Firm has a jones for medical real estate

GIANT JONES LANG LaSALLE FORMALIZES HEALTHCARE FOCUS WITH NEW PRACTICE

 

By Beth Mattson-Teig

 

With more than 125 offices worldwide and an array of services to offer, Jones Lang LaSalle Inc. is certainly one of the giants in the commercial real estate industry.

Now, the Chicago-based publicly traded company is looking to grab a bigger slice of the medical real estate pie by expanding the breadth and depth of the services it offers to healthcare providers.

In no way can Jones Lang LaSalle (NYSE: JLL) be considered a newcomer to the healthcare industry. In fact, JLL has been providing real estate services to healthcare-related businesses ranging from hospitals to pharmaceutical firms for more than a decade.

But recently, the company decided to do what quite a few other large, multi-faceted real estate-related firms have done as well: add a formal division to concentrate on healthcare.

In the case of JLL, the company is expanding its healthcare service menu by bundling its services together into a single business unit and, subsequently, beefing up its marketing to potential health system clients.

Conservative estimates from JLL place its recent healthcare-business revenue at between $12 million and $15 million per year. That volume is a tiny fraction of the $1.39 billion in overall revenues the firm generated worldwide in 2005.

The goal now is to boost the healthcare portion of the business to $50 million annually in the next several years.

The company took a major step in achieving that objective in August when it officially launched its Healthcare Practice and brought in industry veteran Don Hamilton to oversee the group as its managing director.

Mr. Hamilton, who served as a hospital CEO nearly a quarter of a decade ago, joins Jones Lang LaSalle after 24 years as a healthcare consultant for Ernst & Young.

“There is a world of things… going on here. It’s not just that we entered healthcare when I showed up,” Mr. Hamilton says. “What we did was start to bring it all together.”

Leveraging expertise

 

As noted, JLL is already recognized as one of the biggest real estate services firms in the world, and the company hopes to use its reputation as such to gain a bigger audience with healthcare providers. The company provides comprehensive integrated real estate and investment management expertise on a local, regional and global level to owner, occupier and investor clients. Currently, the firm’s 125 worldwide offices are located in more than 430 cities and 50 countries.

The first step in formalizing its Healthcare Practice was to unify what had been a fragmented healthcare service platform, according to company officials.

In the past, services were often divvied up among the firm’s myriad specialties, such as development services, financing, acquisitions and dispositions.

That strategy worked fine on individual jobs, but at the same time the strategy did not necessarily build long-term relationships.

“There was never any effort made to put a package together that could go to a client and say we would like to be your real estate advisor in a collaborative and consultative way,” Hamilton says.

For that reason, JLL executives say the new Healthcare Practice is more than just creating a new label. In fact, the company says it is assembling the resources and bundling the expertise into one unified team that can share knowledge as well as industry contacts and referrals.

Currently, JLL’s Healthcare Practice has about 85 people. In most cases, a client relationship manager serves as the point person managing each account and tapping into, when needed, the firm’s other areas of expertise. For example, if a client needs help in financing a new project, the client relationship manager can turn to experts in the Capital Markets group. Or, should a client need advice on maximizing efficiencies with its real estate, the relationship manager can turn to JLL’s Strategic Consulting group for guidance.

Plenty of med experience

JLL already has plenty of healthcare expertise under its belt.

The cornerstone of the Healthcare Practice is the firm’s Project and Development Services (PDS) group, which has been an active player in the healthcare construction industry for more than 10years. Currently, the group is overseeing $1 billion worth of healthcare projects across more than a dozen states.

JLL also has been serving a number of healthcare-related clients throughout its other practice groups. For example, its Public Institutions Practice has done work for clients such as the Veterans Administration (VA), while the Higher Education Practice has assisted medical schools and medical research institutions.

“All of these practices over the years have been doing jobs in healthcare, but it was all very fragmented into these different silos,” Mr. Hamilton says. “It was never put together as a healthcare group, and it was never taken to market as a healthcare group.”

Construction anchor

When JLL started serving healthcare clients, its business was focused almost exclusively on the project development side within the PDS group.

Over the years, however, JLL expanded its healthcare services to include a variety of other areas such as real estate consulting, transaction services, valuation and financing.

The Project and Development Services group has given JLL a solid foundation with which to launch its new Healthcare Practice, according to the company’s officers, and to this day PDS remains the largest component within that practice group.

While the healthcare group now has a formal title, JLL will continue with its practice of representing owners in the development of healthcare facilities, primarily acute-care facilities such as new hospitals and bed towers. In the past two years, the company has completed about 45 different projects across more than a dozen states.

For example, JLL is providing complete development management services for a 232-bed, 367,000 square foot inpatient expansion at Critical Care Hospital for Virginia Commonwealth University (VCU) Health System in Richmond, Va. Valued at more than $180 million, the expansion is set for completion in the third quarter of 2008.

“I think Jones Lang LaSalle is a very professional company,” says Bob Reardon, chief facilities officer for the VCU Health System. “JLL has been effective in keeping the job on schedule and on budget. I am very impressed with the competence they bring to a job.”

“The value they add because of those two things – professionalism and processes for controlling budget and schedule – make them a provider of choice for us,” he adds.

JLL also is providing complete development management services for the construction of a new $282 million bed tower at Salem Hospital in Salem, Ore.

“What I value about their approach is that they work very carefully to keep everybody involved from the beginning,” says Cindy Wagner, Salem Hospital’s facilities development coordinator.

Keeping track of the myriad components of a major construction project can be monumental, Ms. Wagner says. But she says JLL, which is charged with coordinating the efforts of dozens of different consultants and contractors, fits the bill.

“Their team does a good job of identifying roadblocks and removing them in order to keep the project on schedule,” Ms. Wagner says.

For example, Ms. Wagner says she’s noticed that if JLL finds people who are not communicating well with each other, the company’s key people do whatever it takes to open up that flow of information. The project is slated for completion in first quarter 2009.

A competitive arena

           

In order to succeed, JLL’s officers say the company will have to set itself apart from some tough competitors, including quite a few large real estate firms that offer a menu of services to healthcare clients. Those firms include the likes of Dallas-based Trammell Crow Co. (NYSE: TCC), Dallas-based The Staubach Co., and Chicago-based Grubb & Ellis (NYSE: GBE).

“I believe we offer a broader palette of services,” Mr. Hamilton says. “Some competitors focus on one or two areas, such as project development or transactions, but don’t offer a comprehensive menu of services as we do.”

What Mr. Hamilton refers to is a JLL menu that ranges from negotiating contracts to reviewing leases.

“We’re all about finding unique solutions to complex problems that might involve financing a property or making an acquisition or disposition,” says Chip Cogswell, managing director of project and development services for JLL’s Healthcare Practice group.

In addition, JLL is moving forward with plans to introduce facilities management for healthcare providers, providing hospitals and it is currently in discussions with two hospital groups to set up facilities management pilot programs.

JLL expects to have the first of its facilities management pilot programs up and running within six months. The company is proceeding slowly, its officers say, so that its own people, as well as prospective clients, can ease into feeling comfortable with the prospect. JLL says its goal is will rely on its extensive property management background to make sure healthcare providers feel comfortable

“Hospitals are unique because they have patients and lives,” Mr. Hamilton says. “But we manage other critical facilities for companies around the world in an environment where, from a business standpoint, it would be catastrophic if we fail.”

JLL has extensive experience managing business critical real estate, such as laboratories and data centers, for Fortune 100 and Fortune 500 firms all over the globe, Mr. Hamilton notes.

Capitalizing on strengths

 

Certainly one of JLL’s biggest strengths is its size, its officers say. The company’s total portfolio in property and corporate facility management services comprises a whopping 966 million square feet worldwide.

In 2005, the firm completed $43 billion worth of capital markets sales and acquisitions, debt financings, and equity placements on assets and portfolios. It also ranked as the 10th largest construction management-for-fee firm in the world, according to Engineering News-Record.

Company officials say one advantage to working with firm so large is that it can leverage its buying power in order to provide economies of scale to its clients. For example, JLL is the world’s largest elevator maintenance contractor, which helps the company secure what officials call the best pricing and service for its clients.

Another advantage of being such a massive firm is that it has access to the latest technology, which can help it deliver added efficiencies in everything from communication to accounting.

“From my perspective, as an outsider coming in to the real estate business, when you think about real estate, it doesn’t seem like a real sophisticated business,” Mr. Hamilton says. “But in fact I have been very surprised at how sophisticated we are and how we use technology to manage buildings and do this and that.”

JLL also has a lengthy track record in serving the life sciences industry, which, from a real estate perspective, possesses a number of similarities to the medical office arena.

“There is certainly an arena, particularly in academic facilities, where research and patient care are happening in the same building,” says Mr. Cogswell of JLL’s Health Practice Services group.

JLL has experience working on facilities that cater to both research work and patient care. “A lot of our competitors can’t do both,” he notes.

For example, Jones Lang LaSalle counts among its clients the National Institutes of Health (NIH). JLL recently served as development manager for the construction of a $200 million biomedical research laboratory for the NIH in Bethesda, Md.

The 300,000 square foot facility is capable of supporting work at Biosafety Level 3 and incorporates state-of-the-art engineering for the handling of infectious agents, disease vectors and animal models for the study of transmission, pathogenesis, and prevention of infectious diseases.

The building was completed in December and houses laboratories, offices, conference rooms, animal quarters, mechanical space and waste-handling areas.

Path to success

 

Focusing on growing its Healthcare Practice is certainly in sync with what JLL has voiced about its current growth strategy.

“In terms of what the company has told Wall Street, the company is spending a significant amount of its free cash flow on internal projects rather than acquisitions,” says William C. Marks, a managing director at JMP Securities in San Francisco. “Jones Lang LaSalle is always looking for ways to leverage its existing platform to grow the business.”

And the sizable healthcare market certainly seems to be a valid target market, according to Mr. Marks.

Healthcare currently represents about 16 percent to 17 percent of the country’s gross domestic product (GDP).

“It’s an area that other real estate firms such as Trammell Crow have had a great amount of success with, so I would think that Jones Lang LaSalle would follow suit,” Mr. Marks says.

Trammel Crow, which is perhaps one of JLL’s biggest competitors, has grown its healthcare division from virtually nothing seven years ago to about 20 percent of its development business today, Mr. Marks notes.

One factor that bodes well for JLL’s future success is that its focus on healthcare coincides with a current trend among hospital administrators: placing a higher priority on real estate.

“Generally, real estate was a very forgotten asset that wasn’t managed that well,” Mr. Hamilton says of healthcare systems.

Now, he says, hospital administrators are turning to real estate as part of their strategy for improving operational efficiencies. In addition, hospitals are facing increasing pressures to update their aging facilities in order to accommodate new technologies and remain competitive.

As a result, JLL is optimistic that it can bring its experience and expertise to the table at a time when healthcare providers are becoming more and more receptive to hiring third parties to tend to their real estate needs.

“We don’t just have the real estate expertise, we have the healthcare expertise,” Mr. Hamilton says. “We understand the issues. We’ve been there. We’ve done that.” q

Jones Lang LaSalle Inc.

STATS

• § Revenues: $1.39 billion in 2005
• § Office locations: About 125 in 50 countries
• § Portfolio: 966 million square feet in property and corporate facility management

 

INFORMATION

• § Healthcare product focus: Hospitals, clinics, medical offices, research facilities, laboratories
• § Real estate services: Project management, development services, facilities management, real estate consulting, and transaction services including acquisitions, dispositions, leasing and financing
• § Geographic focus (healthcare): United States
• § History: Jones Lang LaSalle was formed in 1999 by the merger of LaSalle Partners Inc. and Jones Lang Wootton
• § Ownership: Publicly owned (NYSE: JLL)

 

CONTACTS

• § Contact: Don Hamilton, Managing Director, Healthcare Practice, Jones Lang LaSalle, Chicago, (312) 228-2598, don.hamilton@am.jll.com
• § Web Site: www.joneslanglasalle.com