Hartford Business Journal

14 Hartford Business Journal • May 18, 2020 • www.HartfordBusiness.com By Matt Pilon mpilon@hartfordbusiness.com L ike many hospital sys- tems, Trinity Health Of New England has sub- stantially grown its net- work of brick-and-mortar outpatient locations in recent years to bring its providers and services closer to patients' homes. But the trend of ever-expanding healthcare real estate may be com- ing to an end, says Trinity Health CEO Dr. Reginald Eadie, who oversees the four-hospital system, including St. Francis Hospital and Medical Center in Hartford. It's not just that property is expensive (operating leases cost Trinity Health about $24 million a year). It's also because the practice of telemedicine has exploded during the coronavirus pandemic, spurred by the federal government's decision to reimburse virtual doctor visits, through phone or video, at the same rates as if they had occurred face to face. Meanwhile, Connecticut's Medicaid program has eased prior restrictions on audio-only doctor visits in response to COVID-19, while commercial health insurers, includ- ing Aetna and Cigna, have temporar- ily waived member cost-sharing for certain telemedicine visits. "Moving forward, why would we ever get in our cars in the middle of a work day to drive 20 minutes to a physician's office when you can simply fire up your computer and do mostly everything, including to some degree a physical exam and getting prescriptions filled, while in your office?" Eadie said. He likens the situation to a mod- ern version of what happened dur- ing America's last pandemic, caused by the Spanish flu, a century ago. "The economy couldn't support the overhead needed to have a prac- tice in the community, so doctors started going to patients' homes, knocking on their doors with a black bag," he said. "Now we are going back to that future." Of course, it's not possible for all healthcare services to be done remotely. Plus, for Eadie's predic- tions to play out, it would require the Centers for Medicare and Medicaid Services (CMS) to make its telehealth reimbursement changes permanent. There's no guarantee that will happen, but with more patients having their first experience with virtual doctor visits during the pan- demic, Eadie suspects it could be the push the system needs to greatly expand digital care and cut down on expensive real estate costs. "My fingers are crossed that CMS will maintain reimbursement for vir- tual visits and we can get rid of the in- person visits," he said. "We don't need them, they're a waste of resources, and it will help us start bringing down the cost of health care." A hospital system shrinking its physical footprint is just one way that COVID-19's impact could ripple across the region's real estate market, where health systems and provider groups are major economic drivers, occupy- ing or developing significant space along commer- cial corridors and generating de- mand for medical office developers and investors. In recent years, the number of walk-in urgent care centers has exploded in the region's high-traffic retail stretches, and medical office buildings — housing specialty practices, surgery groups and other providers — have long been viewed by area developers as stable and worthy investments. Medical office outlook Eadie's prediction comes amid a time of much uncertainty for the region's real estate market. Restau- rants, which are set to reopen on a limited basis, may suffer a prolonged downturn due to dwindled consumer confidence, and some retailers were struggling before the pan- demic hit. In some ways, healthcare tenants appear better positioned to come out of the crisis in a relatively strong position. They tend to be bet- ter capitalized than the average retail lessee, and many still have demand for their services, or are at least antici- pating a major backlog of busi- ness once the virus dies down. Indeed, a num- ber of medical office construction projects that were underway when the pandemic struck Connecticut in March are still on schedule, with demand for the new space holding steady, area property developers and brokers say. "A lot of the projects that were already on the books that are not complete will be completed and finished," said Nicholas Morizio, Hartford president for property broker Colliers International. However, leasing and other deals in the medical office pipeline have slowed, at least temporarily, Morizio said. A recent U.S. assessment by Colliers' national research department predicts that will be the case across the country, with fewer ground- breakings and more focus placed on re- purposing other types of spaces, such as vacant retail, for health services. William Gran- ruth, head devel- oper of Durham- based Medical Development Associates, which is nearing completion of two new build- ings at its Saybrook Road medical office complex in Middletown, said he isn't worried. The 50,000-square-foot expansion has already secured orthopedic sur- gery and dental groups as tenants. "In terms of our development project, no, [COVID-19] hasn't held us up at all," Granruth said. "We think now more than ever the need for high-quality healthcare and facilities in the community are a necessity." David Ses- sions, presi- dent of Avon developer Casle Corp., said his company's construction of a 30,000-square- foot medical office in Winsted for Hartford HealthCare re- mains on pace. Connecti- cut's medical office market never saw major swings in demand one way or the other, Sessions said, adding he doesn't think that will change moving forward. Connecticut has an aging popu- lation that will continue to need healthcare services, many of which must be provided face to face. "I don't see, generally, a lack of growth in the need for medical ser- vices," he said. Still, the pandemic is unprece- dented in modern times, so Sessions readily admits he can't be sure. Virtual Care Growing popularity of telehealth casts uncertainty over CT's stable medical office market Hartford County's medical office footprint The Hartford metro area's medical office market has grown by about 15% over the past eight years, in terms of square feet of building space. Year Square feet 1Q13 6,243,868 1Q14 6,243,868 1Q15 6,810,074 1Q16 6,907,874 1Q17 7,017,874 1Q18 7,062,874 1Q19 7,144,234 1Q20 7,238,420 Source: Revista Avon-based medical office developer Casle Corp. says the construction timeline for this 30,000-square-foot building in Winsted, which will be occupied by Hartford HealthCare, has not been impacted by the pandemic. William Granruth is the lead developer of Durham's Medical Development Associates. PHOTO | CONTRIBUTED HBJ PHOTO | MATT PILON

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