What Medical Office Owners Can Learn from Hilton, Marriott

The health care industry may have a role model in the hospitality sector—at least when it comes to real estate strategy.

Specifically, hospitals and health systems are bound to “evolve” and open up to leasing real estate, not always owning it, according to CBRE Executive Vice President Chris Bodnar. In this sense, it’s possible the health care industry will follow in the footsteps of hotel operators like Hilton and Marriott within the next 10 or 20 years.

“Hotel operators 30 to 40 years ago owned the real estate in which they operated,” Bodnar explained during a Dec. 15 webinar put on by Irving Levin Associates. “They’re a service oriented-business, and that’s exactly what health care is: a service-oriented business.”

Right now, hospitals and health systems tend to primarily own their own real estate, Bodnar said.

“A lot of the healths systems that we’ve worked with, the percentage of the assets that they own has been upwards of 90%,” he explained. “If you look at other industries out there, it’s much closer to 60/40 or 50/50.”

There’s currently a high demand  for health care, but margins are shrinking for the provider, he added. For health systems, the move toward leasing even more is almost inevitable.

“I think it’s almost going to be something that’s forced,” he said.

Still, the decision to own versus rent real estate remains “a system-by-system decision,” Ventas Investment Officer Shane Seitz said during the webinar. When it comes to owning versus leasing, health systems’ choices vary drastically.

“There are some systems that very much want to monetize everything they own, whether they occupy space or don’t occupy space,” Seitz explained. “There are some systems that say if ‘I occupy more than 50% of the space I want to own it, otherwise I want to monetize it.'”

The willingness to give leasing more of a try will ultimately depend on future health system leadership, especially on the not-for-profit side.

“For some of the smaller systems, as the C-suite people change, those thoughts and those feelings and attitudes toward real estate will change,” Seitz concluded.

Written by Mary Kate Nelson