Building Partnerships
SPHS Breaks Ground for a New Medical Office Facility
A new, three-story, 75,000-square-foot medical office building is one more phase in what Dan Moen believes will be continued growth for Mercy Medical Center.
He told BusinessWest that it’s more than a souvenir from an elaborate groundbreaking ceremony staged late last month for a medical outpatient office building at the corner of Carew and Chestnut streets. It’s also a symbol of an intriguing partnership — and a fairly new and different business model.
Indeed, in a departure from past practice, SPHS will not own the three-story, 75,000-square-foot facility to be built on the Mercy Medical Center campus that will become the new home to the Weldon Rehabilitation Hospital’s outpatient rehabilitation programs, the Mercy Hearing Center, and two Mercy-affiliated physician practices. (Hampden County Physician Associates will also occupy half of the office space in the new facility through consolidation of several existing medical-practice sites in the area.)
Instead, it will lease the space from developer Carew Chestnut Partners, a firm with medical-commercial real-estate development and management. Under the terms of a construction and land-lease agreement, Carew Chestnut Partners will develop and own the new building, while the SPHS will maintain ownership of the land, which it will lease to Carew Chestnut Partners.
“In this case, we get revenue from leasing the land to the partnership, so that’s a plus for us, and we’re not using our own capital for a facility that we really need,” Moen explained. “For lack of a better term, it’s what we call a ‘non-core’ asset, meaning we don’t have to own it because there are developers out there that do a very good job at medical development, so it’s a win for everybody.
“I’m a big believer in the concept that we don’t have to own everything,” Moen continued, adding that the lease-back model is becoming popular among healthcare systems nationwide because it allows the hospital or system to do what it does best — while also freeing up resources for other medical programs — and developers to do what they do best.
“Many hospitals and healthcare systems across the country are doing this type of partnership these days because access to capital for hospitals can be scarce, and we want to make sure we are saving our debt capacity for those projects that only the hospital can do,” Moen explained. “So if we want to expand a particular service that is hospital-based, an in-patient service or a cancer program, we want to make sure we have the ability to borrow money to do that.”
Andrew Henshon, managing partner of Carew Chestnut Partners, said his company has extensive experience not only in the construction and development of medical office space, but also in the management of such properties.
“We’re very pleased to participate in this new venture with Mercy Medical Center and Hampden County Physician Associates,” he said. “The new, environmentally friendly medical office building promises to be one of the region’s leading destinations for outpatient medical care and services.”
Plans for the facility were taking shape when Moen took the helm at SPHS in early 2011, but over the past 12 months, the project has come off the drawing board, and with a design that places a heavy emphasis on mopdern, ‘green’ building features and techniques.
“Whatever type of construction we want to do these days, we have to pay attention to the environment,” Mosen explained. “It’s the right thing to do, and it will cost us less money over the long run.”
Henshon told BusinessWest that green aspects of the development include solar panels, green roofs, water-efficient fixtures, high-efficiency heating and cooling systems, and recycled and environmentally friendly materials, including limited use of volatile organic compounds (VOCs).
The Mercy Hearing Center building, built in 1927, as well as an on-site maintenance building, will be torn down to make way for the new development, which Moen said is expected to be complete by December 2013.
The design, not to mention the operating model, are a reflection of the health system’s broad mission, said Moen.
“Mercy Medical Center is committed to the delivery of outstanding patient care and the best healthcare experience possible,” he explained. “This innovative partnership will allow us to further that goal so we can offer patients quality care in a spacious, bright, state-of-the-art setting that also features easily accessible parking.”
As the construction commences, Moen added that plans past the new building are being discussed.
“We just engaged a firm, MorrisSwitzer, to help us with a facility master plan for the campus,” he said. “This is a very experienced healthcare consultant firm, and it will help us look at what the campus will look like five or 10 years down the road.”
The master-plan discussions, being undertaken with all departments at SPHS, should take about six months to complete, he said.
For now, though, the focus is on the project just launched, which, like the shovel in Moen’s office, is symbolic of new partnerships and imaginative ways to meet the system’s mission and improve service to the region.
— Elizabeth Taras
