Planning was key to marketing this MOB

DASCO, ALEGENT HAD OMAHA FACILITY 80 PERCENT LEASED BY GROUND BREAKING

 

By Murray W. Wolf

 

If a medical campus were a basketball team, the acute-care hospital would be the center – the biggest, brawniest player on the court. The medical office buildings (MOBs) would be more like point guards, dishing off assists to the big man or – to torture the analogy a bit further – referring patients to the hospital.

Like a winning basketball team, a successful medical campus needs both. It’s critical to fill MOBs with the right mix of physician-tenants to deliver the desired services and assist hospitals with steady streams of referrals.

So while it might be somewhat overlooked amid the excitement of developing a new hospital campus, the nitty-gritty work of marketing MOB space is arguably one of the most important parts of the development process.

When DASCO Cos. was selected by Alegent Health to develop a new MOB on the campus of the system’s new Lakeside campus in west Omaha, the leasing team relied on an aggressive, detailed game plan to get the job done.

It worked. The four-story, almost 100,000 square foot North Professional Center was 80 percent pre-leased when ground was broken; when it opened, the occupancy had increased to 95 percent.

Filling the void

Omaha-based Alegent Health comprises nine acute-care hospitals, with 1,829 licensed beds and more than 1,200 physicians on its medical staff. It provides services at more than 100 sites and has nearly 8,400 employees.

It is a faith-based healthcare system that was created by the consolidation of Bergan Mercy Health System and Immanuel Medical Center in 1996. The sponsors of Alegent Health are Catholic Health Initiatives and Immanuel Health Systems. Immanuel Health is affiliated with the Nebraska Synod of the Evangelical Lutheran Church in America.

By early 2002, Alegent had already established Lakeside HealthPark on a 38.14-acre campus in fast-growing west Omaha. The outpatient campus included medical offices and a wellness center, providing a range of services to the burgeoning population of western Douglas County, Neb., including west Omaha, Elkhorn and Bennington, as well as Waterloo, Iowa.

In spring 2002, amid much fanfare, Alegent broke ground on the campus for a $64.9 million, four-story, 202,650 square foot full-service hospital. The “state-of-the-art,” 77-bed Alegent Lakeside Hospital opened in August 2004.

(For more details on Alegent Lakeside Hospital, please see “Teamwork works for Omaha system” in the May 2003 edition of Healthcare Real Estate Insights^™.)

As the new hospital was going up, it was plain to see that there was a gap between it and the existing HealthPark facilities to the south. Plans were to fill that gap with a new MOB.

In September 2003, after a competitive selection process, Alegent announced that Palm Beach Gardens, Fla.-based DASCO Cos. had been chosen to develop the new Lakeside Professional Center.

“Through our partnership with DASCO, we are building another link to quality, convenient healthcare for both the citizens of west Omaha and the physicians who wish to practice here,” then-CEO Charles J. Marr of Alegent Health said at the time of the announcement. (He has since retired.)

“The new medical office building will not only structurally unite the Lakeside Healthpark campus, its interconnectedness will further enhance the atmosphere of collaboration among our medical professionals.”

DASCO officials said the new MOB would enable Alegent to better serve the healthcare needs of the booming area.

It was to be a textbook third-party development project. DASCO would develop, finance, lease, own and manage the new on-campus MOB while Alegent would retain ownership of the underlying land. The health system made the site available to DASCO through a long-term ground lease.

Customized marketing

Ground was broken for the new North Professional Center in spring 2004, but the marketing process had begun months before.

“Marketing and leasing is truly an integral piece of the overall development process,” says DASCO’s CEO Malcolm S. Sina, who was interviewed recently concerning the leasing effort. “But before you get started, you need to understand the client’s objectives. That’s where our plan starts. We don’t come in with any preconceived notions about how leasing should be handled. Every client, every situation is unique.”

The customized marketing effort for North Professional Center was described by Cindy Alloway, vice president and chief operating officer of Alegent Health Lakeside Hospital, during a panel discussion at the “Medical Office Building (MOB) and Healthcare Facilities Seminar,” which was presented earlier this year in Dallas by BOMA International.

(For more on that panel discussion, please see “Savvy marketing is a must for MOBs” on Page 10.)

 

Ms. Alloway said that hospitals generally prefer to maintain control of on-campus MOBs. But she said Alegent had three reasons for allowing a third party real estate firm – DASCO – to develop, finance, lease, own and manage the new North Professional Center.

First, she said Alegent had just expended “an enormous amount of capital” on a new hospital campus as well as major renovations on four other hospitals. Indeed, the system had embarked on a $150 million, multi-campus expansion, renovation and new construction program. Developing the new MOB using off-balance sheet financing would help the system to preserve capital.

Second, she said the health system did not want to let the physicians “hold us hostage” any longer. Alegent no longer wanted to act as a landlord for its medical office space.

Third, MOBs are not the system’s core business, she said. Letting a real estate company handle the real estate would enable Alegent to concentrate on its core mission of delivering quality healthcare.

Start with staffing

Ms. Alloway said that Alegent’s tenant recruitment process for Professional Center North started with a review of the medical staff development plan. Most hospitals have a three-, five- or 10-year staffing plan, she explained.

In the case of the Lakeside campus, she said a key component of Alegent’s five-year plan was to develop the critical mass of campus-based primary and specialty care physicians to eventually support the acute-care hospital. The primary care staff included family practice, internal medicine, OB/GYN and pediatrics. The specialty staff included cardiology, dermatology, gastroenterology and pulmonary medicine.

“This hospital had a very clear sense of what they were trying to accomplish and identified early on the mix of specialties that would be critical to the success of the building. We literally spent a full day with the hospital’s administrators and the heads of each department to define that,” DASCO’s Mr. Sina recalls.

“You typically do not get that level of dialogue and that level of involvement from hospital administration and staff because they simply don’t have the time.”

Alegent administrators and staff were willing to take that time, Mr. Sina says, because this was a brand new hospital campus and because Alegent had learned plenty from past development experiences.

“They appreciated even more the importance of identifying specialties to support hospital services – specialties which would also benefit from interaction and interdependence with each other,” he says.

“We also wanted to make sure we didn’t cannibalize the staff at other Alegent campuses,” Mr. Sina adds. “The Lakeside campus served a whole new market. So we really had to stop and think: Where do you pull from?”

It is also important to understand that physicians will share lease rates and other information, Ms. Alloway said. Thus, it is important to offer comparable lease rates for tenants with comparable space requirements.

Learn your ABCs

After identifying the desired mix of specialties, the leasing team categorized potential tenants into A, B and C prospects.

“This prioritizing was time well spent,” Mr. Sina says.

“A” prospects were primary care physicians, physicians whose specialties would be critical to the success of the hospital, and physicians who expressed early interest in the project, Ms. Alloway said.

“Those are the first physicians that we went after,” she said, adding that attracting primary care physicians was a crucial part of the plan.

“You will not have a specialist that you can get onto your campus until you have the primary care physician base to support that,” she said. “Once they see that there’s a good share of primary care doctors to refer to them, then the specialists will start coming.”

A very large primary care group soon leased 1-1/2 floors for the building.

“They were a huge draw” for the specialists, Ms. Alloway said.

“B” prospects included desirable tenants. However, these tenants didn’t generally use the hospital’s services (such as allergy/asthma, behavioral health, dermatology and ophthalmology) or had expressed no immediate interest in the project.

“Those are the ones that we have to ask our developers to help us (recruit), and we work together to sell the concept to them,” she said.

“C” prospects included physicians who have already said “no,” non-users of any inpatient or outpatient hospital services, and allied professionals such as dentists, optometrists, chiropractors and podiatrists.

Alegent also moved certain services and divisions into the MOB that are typically housed in hospitals, such as human resources, occupational health, cardiac rehabilitation and some other healthcare and support services.

“As expensive as a medical office building is on site, a hospital is twice to three times that expensive,” she explained, noting that those functions still have easy hospital access because the buildings are connected.

Leverage strengths

After qualifying and categorizing the prospects, Ms. Alloway said the next step in the tenant recruitment process was to generate initial letters of interest.

In marketing to prospective tenants, the leasing team described the demographics and analyses of the primary service area (PSA), explained the benefits of the location, emphasized the extent of the early interest, and highlighted the various leasing options.

The leasing team focused on leveraging the project’s unique strengths and benefits, Ms. Alloway said. One key benefit was patient convenience because the MOB would be attached to the hospital.

“That’s just huge for a lot of physicians,” she said. “Convenience for patients is a very big thing for our physicians.”

She said that the new MOB also offered other benefits to prospective physician-tenants, including medical practice and scheduling efficiencies, an affiliation with a desirable hospital system, and low out-of-pocket costs.

After leases were signed, attention shifted to the tenant build-out process, Ms. Alloway said. DASCO and Alegent formed a coordination team that held regularly scheduled meetings and regularly reviewed a project checklist.

“This is very, very important,” she said. “If you’re working with a hospital partner, this will save you many headaches in the process, and it will get all the key stakeholders involved.”

Coordination team members should include the developer, tenant representatives, property managers, information systems (IS) and information technology (IT) personnel, the construction manager, the contractor and the interior designer, she said.

“If you can get all those people around the table for regularly scheduled meetings, you’re going to save yourself a lot of trouble,” she said.

The coordination team meetings covered such topics as: space plan reviews and approvals; lease and amendment status; construction documents and drawings; bidding, negotiations and permits; tenant approvals and overages; and issue identification and resolution.

The checklist included: construction change orders, interior and exterior signage, maintenance, moves and coordination of occupancy of each suite, a critical timeline review, and other special needs such as security upgrades and nurse call systems.

‘Don’t settle for less’

When it comes to MOB leasing, Ms. Alloway advised, “Don’t settle for less.” She said to be persistent in pursuit of targeted physicians, establish timelines and critical milestones, and don’t be too quick to settle for tenants from the “C” list.

The Lakeside MOB leasing team has stuck to that game plan, according to the folks involved. About 3 percent of the space is still available, she said, but Alegent and DASCO are still holding out for the right tenants.

Ultimately, Ms. Alloway says, the Professional Center North MOB project was a “win-win.” “We had most of it leased before we ever broke ground,” she added.

“The marketing and leasing effort for this project was successful because there was a true sense of trust, confidence and collaboration,” Mr. Sina says. q

Professional Center North

OMAHA, Neb.

STATS

• Cost: About $16 million

• Size: four stories, 97,300 square feet

PLAYERS

• Client: Alegent Health, Omaha

• Owner/Developer: DASCO Cos., Palm Beach Gardens, Fla.

• Architect: HKS Inc., Dallas

• Contractor: Meyers-Carlisle-Leapley Construction Co. Inc. Omaha