Time is right for Danbury developer docs

CONNECTICUT DUOS’ NEW PROJECT MADE MED SPACE FROM AN OLD WATCH FACTORY

 

By Anne Bretts

 

In fashion, trends often move from the East Coast to the Midwest.

But it took an entrepreneurial doctor from Minnesota and his physician-business partner to shake things up in Connecticut’s medical real estate market.

Now, it looks like their success at redeveloping office and industrial properties into medical offices with healthcare and surgery components has drawn a lot of attention, including a recent feature article in The New York Times, a publication not easily impressed by new office buildings.

Not bad for a couple of developers who have spent more time over the years looking at patient charts than blueprints and site plans.

This month, Dr. Richard Lipton – the former Minnesotan – and Dr. Jay Klarsfeld are holding a grand opening for their new Pond’s Edge Professional Park, a 158,000 square foot, $20 million medical office project with a surgery component in suburban Danbury, Conn.

The development involved the complete transformation of a vacant 205,000 square foot industrial complex. Included was the demolition of a portion of the building in order to end up with two buildings: one with 100,000 square feet and the other, which is currently being mothballed, with 58,000 square feet.

The doctor/developers acquired the land and building, which sit along busy Highway 7 in the growing Danbury suburb of Ridgefield, Conn., for $7 million. They invested another $7 million in the renovation; tenants have spent about $6 million on their own improvements.

Drs. Lipton and Klarsfeld say they’ve created a “new medical identity” in Connecticut. Included in the tenant mix is the 25,000 square foot Ridgefield Surgical Center LLC, a partnership of nearby Danbury Hospital and local physicians, and 8,200 square foot Ridgefield Diagnostic Imaging, which is also an off-shoot of imaging services located at Danbury’s main campus. The other tenant is Advanced Specialty Care, the growing ear, nose and throat (ENT) practice operated by Drs. Lipton and Klarsfeld and their business partner, Dr. Jeffrey Monroe.

Mind of Mayo

The redevelopment project is actually the second development by Drs. Lipton and Klarsfeld, who first ventured into real estate more than a decade ago.

“It all started as an outgrowth of practice needs,” says Dr. Richard Lipton. It was 12 years ago when Dr. Lipton talked Dr. Klarsfeld into acquiring and redeveloping their first project: Professional Office Park in Danbury.

The pair took a vacant 45,000 square foot office complex, moved their Advanced Specialty Care practice into 6,700 square feet and started leasing the remaining space. Among the users are physicians, dentists, and other general office tenants.

Today, after expanding the facility to keep up with demand, the office park contains 75,000 square feet and has a waiting list of potential tenants.

Dr. Lipton had spent many years with the Mayo Clinic health system in Rochester, Minn., where he says he learned from the best about medical innovation, both in patient treatment and the business side. In fact, Dr. Lipton says Minnesota was far ahead of rest of the country in what he calls “physician attitudes.”

“The group model was far more evolved,” he says about Minnesota, noting that large employers in the North Star State were able to drive major shifts to lower healthcare costs through outpatient care. He also says that physicians figured out how to scramble their way through waves of growth and consolidations in the provider networks.

“The East Coast is the last bastion of private practice,” Dr. Lipton says.

He adds: “I guess I always wanted to come out here (Connecticut) and build my own little Mayo Clinic.”

Drs. Lipton and Klarsfeld proved that the theory, to a degree, was possible with their first development in Danbury, and now their second in Ridgefield. Dr. Monroe, the third partner in the practice, is an equity partner but has chosen not to participate in the development or management of the facilities.

Earlier project a success

As noted earlier, Drs. Lipton and Klarsfeld went looking for real estate back in 1994 in order to meet the needs of their own growing ENT practice. The 45,000 square foot office complex they found in Danbury was being vacated by its lone tenant, a company that focused on corporate relocation services.

The building was far larger than the 6,500 square feet the partners had been leasing at the time. Upon moving into the complex, the doctors signed a five-year lease with an option to purchase the building in 1999 for $4.15 million.

They called they’re building, simply, Professional Office Park and took 6,700 square feet for Advanced Specialty Care. Then, they began subleasing the remaining space to a mix of medical, dental, accounting, finance and general office tenants.

Over the years Professional Office Park, Advanced Specialty Care has expanded into 13,000 square feet and now has eight physicians in a multi-specialty mix including ear, nose and throat, plastic surgery, audiology, and allergy services.

Since taking over the ownership of the complex, Drs. Lipton and Klarsfeld have expanded Professional Office Park to 75,000 – and it still has a waiting list of prospective tenants.

Complete transformation

As for Pond’s Edge, the redevelopment project has involved the complete transformation of a vacant industrial complex, an unlikely choice for a cutting edge medical complex. CB Richard Ellis handled the sale by seller ASML USA Inc. for $7 million, which included the 205,000 square foot building and surrounding 50 acres of land.

When the doctors acquired the building, which was once used to make Benrus wristwatches, it had seen better days, they say. But the doctor/developers pumped $7 million into renovations while tenants spent another $6 million on build outs and equipment.

All of the partners in the Advanced Specialty Care are equity partners in the new project, along with an oral surgeon who invested in the earlier Danbury project and who has offices in both complexes.

Drs. Lipton and Klarsfeld earmarked 7,620 square feet for Advanced Specialty Care, which moved into the larger of Pond’s Edge’s two buildings in July. As of recent weeks, the building still has 50,000 square feet for lease to other medical tenants.

The second, mothballed building will be renovated when the right tenants are found, according to Drs. Lipton and Klarsfeld.

Drs. Klarsfeld and Lipton hired Peter Coffin of Ridgefield, Conn.-based DCA Architects as lead architect for the overall redesign and for their own office suite.

Good price, good location

Old industrial properties can be affordable, but price alone doesn’t make a good investment, Dr. Lipton says. He notes that the key to the success of Pond’s Edge will likely be its location on a highway in the center of the growth corridor running through Ridgefield, south of Danbury. Also, the project will benefit from having Danbury Hospital fly its flag on the new complex, according to Dr. Lipton.

The mix of tenants is important because it reflects a national shift from competition between hospitals and independent ASCs toward more cooperative ventures. Dr. Lipton adds that the location of Pond’s Edge made it an ideal venture for Danbury Hospital, which is about nine miles away.

“We knew that the demographic was right,” Dr. Lipton says. He adds that hospitals are looking for ways to plant their flags in growth markets on the fringe of their typical service areas.

Physician ownership in medical office buildings and ambulatory surgical centers (ASCs) isn’t new. In fact, since the first ASC opened in 1970 more than 4,300 have been built, and more than 90 percent of them have at least some physician ownership, according to FASA, formerly the Foundation for Ambulatory Surgery in America. 

But there’s a big difference between simply holding equity and being the guys who find the land, walk the plans through months of meeting at city hall, hire the contractors and then stay on as landlords for their partners and tenants.

After all, very few developers would dare diagnose their own illnesses, much less treat them.

“I more or less dragged him kicking and screaming into the real estate business,” Dr. Lipton jokes about convincing Dr. Klarsfeld to become a developer those 12 years ago.

For his part, Dr. Klarsfield remembers being more enthusiastic, but clearly Dr. Lipton has the edge in his devotion to the development end of the business partnership.

Dr. Klarsfeld, who trained at Mt. Sinai Hospital in New York, moved to Danbury in 1986 to join an established practice. His intention was to succeed as a physician while winding down his career.

As far as Dr. Lipton is concerned, running the office complexes has made him a better doctor.

“You can only touch so many people warmly in a day,” he says. As the costs of running a healthcare business have continued to climb over the years, Dr. Lipton says doctors find themselves seeing up to 12 patients an hour. He, for one, was felling burned out.

These days, however, Dr. Lipton has cut back on his patient load – to about 70 percent of full-time — and finds himself enjoying his work more while exploring his more new-found interest: generating revenue.

Willing investors

Financing for the projects hasn’t been a problem. Banks see the projects as safe investments, and physicians are more than willing to put up their own money, according to Drs. Lipton and Klarsfeld.

There has been controversy for years over the roles physicians can play in owning healthcare facilities, as evidenced by the enactment of the Stark Laws governing physician referrals.

Drs. Klarsfeld and Lipton say all of the patients who visit their complexes are informed of the ownership structure, as a sign in the lobby spells it out. The doctors add that due diligence work helps them prove that their rents are market rate. Clear fee schedules and lists of alternative service providers all are designed to protect the owners – and patients – from concerns about conflicts of interests.

In fact, the doctors say that being tenants in their own buildings makes them very attractive as landlords.

“I live in my two office parks,” Dr. Klarsfeld says. “If the park isn’t being taken care of properly, my practice suffers. If there’s snow and ice, I’d better plow or my patients aren’t happy.”

The doctor factor

While two thirds of the space at Pond’s Edge remains available for rent, Drs. Lipton and Klarsfeld say they are not in a rush to fill space. In fact, they note that they’re looking for quality long-term tenants. They’ve hired brokers Ginny Carroll and Robert Cascella of Coldwell Banker Commercial in Bethel, Conn., to handle leasing the remaining space.

“It’s unusual for doctors to be this involved in the process,” Ms. Carroll says.

She credits the doctors with being flexible in meeting the needs of the development’s new tenants. For example, the owners structured a one-year lease with a longer-term option with a physical and occupational therapy group. The group is testing the market with a new model in which they plan to focus solely on pediatric therapy services.

Drs. Lipton and Klarsfeld haven’t created a corporate name for their development business and are not marketing themselves as developers. They also don’t have any new deals to announce — at least not yet.

Even so, they’ve made presentations at medical organization events, and they are talking to potential clients. They’re also finding that success breeds success.

“Doctors are calling, asking for help,” Dr. Klarsfeld says. “As we’ve looked at what other people have, we see that we bring a lot of perspective.”

What they bring to the table is an understanding of what physicians need in a development, from parking and traffic flow to floor plans and technology. They believe, in fact, that they bring something to a deal that can’t be worked into a contract.

“Doctors natively trust other doctors,” Dr. Lipton says.q

Anne Bretts is business reporter who often writes about commercial real estate.

 

 

 

Ponds Edge Professional Park

DANBURY, CONN.

STATS

• Total redevelopment cost: $20 million

• Size: 158,000 square feet in two buildings

• Project: Conversion of former 205,000 square foot watch factory

PLAYERS

• Owners: A variety of physician-investors

• Developers: Dr. Jay Klarsfeld and Dr. Richard Lipton