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| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011
ULI Healthcare Real Estate Northwest
Kaiser Permanente National Facilities ServicesInnovations in Real Estate Development &Strategic Portfolio Planning
Michael J. HuacoVice PresidentBusiness Strategy & Corporate Real EstateNational Facilities Services
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 2
Recognized as one of America’s leading health care providers and not-for-profit health plans
8.8M members
36 hospitals593 medical
offices
9 states and the
District of Columbia
15,129 physicians164,098 employees
$44B operating revenue
Kaiser Foundation Health Plan
Permanente Medical Groups
Kaiser Foundation
Hospitals
Kaiser Permanente is an Integrated Health System
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 3
Kaiser Permanente’s Full Spectrum of Access to CareHigh Access
Low Cost High Cost
kp.org
Telemedicine
MobileServices
Employer Clinics
Small Clinics
Primary Care with Ancillaries
with Primary Care
Small Hospitals
Hospital with Hospital based Specialty Care
High Acuity
Specialty Hub
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 4
KP 2012 Real Estate ForecastKP’s strategic growth relies in part on managing the 54M square foot, $20B real estate portfolio, which is a strategic enabler that supports Mission Effectiveness, Brand and Access. This forecast is intended to advise on market trends that affect KP’s facilities portfolio highlighting risks and opportunities as the economy improves and the real estate market rebounds.
Total 2012 KP Portfolio is 54M sf MOB’s make up almost 50% of the portfolio. Hospital’s make up 28% of the portfolio. Projected net portfolio growth over next 5
years is 14% or 7.5M sf. MOB’s will comprise 60% of future portfolio
growth.
Portfolio Statistics
14,975,05128%
25,658,22848%
9,214,49817%
2,741,1765%
1,040,6162%
SF by Property TypeHospital MOB Administrative Support Warehouse
KP’s Real Estate Portfolio
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 5
Kaiser Permanente Real Estate HoldingsKaiser Permanente occupies 53.6 Million Rentable Square Feet across 9 states and 1,015 Buildings. Kaiser operates 36 Hospitals
program-wide; with 34 in California and 1 each in Hawaii and Oregon. Kaiser also operates over 610 Medical Office Buildings.
Source: CAFM/Lease Admin and REM discussions, October 2011
*Excluding Other Kaiser Sites, Land, Parking and Residential
Northern CaliforniaBuilding Type # of Buildings RSFHospital 22 6,664,917MOB 233 9,923,166Support 46 1,353,718Warehouse 9 424,476Administrative 129 3,969,017Total 439 22,335,295
Southern CaliforniaBuilding Type # of Buildings RSFHospital 14 7,262,479MOB 199 8,601,260Support 17 799,243Warehouse 16 486,520Administrative 77 2,899,238Total 323 20,048,740
Pacific NorthwestBuilding Type # of Buildings RSFHospital 1 574,107MOB 47 1,617,195Support 5 250,923Warehouse 1 16,500Administrative 18 652,306Total 72 3,111,030
HawaiiBuilding Type # of Buildings RSFHospital 1 473,548MOB 21 620,106Support 0 0Warehouse 1 14,839Administrative 8 267,173Total 31 1,375,665
Mid-AtlanticBuilding Type # of Buildings RSFHospital 0 0MOB 40 1,801,946Support 3 113,467Warehouse 1 31,800Administrative 10 432,793Total 54 2,380,007
ColoradoBuilding Type # of Buildings RSFHospital 0 0MOB 28 1,534,494Support 3 201,636Warehouse 1 27,860Administrative 8 548,340Total 40 2,312,331
GeorgiaBuilding Type # of Buildings RSFHospital 0 0MOB 29 856,202Support 0 0Warehouse 0 0Administrative 9 322,263Total 38 1,178,465
OhioBuilding Type # of Buildings RSFHospital 0 0MOB 15 703,858Support 1 22,189Warehouse 1 38,621Administrative 4 123,367Total 21 888,035
Other Kaiser SitesState Property Use Status # of Bldgs. RSFConnecticut Administrative Leased 1 3,420Illinois Administrative Leased 1 8,065New York Administrative Leased 1 7,505Total 3 18,990
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 6
Managing KP’s Real Estate Portfolio – Market Cycles The national Real Estate market is entering into an upward cycle from several years of flat
or negative growth. Several key urban markets are recovering and significantly improving faster than the
national market. (San Francisco Bay Area, NY, Los Angeles, Denver) The stock or inventory of distressed assets Office, Retail, Land, has greatly diminished
over the past 24 months, driving projects to green field sites or new development.
KP Real Estate Sales 2006 - 08
KP Building Acquisitions
Distressed Assets
2006 2009 201020082007 2011
New
Cons
truct
ion
Over
Sup
ply
Rising market Incline slowing Falling market Decline Slowing Rising market
US Market Cycle — 2006 to 2013*
2012 2013
Rising Market Trend- New Development and
Construction, Pricing Risk
• 2006-08 NFS Real Estate proactively sold excess real estate generating over $100M in revenue.
• 2009-2011 KP aggressively capitalized on market downturn buying distressed and foreclosed office and retail assets well below replacement cost.
• 2012 – Forward rising prices and scarcity of product will drive KP towards new delivery models, 3rd party developers, bundling contracts, joint ventures, systemized construction, asset swaps.
Pricing Risk
Proactive Portfolio Management Leverages Market Cycles
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 7
Repurposing Existing Building For Medical Use –Buying Distressed KP has programmatically undertaken Asset Repurposing as a strategic tool to reduce
capital costs and improve time to market. • Total construction cost benefit ranges from 20% to 30%• Timing benefit from 9 to 12 months shorter construction period
KP has purchased over $1B of distressed assets over the last 36 months, totaling over 3M square feet and delivering capital savings of approximately $180M.
32-36 monthsTiming$705/sf*Total Project$580/sf*Build New$125/sfBuy Land
Traditional KP Delivery Model100,000 SF Medical Office Building
18-24 monthsTiming$590/sf*Total Project
$340/sf*Repurpose Building Medical Use (Improvements)
$250/sfBuy Existing Building / Land
Alternative Delivery Model100,000 SF Medical Office BuildingBenefits
• Capital cost Lower by over $100/sf.• Delivery improved by 12months
Traditional ground up delivery method vs. asset repurposing
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 8
Factors Considered for Building Conversion to Clinical UseRepurposing existing buildings combined with adequate front end capital investment resets the lifecycle age to as much as 30+ years.
EXAMPLEPasadena MOB building acquired 2007 completed in 2008
• 60k SF MOB• Building originally built in mid 80’s• *Purchase Price $26.5M 2007• Total TI Capital Spent $22M 2007-08• Useful Life 30+ years
Meets Business Requirements Transportation Access Visibility
Meets Business Requirements Transportation Access Visibility
Medical use zoning and permitteduses
Medical use zoning and permitteduses
Prefer steel frame building type IIConstruction
Prefer steel frame building type IIConstruction
Prefer floor plate size of 20k to40K SF with a central core
Prefer floor plate size of 20k to40K SF with a central core
Prefer upgraded MechanicalElectrical Infrastructure
Prefer upgraded MechanicalElectrical Infrastructure
Prefer buildings that have been up-graded to modern codes (i.e., asbestos, ADA, Fire/Life safety, etc)
Prefer buildings that have been up-graded to modern codes (i.e., asbestos, ADA, Fire/Life safety, etc)
Medical use zoning and permitteduses
Medical use zoning and permitteduses
Either meets or can meet 5 spacesper 1K SF of space
Either meets or can meet 5 spacesper 1K SF of space
Prefer buildings built post 1975 dueto environment and code issues
Prefer buildings built post 1975 dueto environment and code issues
CRITERIA DESCRIPTION
Location
Parking
Zoning
Floor Plate Size
Structural
Mechanical/Electrical
Building CodeUpgrades
Environmental
Age
Existing Building
Initial Investment New KP
Infrastructure
$
Completed Refurbished
Building KP MOB
Plus 30-Yr Life
*Amount of purchase price allocated for MOB
Initial KP Capital Investment Will Reset the Lifecycle Clock
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 9
Converting Office Product to Medical - Recent Projects
Location: 859 South 4th Avenue, Brighton, COSize: 27,500 Square FeetOpening Date: August 2011
Brighton, CO
Location: 5855 Copley Drive, San Diego, CASize: 171,684 Square FeetOpening Date: 2011
Copley - Kearny Mesa
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 10
Converting Office Product to Medical (Larger MOB’s) – Recent Projects
Location: 8008 Westpark Drive, McLean, VASize: 237,000 Square FeetOpening Date: August, 2012
Germantown, MD
Location: 655 & 675 Watkins Mill Rd, Gaithersburg, MDSize: 200,000 Square FeetOpening Date: March 19, 2012
Tyson’s Corner, VA
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 11
Converting Office & Retail Product to Medical SCAL – Recent Projects
Location: 13000 Peyton Drive, Chino Hills, CASize: 133,000 Square FeetOpening Date: 2013
Chino Hills, CA (Retail)
Location: 18600 S. Figueroa, Carson, CASize: 183,362 Square FeetOpening Date: 2013
Carson, Ca
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 12
Kaiser – New Gateway Medical Office – LEED Gold PlansThe Kaiser Gateway MOB will utilize an existing 32,000 SF singlestory former Circuit City. Primary Care
To enhance member satisfaction daylight and views will be used throughout the centralized waiting area and central corridor.
To enhance the member experience and improve member satisfaction daylight and views will be used throughout the centralized waiting and the centralcorridor.
Exterior BeforeExterior After
The project is intended to achieve 2009 LEED for Healthcare Gold. • Bike parking, parking will be provided for 5% of all employees at Gateway.• Creating areas of respite for staff and our members. • Concrete will contain fly-ash used to maximize LEED req’s.• Design and install a Variable Refrigerant Flow (VRF) system to achieve LEED
Gold Certification. This system uses air-cooled heat pumps with a condensing gas boiler. Outside air for ventilation will be provided.
• On-site renewable energy (Photovoltaic System).
Interior After
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 13
Leveraging the Development Community for Project Delivery
Size: 64,579 Square Foot Building, 41 Providers
Location: Elk Grove, California
Timing: Opened 2011
Structure: Ground Lease with fixed Put in year 5
Benefits: Shorten Time to Market Shorten Programming Time Shift of Delivery Risk Lower Capital Cost
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 14
Clinical Pod ConceptMajor Benefits:• Rapid Speed from Design to Delivery• High Quality Precision Materials
• Extremely Energy Efficient• Flexible Design
| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 | Page 15
Kona Medical Office Building Replacement Project Kona Medical Office Building Replacement Project
Smart kit of high precision, prefabricated components. Design integrates best-in-class technology with proven methods to create high performance envelope optimized for indoor air quality (IAQ), thermal comfort, natural light and superior acoustics.
Fast and easy install of the kit reduces on-site time and on-site waste. Simple install increases the accuracy and quality of the product.
Low Tech AssemblyLow Tech AssemblyFast: Improved time to market between 20% to 30% vs. traditional construction.
Better : Improved building quality, healthier, no volatile organic compounds (VOC), high air quality, factory built, premium materials
Affordable: Competitive first costs along with energy savings and lower life cycle costs
Green: Greater energy efficiency, high Leadership in Energy and Environmental Design (LEED) specification, 25% less energy consumption, on-site waste reduction, lower carbon footprint
Smart Construction for a Superior ResultSmart Construction for a Superior Result
StateState--ofof--thethe--Art Medical Facility to Serve Growing Needs in Hawaii Art Medical Facility to Serve Growing Needs in Hawaii
Size: 40,000 square foot MOBLocation: Honokōhau, North KonaTarget Opening Date: June 2014
Hybrid ConstructionHybrid ConstructionHigh Precision High Precision Manufactured ComponentsManufactured Components
• 17 provider offices • 30 Exam rooms• Radiology• Pharmacy and Optical
The proposed Kona Replacement Clinic is a showcase model for how innovative clinical technology and state-of-the-art construction support an integrated healthcare model. KP can bring world class care to rural markets struggling with physician shortages and geographic barriers to care.
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