Fresh off a panel of distinguished contributors at the MidAtlantic Real Estate Healthcare Conference in Edison, NJ earlier today featuring Andrew Antognoli, Blake Goodman, Randy Horning, Cory Atkins, Pasquale Avallone and Jonathan Marks, where they discussed and debated a wide range of topics focusing on healthcare related real estate issues.
As you may be aware, New Jersey ranks 8th in the US in terms of healthcare satisfaction, with over 113 hospitals and 72 acute care facilities in the State. Over 150,000 employees are employed in these facilities making them the largest private sector employee base in the State with over 15 Million patients being served a year.
Key Take Aways:
Development – limited new development due to interest rates and constructions costs despite there not being many if any new facilities for rent at the moment. Adaptive reuse of existing buildings continues to be the main game noting that some of the older B and C product in the marketplace will not be able to meet current design specifications of the users.
Construction Costs for Medical Office – continue to be at or near an all time high in NJ.
Key Design Issues – access, parking, visibility, redundant sources of power, sewage capacity and growing desire to have more sustainable spaces.
Acquisitions – muted at the moment due to interest rates and slow moving product historically.
Cap Rates – generally around 6-6.5% on single tenant, good credit buildings and 7-7.5% for multi tenant buildings.
Average Lease Size – approximately 3,000 SF but as more and more systems continue to consolidate, the larger systems want larger spaces for back office operations of around 10,000 SF.
Rents – depending on product type but mid to high $20s depending on what part of the state and how old the building is with approximately $3.00 in electric.
Leasing Velocity – our team of top shelf brokers felt that leasing velocity is picking up and relatively strong due to the lack of new space availability.
Tenant Improvement Dollars – owners prefer tenants to be investing in sophisticated equipment to create more “stickiness” but willing, with the right tenant, to provide T/I dollars of approximately $50 psf for a 7 year term.
Urgent Care – continued activity in this space with multiple engagements for 10 sites or more around the state.
Sustainability – more important to some owners than in the past. Electric Car chargers are being considered and requested by more and more tenants and owners but surprisingly solar was less of interest to the panelists, despite the ability to use state incentives and reduce power costs.
Section 179-D – with changes under the Inflation Reduction Act to allow non-profits to monetize and transfer the tax deduction or reduce the cost of their building out, many of the owners and brokers in the room thought this was worth exploring to see how the potential $5.25 PSF in tax deduction could be utilized by their clients.
A super turn out, packed house and folks engaging in networking and learning. Kudos to MARE for yet another excellent, well attended event. Duane Morris, LLP looks forward to our continued involvement with the group.
Duane Morris has a robust real estate group and healthcare group focused on regulatory, permitting, executive compensation and real estate related and incentive issues and programs. f you have any questions or follow ups, please do not hesitate to contact Brad A. Molotsky, Erin Duffy or the lawyer in the firm whom you normally deal with on other maters.