Doctors are calling, looking for solutions

DEVELOPMENT SOLUTIONS GROUP LIKES THE STEADINESS OF MEDICAL REAL ESTATE

 

By Anne Bretts

 

Alan R. Main and Andrew E. Shearer met 10 years ago in Denver. They hit it off immediately.

Main had built his career over 25 years in healthcare real estate while Shearer had spent 15 years doing a broad range of development, including healthcare, retail, mixed-use and commercial office projects.

Five years ago they came to the conclusion that one area of commercial development that promised solid, non-cyclical and continued growth – unlike the up-and-down nature of retail and other types – was healthcare.

In addition, the two development veterans saw demand growing for MOBs, and in particular for people who could guide physicians and hospital executives through the development process from start to finish.

So, they forged a business marriage that has proven to be made in real estate heaven.

Today, Development Solutions Group LLC (DSG) and its principals are thriving.

“We were generating revenue in three months, making a profit in nine months and had three projects going in the first 12 months,” says Mr. Shearer, the chief operating officer and managing director of real estate development.

They continue to grow the business from two office locations. Mr. Shearer runs the operations in the western part of the country and is based out of the Denver office; Mr. Main, the president, opened an office late last year in Madison, Wis. From there he is building a client base in the Midwest and points to the East.

No desire to be huge

Despite their geographic separation, Messrs. Main and Shearer remain involved in the hands-on management of all of DSG’s assignments.

Kevin Fosse, a third partner, joined the company in 2004 as the senior vice president of real estate development. Working out of the company’s Denver office, Mr. Fosse has a decade of experience as an architect and two more decades as a developer of healthcare, general office and mixed-use projects under his belt.

The trio handles all client relations, using a national network of healthcare practice management consultants, architects, contractors, lenders and other resources. They work with physicians and hospitals to structure the complex legal arrangements needed to integrate ownership and operations without conflicts of interest. And they can call on the capital partners within DSG to fill in any equity financing needs.

By the end of this year, the boutique firm will have completed 280,000 square feet and have another 150,000 square feet in development. The total completed value will be $150 million, according to the principals.

The firm’s plan is to do a solid $30 to $50 million a year in projects. Its initial projects have been in Colorado and New Mexico, but the latest strategy – including Mr. Main’s move to Wisconsin – is designed to broaden the firm’s reach.

Such volume is not going to put DSG among the top healthcare development players in the country, but the partners knew from the beginning they didn’t want to run a big company.

“We’re not managing people, we’re managing projects,” Mr. Main says. He chose to move to Madison in part to expand the business and, in part, to be near family, a choice he couldn’t have made without the flexibility of a smaller organization.

Docs jump on board

The partners say their hands-on approach helps them relate to the needs of physicians, who want to concentrate on medicine, not real estate.

“Our projects are designed to meet the business plan needs of the end user,” says Mr. Main. “Our focus is on provider-owned real estate. We spend a lot of time helping the provider analyze their business and then structure the right project to meet their objectives.”

They haven’t missed yet.

So far, all of DSG’s projects are 100 percent leased, with an average lease term of more than 13 years. And most of the company’s new business comes from referrals.

“On one of our projects, there was a desire during the middle stages of construction to do a second phase,” Mr. Main recalls. “We met with a handful of the docs, then sent out a letter to all the partners explaining the plan. Over 40 physicians – nearly every partner – wrote a check within two weeks. That was our sales effort, a single letter.”

As far as DSG’s principals are concerned, the small firm is in it for the long haul, as they plan to maintain an equity position in all their projects and serve as the property and asset managers.

“Doctors usually only go through the building process once or twice in their careers”, Mr. Main says. “Some turn to friends who are architects or contractors, but who don’t specialize in medical facilities. Some decide to try it on their own, pulling time away from their practices. Others are recruited by developers who are looking for tenants to fill a project.”

Messrs. Main and Shearer say they focus on the physicians’ business plan and long-term operating costs.

For example, the developers know that simple things, such as having the correct design and layout, can improve efficiency and reduce staffing, which in turn improves revenues, for years to come.

Good design, the right location and the right tenant mix, which can boost referrals, can improve each tenant’s ability to recruit physicians and staff, attract and keep patients and maximize profits, according to DSG’s partners.

Medical niche is nice

Specializing in healthcare development gives a firm a leg up on other developers new to the medical arena, according to DSG’s principals. That’s because the issues involved in developing an MOB can be far more complicated than developing a general office building, according to Messrs. Main and Shearer.

When DSG worked with a group of physicians and St. Vincent Hospital in Santa Fe to create a new MOB and surgery center, the developer started the process by evaluating the entire campus and its master plan.

DSG handled the lengthy city approval process, created a joint venture LLC with physician involvement, structured a ground lease with the hospital, secured financing and capitalization, and hired and managed the architects, engineers and contractors.

To this day, DSG remains a part of the Sante Fe project as the property manager and equity partner. The new facility, which is considered a Class A building, is 100 percent leased. The hospital has increased its revenues and the physician-investors are pleased with their returns, according to DSG.

In Denver, DSG worked with two physician groups that had specific goals of combining their urology practices to create a premier urology center with a national reputation.

DSG identified and acquired a site in downtown Denver near Invesco Field and Mile High Stadium, home, respectively, to the Colorado Rockies baseball club and the Denver Broncos of the National Football League.

DSG oversaw the design and location of the project, making sure to take advantage of the best highway access and visibility, according to the principals. The goal of the physician groups was to serve the entire Colorado Front Range market and take advantage of a location in the heart of a regional medical district with several major hospitals.

“The project was a blending of cultures for the two groups and a highly complex technical undertaking,” says DSG’s Mr. Fosse.

Dr. Richard Heppe agrees. He’s on the leadership team of the Colorado Urology Associates, which is merging with Western Urologic Associates and moving into the new facility called The Urology Center of Colorado. The move is expected to take place in December.

As it turns out, Dr. Heppe was an investor in a previous DSG project and felt confident enough to recommend the firm to his own partners, as well as his new one ones.

“It was complicated because we were merging two practices and taking on new lines of business that we hadn’t been involved in before,” Dr. Heppe says. “And in some ways we’re changing how we’re practicing medicine. We’re going to do the exam rooms, but we’re taking the doctors’ offices out of the clinic setting. We’re just going to be in cubicles.”

The shift from offices to cubicles won’t change the quality of patient care, Dr. Heppe says, but it will have a big impact on the new business plan.

“We’ve got 14 doctors,” he says. “That’s a lot of square footage that’s not very productive.”

Timely info was key

Dr. Heppe credits DSG with finding the land and then giving the doctors in both practices all of the information they needed to make difficult decisions quickly. Providing the information in such a timely manner elicited confidence from the doctors, allowing them to move forward. At the same time, the doctors were able to continue focusing on their patients and creating the new partnership.

“If we had tried to work out all of the details before we bought the land we never would have had the deal,” Dr. Heppe says. And without the right information, those quick decisions might not have been good ones, he adds.

DSG’s own business plan is about maintaining its personal connection with clients while, at the same time, looking for new opportunities.

The principals plan to use their two bases to offer flexibility in travel and communications while still working as a single team to develop a national client base.

“It’s not a geographic focus,” Mr. Shearer says. “It’s all about finding the users who need our services.” q

Recent projects by Development Solutions Group LLC

■ Lowry Medical Center, an 80,000 square foot, two-story MOB in Denver that includes a 30,000 square foot outpatient surgery center, imaging center, physician clinical offices, a physical therapy suite and an optical shop

■ The Urology Center of Colorado, a 60,000 square foot, three-story urology center in Denver that includes radiation-oncology with linear accelerator, imaging suite, ambulatory surgery center, pathology lab and clinical offices

■ Physicians Plaza of Santa Fe (N.M.), a 55,000 square foot, two-story MOB on the campus of St. Vincent Hospital that includes a 17,800 square foot outpatient surgery center, physicians clinical offices, physical therapy suite, regional lab facility, plastic surgery suite, food service facility

Development Solutions Group LLC

STATS

■ Office locations: Denver and Madison, Wis.

■ History: The company was founded in 2001 by Alan R. Main and Andrew E. Shearer

■ Services provided: Development and management of MOBs and outpatient centers, concentrating on providing its for physicians and physicians’ groups, including providing physician investment opportunities

■ Ownership: Privately held

CONTACTS

■ Principals: Alan R. Main and Andrew E. Shearer

■ Main phone: (303) 893-0250

■ Web site: www.devsolgrp.com