-acre (2.2 ha) Eager Park, Henderson Hopkins School, a K-8 school run by the Johns Hopkins School of Education, and the Weinberg Early Childhood Center. Student housing and a hotel/conference center are also in the plans.
Demands for outpatient care and hospital consolidation are also freeing up real estate to answer greater social and economic needs. Panelist Eric Sheffels, copresident of Boston-based Leggat McCall Properties, described two transactions his firm recently oversaw that served distinct purposes.
The newly built St. Vincent Cancer & Wellness Center in Worcester, Massachusetts, took the site of a demolished shopping mall and turned it into state-of-the-art cancer center to serve and employ local residents. The center will anchor CitySquare, a new $563 million walkable, mixed-use development in downtown Worcester, once a major manufacturing hub that is now going through a renaissance with a growing population and a diversified economy.
The second deal addresses the demand for housing within Boston, which, like many cities, is grappling with new residents and not enough market-rate or workforce/affordable choices to house them. By some estimates, Boston needs 50,000 new housing units to meet the demand.
By consolidating some of its operations to reinvest in a larger renovation project, Boston Medical Center sold three of its properties to Leggat McCall in the city’s South End, an area experiencing a wave of new residential development. The property frees up 900,000 square feet (83,600 sq m) of space that represents a “conversion of tax-exempt to tax-generating” property, Sheffels said. A mixed-use residential/retail project is planned for the site, which will serve both medical personnel and the surrounding neighborhood, which is trying to shed its image as a rough part of town. “We’re on a path of development that was once considered dangerous,” Sheffels said.
Archana Pyati is an impact writer on ULI’s Strategic Communications team.
