Market Focus: Los Angeles (August 2006)


Med real estate developers still love L.A.



By John Mugford

Here comes the big one!

No, not that one – hopefully.

However, in most cities throughout California the main topic on the minds of folks involved in healthcare and healthcare real estate is Senate Bill 1953 – which requires all acute-care hospitals to be earthquake ready by 2008 or, if an extension has been granted, 2013.

Los Angeles is no exception, as SB 1953 – along with growth, advances in technology, and the privatization of patient rooms – has providers, developers, construction firms, architects and others involved in building medical facilities hopping.

While folks involved in healthcare throughout the rest of the country may have had their fill of hearing about California’s SB 1953, the seismic requirement is no doubt the topic du jour – and it will be for years to come. The program is being administered by the Facilities Division of the California Office of Statewide Health Planning and Development (OSHPD).

“People are really waiting to see what happens when the first deadline in 2008 arrives because there are quite a few systems that have not done the necessary work and have not filed for extensions to 2013,” says Sarah Jensen, who started a Los Angeles-based healthcare project management firm, Jensen Partners, in 2000. “Everyone’s extremely interested to find out if OSHPD will actually close hospitals that did not file for extensions and do not comply with the requirements.”

Senate Bill 1953, which was passed in 1994 following the devastating Northridge Earthquake, has been a primary driver for healthcare development in Los Angeles and throughout California for a number of years.

Shortly after the bill’s passage, there were predictions that a big percentage of healthcare treatments would be delivered in outpatient settings. As a result, quite a few systems started planning major outpatient facilities, says Ms. Jensen.

A strain on hospitals

“Outpatient has certainly grown, but I don’t think it’s turned out to be as big as a lot of people originally thought,” she says. “Even so, most systems that are building replacement hospitals or doing expansions are actually doing so with fewer beds – almost all systems are downsizing as they take on new projects. That could eventually put a strain on L.A. hospitals.”

For example, Ms. Jensen reports that the City of Hope Cancer Center has been running at 95 percent bed capacity of late – quite an alarming figure.

Reasons for the downsizings include the move to private patient rooms, the need for more technology, and, of course, skyrocketing construction costs.

“This is really an interesting time for the Los Angeles market,” says Ms. Jensen, who previously worked as assistant vice chancellor of health sciences design and construction on UCLA Medical Center’s massive replacement hospital project. “Right now there are a good number of projects taking place, most of which are more in the mid-size range. But I really think because now is the time to start projects to meet the next deadline in 2013 that we’re going to be hearing about some mega-sized projects fairly soon.”

Indeed big projects could be on the horizon, as the deadlines for seismic requirements are looming, the population of the metropolitan area is booming – the Los Angeles Consolidated Metropolitan Services Area (CMSA) had an estimated population of 12.83 million in 2003 – and hospital demand is mushrooming – the number of discharges in Southern California increased 17 percent from 1995 to 2004, according to the Los Angeles County Economic Development Corporation (LAEDC).

The LAEDC released a study in February indicating that many hospitals in L.A. and Southern California are suffering financially. In fact, the study indicated that 107 out of 212 area hospitals reported operating losses in 2004.

Even so, because of the need for upgrades, hospitals in the region plan to spend a total of at least $8.2 billion from 2005 to 2009, according to the report. And that will no doubt be good for the economy, as the projects will create 166,000 full-time jobs with wages totaling $6.6 billion.

While there are some mega-construction projects ongoing, such as the $600 million Ronald Reagan UCLA Medical Center replacement hospital and the $820 million Los Angeles County/USC Medical Center replacement hospital, perhaps the biggest project in the pipeline is the future replacement hospital building at Childrens Hospital Los Angeles.

While health systems area hurting financially, many people and corporations are not, as a fundraising campaign for the future 460,000 square foot, 280-bed building raised more than $555 million – an unprecedented healthcare fundraising figure in the country.

The new hospital building is expected to open in 2009. q

Selected L.A. area medical real estate projects

Childrens Hospital Los Angeles replacement facility, Los Angeles. Work is under way on the future 280-bed, 460,000 square foot replacement facility, where the Board of Trustees has raised an astonishing $556 million for the future facility as well as a variety of programs. Included in the building will be a new emergency department, new imaging facilities, a cancer day hospital, a 61-bed acute-care hematology/oncology unit, a 14-bed bone marrow transplant unit, a 24-bed cardiothoracic intensive care unit (ICU), a 21-bed acute heart unit, a 24-bed pediatric ICU, and a 40-bed neonatal ICU that will house the Center for Newborn and Infant Critical Care. There will be 96 additional medical and surgical acute care beds. The facility will add some bells and whistles as well, such as a Family Resource Center, gardens, a play area, café, outdoor dining, convenience store and family lounges. The general contractor on the project is Rudolph & Sletten Inc., while the architect is Zimmer Gunsul Frasca Partnership.

Shriners Hospitals for Children, Los Angeles. Shriners officials have reportedly been negotiating with Los Angeles County in an effort to lease land for the construction of a future 60-bed, 250,000 square foot children’s hospital. The facility would be built next to the under-construction Los Angeles County and USC Medical Center, which is located near the Golden State and San Bernardino freeways. Shriners would build the facility as a replacement for its current 54-year-old hospital, located about four miles west of the potential site. A recent analysis conducted for the hospital concluded that a new building would be more cost-effective than renovating the older facility, according to Shriners officials. Officials with both hospitals say the future Shriners’ location would be a benefit to both hospitals and create plenty of collaborations.

Los Angeles County and USC Medical Center, Los Angeles. Construction began back in 2003 on this massive, four-building, $820 million replacement project – the largest ongoing construction project in the county. The buildings include an eight-story, 600-bed inpatient tower, a diagnostic and treatment center, a seven-story outpatient tower, and a central energy plant. The general contractor is a partnership of McCarthy Building Cos., Clark Construction Group and Hunt construction Group. The designer is a partnership of Hellmuth Obata + Kassebaum Inc. (HOK) and LBL Associated Architects. Completion is scheduled for March of 2007.

UCLA Westwood Medical Center replacement hospital, Los Angeles. Even though the budget has increased and the project is behind schedule, work continues to progress on this $750 million, 10-story, 525-bed replacement hospital that will have 1.5 million square feet of space. The completion date is now schedule for 2007. A partnership of Perkins + Will and I.M. Pei Architects is the designer, while the general contractor is a partnership of Turner Construction Co. and Tutor-Saliba Corp.

Kaiser Permanente system, Los Angeles area. Kaiser has major replacement hospital projects taking place at: Kaiser Permanente Downey Medical Center, a $500 million, 657,000 square foot replacement hospital with McCarthy as the general contractor and HMC Architects as the architectural firm; Kaiser Permanente Panorama City Hospital replacement, a $267 million project with McCarthy as the contractor and Anshen + Allen the architect; and Kaiser Permanente Los Angeles Medical Center replacement, a $428 million project with Rudolph & Sletten as the contractor and HMC Architects as the designer.

UCLA Santa Monica Orthopaedic Hospital, Santa Monica. This $275 million, 271-bed replacement project has Tutor-Saliba Corp. as the general contractor and Anshen + Allen and Robert A.M. Stern as the architectural partnership.

St. John’s Health Center replacement, Santa Monica. The first phase of the replacement project was complete in 2004, and work continues on the second phase, a 275,000-square-foot, four-story diagnostic and treatment facility, which is being built on the site of the original hospital. Completion is scheduled for early 2009. HOK is the architect and McCarthy is the contractor.

UC Irvine Medical Center replacement, Orange County. Construction began in 2005 on a $250 million, 191-bed replacement hospital tower on the current campus in Orange County. The project will also add 13 surgical suites. The project is scheduled for completion in 2009. Hensel Phelps Construction Co. is the contractor and HOK is the architect.

Methodist Hospital of Southern California, Arcadia. This recently announced $115 million project includes a five-story, 150,000 square foot patient tower and a new parking structure. A subsidiary of Jacobs Engineering will provide construction management. The hospital’s overall replacement project is expected to take up to 10 years. q

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