THURSDAY, APRIL 16, 2009
by Dan RafterMidwest Real Estate News: We wrote about healthcare construction three issues ago. Back then, it was outperforming all other forms of commercial construction. Is that still the case?
Tag Birge: In comparison to other areas, healthcare construction is much stronger. It is indeed being impeded by the credit cycle we are in, but it is still performing better than the other areas.
MWREN: How is the credit cycle impacting healthcare construction?
Birge: You are seeing a lot of hospitals nervous about capital projects right now. This is particularly true with new hospitals. This industry is resilient to the economic slowdown, but it's certainly not immune.
MWREN:That being said, healthcare construction is still a solid performer today, right?
Birge: In comparison to other areas, this market is still very strong. If you look at the percentage of new construction going on now, if you take out government and education, we've never seen a larger percentage of new commercial starts being in the healthcare category.
MWREN: Why is this?
Birge:It's all demand-driven. It's not spec-driven. The demographics - we are getting older as a society - calls for more healthcare facilities. More and more procedures are being done on an outpatient basis. You are seeing more medical office facilities that have outpatient components to them. That's not going to change. That trend is going to continue to grow. The surgeries have gotten less invasive. The hospitals are facing economic issues, but they're still trying to figure out how to get things done. In some industries, like retail, it's basically shut down now.
MWREN:It's easier to get financing for healthcare projects, too, right?
Birge:Yes, there is still financing available for healthcare. It is a favored area for lenders. That's never been more important. The credit of the underlying tenants is so strong. There is less risk involved for the lenders.
MWREN: I assume that a lot of companies would like to get into the healthcare construction field now. Is it correct, though, to assume that it's not easy to get into this field if you don't have experience in it already?
Birge: It's very difficult. The average sales cycle with a hospital sponsor is 14 to 16 months. It's not something that you can switch to quickly. It takes years for the deals to come together. You need credibility and expertise. If a company is not in it now, and is looking for it as a short-term fix until the economy rebounds, I don't see that as being possible.
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