VIEW Q3 2014 Health Care Real Estate

3rd Quarter 2014

The New Faces of Health Care Real Estate

inside

MOB CLUSTERS • UCSF • LONG-TERM CARE

INS IDE THIS ISSUE

2014 BOARD

Medical Office Building Clusters

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Designing for Long-Term Care

4

The Changing Face of Retail Centers

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Stanford Medical Center - Art Deco Gem

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Moves in the Medical Office Market

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Health Care Services Master Plan

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Restaurant Report

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UCSF Medical Center at Mission Bay

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A Word from Our Sponsors

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the VIEW EDITORIAL STAFF

Graphic Designer

Laurie Gustafson

Partner | Sedgwick LLP President-Elect

Helen Duong

Lease Administration Manager Boston Properties, LP Past-President

Stacie Goeddel

Partner | Holland & Knight LLP Secretary/Delegate

Jeanne Madden

Regional Controller Boston Properties, LP Treasurer/CFO

Lisa Bottom

Design Director, Principal | Gensler Director, Communications

Lora Estabrook

Director of Business Development CB2 Builders Director, Sponsorship Committee

Lada Kocherovsky

Associate Principal Page & Turnbull Architects Director, Membership

Samantha Low

Project Manager, Special Projects Group. Hathaway Dinwiddie Construction Company Director, Programs

Donna Schumacher Richard Isaac Yrene Chan Claudia Flores Catherine House Debbie Leffer Cindy Lima

Business Development Manager First American Exchange Company Director, Community Affairs Team

A N G E L P R O FI L E Catherine E. House FRICS, CCIM | Sperry Van Ness Birthplace: Colchester, England

Position: National Medical Office Product Council Cochair Company: Sperry Van Ness, Boston, MA, founded 1987

2014 Quarter 4: Aviation Architecture 2015 Quarter 1: Social Media in Real Estate 2015 Quarter 2: Life Above 30 2015 Quarter 3: Headquarters SF

Contributors

Partner | Allen Matkins Leck Gamble Mallory & Natsis LLP President

Alaine Raven

Be an Angel

Editor Editorial Review

Nancy Lundeen

Anna Rowland Donna Schumacher Kathyrn Sturgis-Bright Clara Tang

Jen DeYoe

Background: Played a lot of Monopoly as a kid! BSc (Hons) in commercial real estate at South Bank University, London. Real estate broker with CBRE in London and San Francisco. Chair of Northern California Royal Institution of Chartered Surveyors (RICS). Director of the San Francisco British-American Business Council. Fellow of the Royal Institution of Chartered Surveyors (FRICS). Member of the Urban Land Institute (ULI). Certified Commercial Investment Member (CCIM) Designee. SPUR member and a licensed California real estate broker.

CREW member history: Member since 2003, CREW President in 2010 (same year as the CREW Network Convention here) Charities: Supporter of CREW Foundation, British Benevolent Fund, Kiva First job: Commercial real estate tax appeals at King Sturge, London. This was a holiday job while I was at university, involving making lots of tea for those in the office.

Extracurricular passions: I’m a drummer in a local rock band, Saucy. Best gig: Café du Nord.

Travel tip: British food is not as bad as rumored! Try steak and kidney pie, crumpets and scones, and clotted cream. Tasty!

Recent travel highlight: A friend’s wedding in England Top SF restaurant picks: Thai Basil, Tadich Grill

Cover photograph: Detail of site-specific photographic mural for Kaiser Permanente’s Oakland Medical Center cafeteria, commissioned and conceptualized by art consultant Renee di Cosio of RoundTree Visuals; landscape image of nearby Lake Merritt by landscape photographer Joe Boone. Individual photos contributed by Kaiser community staff members.

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15 minutes of fame: Top producer for Sperry Van Ness every year since 2011. ©2014 CREW SF. All submissions are subject to editing for clarity and brevity, unless otherwise noted.

POINT OF

VIEW

Medical Office Building Clusters

© 2014 by Catherine House, Sperry Van Ness SV Advisors Changes are occurring in the medical office building (MOB) sector nationwide. In the Bay Area, an estimated $20 billion in hospital and medical office construction is being planned or is underway. Hospital systems are increasingly building or acquiring their own MOBs close to their hospitals. In addition, medical office commercial real estate brokers are seeing more doctors doing sale-leasebacks of their buildings both to hospital systems as well as private investors.

Legal and Demographic Forces California seismic safety law requires California hospitals to meet strict earthquake requirements by the beginning of 2015.

Building medical office buildings next door to these new hospitals is a growing trend. Both private and academic medical centers have a mutually symbiotic relationship with hospitals.

Despite an aging population with greater health care needs, as well as an increased insured population due to the Affordable Care Act (ACA), more doctors are choosing to lease rather than own their own MOBs. Patients 65 or over average twice as many doctor visits as patients aged 45–64. There are 18 million people due to hit 65 over next 10 years. It is predicted that 14 million people will get newly medically insured by the end of 2014, increasing to 25 million people by the end of 2016. ACA incentivizes wellness and prevention, among other services, which are best dealt with by outpatient services that require MOBs. Net Effect Nationwide Many more medical office buildings and more hospital space will be needed over next the 10 years to serve this dramatic increase in health care demand. Across the nation, absorption is up and vacancies are down, and development in this sector has increased.

California Pacific Medical Center (CMPC) Locally, CMPC, a Sutter Health affiliate, is one of the largest private, not-for-profit academic medical centers in California. It has campuses in the Inner Richmond district, Pacific Heights, and the Castro. The new $600 million St. Luke’s campus in the Mission will also have a medical office building built next door, scheduled to be operational in 2019. The new Cathedral Hill Campus hospital (an approximately 730,000-square-foot, 12-story tower with 274 beds) at Geary and Van Ness carries a total project cost of $2.1 billion and is also scheduled to be operational in 2019. CPMC has acquired all the buildings opposite, on Van Ness between Cedar and Geary, and is planning a tunnel under Van Ness connecting them to the campus.

Building medical office buildings next door to these new hospitals is a growing trend. Both private and academic medical centers have a mutually symbiotic relationship with hospitals.

Generally, hospital systems make more money on outpatients than inpatients. Two parallel trends result: the immediate clustering of MOBs around hospitals; and the retailization of medicine, with MOBs expanding to where people live in “need corridors,” often taking over former retail centers. (Please see “The Changing Face of Retail Centers” elsewhere in this issue.)

The San Francisco Picture The local hospital systems have a number of high-profile specialized hospital projects under construction. In all cases they have incorporated medical offices in addition to hospital beds.

UCSF UCSF’s two main facilities are the Parnassus and Mount Zion campuses. A third hospital complex at the Mission Bay campus is under construction and scheduled to open in February 2015.

The Parnassus USCF Campus spans a six-block radius, shared also by UCSF health sciences schools, medical office buildings, and a multilevel parking garage. It is a research and teaching hospital.

The 15-story, 600-bed main hospital is composed of two adjoining MOBs, as well as the UCSF Benioff Children’s Hospital.

UCSF Medical Center at Mount Zion is a hub of specialized clinics and surgery services. The main facility is located at 1600 Divisadero St., between Sutter and Post, about 2.5 miles from UCSF Medical Center at Parnassus. The growing network of (continues on page 4) 3

(continued from page 3)

outpatient services ranges from an audiology clinic to a sleep disorders center. Mount Zion also includes a surgery center and a 90-bed hospital with 10 operating rooms, as well as the UCSF Helen Diller Family Comprehensive Cancer Center.

The new UCSF Medical Center at Mission Bay will comprise three hospitals: the Benioff Children’s Hospital, the 70bed Bakar Cancer Hospital, and the Betty Irene Moore Women’s Hospital. In addition, the Gateway Medical building, a 207,400-square-foot MOB, will be focused on outpatient services for all three hospitals. USCF hopes to also benefit from the adjacent Mission Bay biomedical campus (Please see “Healing Environment at UCSF Medical Center at Mission Bay” elsewhere in this issue).

San Francisco General San Francisco General Hospital is undertaking a $700 million rebuild of the San Francisco General Hospital at 1001 Potrero Ave. The new nine-story hospital and trauma center will house 284 beds and 14 operating rooms when completed in 2015. Besides the hospital rebuild, there is also a campus master plan that includes upgraded medical offices and a mental health facility.

Chinese Hospital of San Francisco Chinese Hospital of San Francisco (about 99,181 square feet) is a replacement hospital with 76 beds, due to be completed in late 2015 at a cost of approximately $160 million. The sale in May 2014 of the 12,543-square-foot shell medical office condo space nearby at 728 Pacific Ave. at $343 per square foot to North East Medical Services is yet another example of the aforementioned clustering effect.

The Future for Medical Office Buildings

Kaiser Permanente Kaiser Permanante is building a 10-story, 264,000-square-foot medical office building and care center at 1600 Owens St. in Mission Bay. It paid approximately $55.2 million in December 2013 for the land, and it is due to be completed next year.

Anticipating the future, MOBs containing both academic researchers, private clinicians, outpatient centers, and complementary health care providers are now locating either immediately adjacent to hospitals or close to potential patients in former retail locations. By 2021, $4.8 trillion is predicted to be spent on health care, up from $2.7 trillion in 2011. These trends will only become more pronounced both in the San Francisco Bay Area and nationwide.

The Kaiser Permanente Geary Expansion at 1455 Divisadero St. will eventually be a 37,000-square-foot medical office expansion of their already large Geary St. campus. It has not broken ground yet though.

Downtown Doctors are choosing to locate closer to their customers. This map on pg. 3 shows many health care providers choosing to locate in the downtown area (490 Post and 450 Sutter, for example), both to office and ground floor retail locations, due to the daytime population numbers spiking to over three million, despite the lack of hospitals in those submarkets.

What does this mean for the future?

• Space is needed for additional insured populations.

• The shift to outpatient care requires new and different facility types.

• Ambulatory facilities, retail locations, multispecialty clinics will increase.

• Older medical office buildings need replacement or redevelopment.

•

About the Author

Catherine House, CCIM, FRICS, is the National Medical Office Cochair at Sperry Van Ness. She is a commercial real estate broker with over 18 years’ experience, specializing in selling office and medical office buildings. From new construction to master leases, Sperry Van Ness has the expertise on how to buy, sell, and lease medical office properties nationwide.

­­­ ESIGNING FOR D LONG-TERM CARE © 2014 by Clara Tang, Sherwood Design Engineers

After Superstorm Sandy hit the New York area and battered a significant portion of the backbone infrastructure of the city, “resiliency” became the latest buzzword. The unpredictability of the world’s changing climate has caused a shift in the real estate market and in regional urban planning, in order to prioritize flexibility and adaptation. Now more than ever, design professionals are thinking of how to invent more flexible living spaces that can rebound more quickly than conventional buildings. For acute care facilities, however, conventional resiliency design reliant on centralized, public, infrastructure has been the only option. However, design can play a large role in fulfilling the vision of allowing these operation-centric buildings to be less severely affected during natural disasters.

In 1994, the Northridge earthquake was measured at 6.7 on the Richter scale, and it was felt 220 miles from the epicenter.

Almost 60 lives were lost, over 5,000 people were injured, and 4

Image of injured persons at Sepulveda Veterans Administration Hospital. (Axel Koester, Los Angeles Times)

almost 40,000 buildings were affected, causing up to $20 billion in damage, including 11 hospitals. This pivotal event triggered the introduction and passage of Senate Bill 1953 (SB 1953), which required seismic retrofits of all critical care facilities in order to meet current code. Seismic compliance fell under two categories: structural performance criteria (SPC) and nonstructural performance criteria (NPC). SPC are the beams, footings, shear walls, etc., while NPC extend to the infrastructure, primarily the utilities, which keep the structure operational.

The Office of Statewide Health Planning and Development (OSHPD) is a state-run agency that oversees building (continues on page 6)

THE CHANGING FACE OF

RETAIL CENTERS © 2014 by Yrene Chan, NAI Northern California

As traditional brick-and-mortar retail sales continue to struggle due to the convenience and breadth offered by e-commerce sites, we are beginning to see the focus of retail centers shift from the sale of physical goods to providing intangible services that cannot be fulfilled through an online storefront. Landlords of retail centers have especially found success in having medical health service providers as tenants. The medical tenant creates a win-win situation for both the landlord and tenant. By including a medical service provider in the tenant base, a retail landlord is able to diversify income sources to stabilize cash flows and in turn generate steady foot traffic that can help drive new customer acquisition for the medical tenant and cotenants in the retail center.

A view from the inside of One Medical Group’s 4 Embarcadero Center location – one of their many doctor’s offices in the San Francisco Bay Area.

investment in retail space pays off because they perform well at these locations. It is no surprise that medical tenants like DaVita Dialysis, for example, continue to seek locations with high traffic counts and excellent visibility. From the retail landlord’s perspective, the medical tenant’s rents are similar to its cotenants’. However, the retail landlord has the security of stable According to Accenture, a health care consulting firm, health rental income from the medical tenant, which has too much clinics in retail centers are expected to increase by an annual invested to simply move to another retail location. Most medirate of 25-30% in the coming cal health service providers have years. This growth would raise to house and maintain extensive the overall number of health clinmedical equipment in their faciliWith the expected growth in retail health clinics and ics from approximately 1,400 in ties, which are very costly to rethe need for retail center landlords to maintain a 2012 to more than 2,800 by 2015. diversified mix of services, the market for medical place and/or move. Additionally, The recent health care overhealth tenants will continue to thrive in retail centers. as a tenant becomes a more eshaul (the Affordable Care Act) tablished health care provider, it certainly helped accelerate the becomes increasingly difficult to growth of this number. The increase in the population of in- move the business to another location that is not geographicalsured patients has increased demand for alternative health cen- ly convenient for the patient base that it currently serves. Dental ters to serve the overflow of patients from hospitals. Combined practices, for example, often vacate a retail space because of with a greater than 90% satisfaction rate on quality of service, retirement, not from rising rental costs. convenience of walk-in service, and low physician costs,1 there is a solid foundation to support future growth in the market for There are many factors that make the medical health care provider a quality tenant for a retail center, and buyers of retail cenhealth clinics in retail centers. ters have been taking note. In 2013, according to Real Capital With the expected growth in retail health clinics and the need Analytics Inc., sale of properties leased by doctors and other for retail center landlords to maintain a diversified mix of servic- health care providers reached $6.67 billion, the second highest es, the market for medical health tenants will continue to thrive in 13 years of data keeping by the data and analytics firm. Buyin retail centers. Medical health tenants pay a premium for retail ers, including real estate investment trusts (REITs), are paying a space compared to space in a medical office building, but their record average of $270 per square foot, up from the previous record of $262 per square foot in 2012.

We are still a couple years out from understanding how the Affordable Care Act will affect the face of retail, but the demand for health care will continue, and we are already beginning to see health care tenants shift from medical office buildings to retail storefronts. Landlords and tenants alike will benefit from this increasing demand from health centers for retail space, making this an attractive product for real estate investors.

About the Author

According to Accenture, health clinics in retail centers have experienced 25-30% growth from 2012-2015.

•

Yrene Chan is a retail real estate investment associate at NAI Northern California, a full-service commercial real estate brokerage firm with offices in San Francisco, Oakland, and San Jose.

1. Retail Clinics: Friend or Foe of the Hospital? by Mary Kate Scott, for HealthLeaders Media, posted 1/18/11 (http://www.healthleadersmedia.com/content/LED-203107/Retail-ClinicsFriend-or-Foe-of-the-Hospital-Part-I)

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(continued from page 4)

safety. Earthquakes are prevalent along the West Coast, and seismic safety has been top priority for OSHPD and its plan reviewers. A majority of the structural improvements had to be OSPHD approved by 2013; however, the final milestone required by SB 1953 is to meet NPC-5

by January 1, 2030 (NPC-5 states that all facilities must have an on-site supply of water, wastewater storage, and a fuel supply for three days of emergency operations. In the cases of Veterans Affairs or other federally owned facilities, the emergency supply and storage requirements are more stringent and require four days of emergency backup). Some facilities in the Bay Area opted out of providing the infrastructure to meet NPC-5 during these seismic upgrades with the intention of providing it in the near future. Common practices have been to provide redundancy in connections to municipal water or sewer infrastructure.

Images of constructed wetland, Omnilife Stadium, Guadalajara, Mexico. (LivingGuild.com)

pipes that power and feed the hallways and the rooms. The building is better designed if it is self-sustaining and has the systems, or organs, to work as all living things do. Oxygen and sunlight activate life, as water and power energize the structure. Both body and building require sustenance. The body cannot thrive if it is attached to an artificial lifeline, and the same applies to building

an effective biological method of treatment, with disinfection and chlorination typically required for indoor reuse. The typical scale of health care facilities makes them optimal places for wastewater treatment. These are just some of the ways to rethink conventional infrastructure.

These may be advances better known in the commercial real estate market, but they are worth considerThe default has been to ing in critical care facilities, rely on regional infrastruc- An operational, active building is analogous to a healthy human too, as operations of these ture during these natural body. The skin and bones are the façade and structure. The organs treatment facilities become and veins are the wires and pipes that power and feed the hallways disasters, but the more commonplace. Professional and the rooms. The building is better designed if it is self-sustaining common situation is likely architects and engineers and has the systems, or organs, to work as all living things do. the opposite. The intent should be creative and conof NPC-5 surely considers sider holistic building systhis exact issue, but it raises the question connections to an off-site supply source, tem design, not just to satisfy code but of why there might be a need to discon- for example, a water treatment plant. to increase the longevity of the building nect from the larger utility network only and those inside it. in emergencies?

Most facilities have not yet satisfied the NPC-5 requirements, but advances in A constant challenge is that policy makAn operational, active building is analo- water technology and integration of ing cannot match the pace of technolgous to a healthy human body. The skin landscaped systems can be used to meet ogy. And although current policy may and bones are the façade and structure. these emergency water requirements, not allow it, inventions for direct toiletThe organs and veins are the wires and with the full intent that buildings can to-tap technology will surface in the be sustained longer than the minimum marketplace more aggressively after the code allows. For water treatment, many hurdles and common misperceptions mechanical and chemical systems are of health risks for direct reuse are overbecoming more compact and modular. come. Regulations such as NPC-5 will The equipment can be energy intensive, not be considered aspirational goals, but but rainwater capture and/or groundwa- rather common industry practice. The viter extraction are valuable sources of po- sion for health care should look to the far table water needs within the facility. future, not just to January 1, 2030.

Desert Living Center, Las Vegas, NV (IntegrativeDesign.net)

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Considering the opposite end of the consumption cycle, wastewater needs to be disposed of. Wastewater is more often than not the source for recycled water, also known as purple pipe. This water can support all uses that do not require consumption or direct sanitation, mainly cooling systems, toilet flushing, and irrigation. For treatment of the wastewater, constructed wetlands have proven to be

About the Authors

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Clara Tang is a project manager and licensed civil engineer at Sherwood Design Engineers, a group of forward-thinking designers committed to pioneering tomorrow’s sustainable solutions in today’s communities.

Stanford Medical Center Breathes New Life into

ART DECO GEM

© 2014 by Debbie Leife, Page & Turnbull

Architecture, planning, and historic preservation specialists Page & Turnbull teamed up with architecture firm TEF for the upgrade and extensive remodel of Stanford University Medical Center’s 1931 Hoover Pavilion. As historic preservation consultant, Page & Turnbull wore many hats in the project’s detailed planning, including providing technological advice and often conducting extensive research of the building’s history and its architectural significance in order to restore and adaptively reuse this art deco gem.

The pre–World War II Palo Alto Hospital originally treated thousands of patients. In fact, many local residents were born in this six-story building, which spanned over ten acres and received an additional wing in 1939 by William Corlett, one of the original architects. (In 1959, a new, larger medical building was constructed.)

It took three years for the rehabilitation and restoration of the project, producing a state-of-the-art medical office building.

Through photographs, reports, and diagrams, Page & Turnbull was able to identify which features of the building were historically significant, and its team’s research was used to obtain unanimous approval from the city of Palo Alto and in presentations to the Architectural Review Board.

The board-formed, reinforced concrete structure built in a “high-rise approach” was typical of hospital design in the early twentieth century. The ziggurat-style roofline reflective of art deco design was in need of restoration, as were the terra cotta friezes, cast stone, wood windows, copper-clad entry canopy, and ornate metal grills covering the ventilation systems.

While performing separate research focused on repairs, Page & Turnbull’s project team faced a major challenge when it discovered contaminated concrete aggregate used in the 1939 addition. The aggregate contained a high metal content, which, over time, reacted to rain and moisture. As a result, the metal pieces rusted and expanded, causing staining and

spalling. The team conducted materials testing to develop an effective method for repairing the damage and was able to successfully advise the other project architects on how to make repairs to the concrete cost-effectively and aesthetically.

Another challenge and a true crowning feature of the project was the re-creation of the finial. Using archival photographs, Page & Turnbull produced drawings and specifications to accurately replicate the decorative 500-pound aluminum finial that was removed in the 1940s.

“Everyone was really enthusiastic about that element,” said Ruth Todd, Page & Turnbull’s principal-in-charge on the project. “It became a source of community pride.”

The original colors of the building were meticulously determined through paint analysis techniques. Other sophisticated restoration work included conserving the original stairwell, lobby, and some of the six-over-six windows, as well as much of its hardware, several doors, and exterior lighting fixtures.

Although the original lobby no longer meets ADA requirements to serve as an entryway, the historic space is now used as a health library.

Not only will the restored Hoover Pavilion now serve as a new medical office building able to house more doctors and patients but the cherished structure has also promoted a sense of pride in the Palo Alto community.

About the Author

•

Debbie Leifer has been an active member of CREW SF since 2007 and is currently the program director for the Program Committee’s leadership events. She takes an active role in establishing the strategic direction of Page & Turnbull, an architecture and planning firm specializing in historic preservation, with offices in Los Angeles, Sacramento, and San Francisco.

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MOVES

in the

Medical Office Market © 2014 by Kathryn Sturgis-Bright, Navigant Consulting, Inc.

The health care industry uses a wide range of facilities to deliver health care, from the traditional medical office building (MOB) to ambulatory outpatient surgery centers, imaging centers (radiology, MRI, CAT scan, mammogram), and acute care hospitals. With the expansion of the health care industry, we are seeing a more pronounced bifurcation of health care real estate: larger group spaces and smaller private practice spaces. Several factors are influencing these changes, including recent increases in regulation, changes in the administrative payment system, the aging of the baby boomers (both patients and doctors), and an anticipated increase in the number of insured patients.

significant tenant improvement expenditures after purchase, this is often true for both segments of the market to keep up with building or safety requirements.

Many brokers claim that there are too few data points about transactions for larger spaces at this time in the regional market. Instead we are seeing this reflected in anecdotal information, such as new construction of larger facilities and longer marketing time for smaller MOBs. For example, John Muir Medical Center in Walnut Creek just completed its new outpatient facility. Kaiser Permanente’s new construction includes the Oakland,

port for smaller medical office spaces, particularly in prime locations.

The medical office market rides the tides within the local market. For example, San Francisco witnessed a record escalation in the office market. According to the San Francisco Business Times, the office lease rate in San Francisco is up 14% over 12 months ago.3 San Francisco MOBs, such as 490 Post Street and 450 Sutter Street, continue to appreciate, as indicated by recent transactions, many represented by our own CREW member, Catherine House.

Looking at the greater San Francisco Bay Area market, there is an escalating growth rate of 25% in the price per square foot for medical office space over 10,000 square feet, while the growth rate in the price per square foot of medical office space under 10,000 square feet maintained a more modest rate of 3.9% during the same period.4

Regulatory requirements have inDemand has increased for creased the demands on administrative functions, including patient contiguous spaces over 10,000 records and patient follow-up, afsquare feet, as these are ideal for fecting the margins for individual physician practices. By becoming development of ambulatory care part of a hospital system, the physifacilities and group practices. cians generally move into upgraded and more efficient medical facilities. Having larger groups occupy San Leandro, and Redwood City Medilarger multifunctional medical facilities cal Centers. Sutter Health is construct- As sole practitioners retire, the ongoing captures the economies of scale, benefit- ing Sutter Medical Center of Santa Rosa, consolidation of medical practices and ing the patients and the business. Concur- Palo Alto Center, and Alta Bates Summit absorption into health systems are leadrent with this consolidation, a significant Medical Center. New construction devel- ing to greater efficiencies, with a more proportion of baby-boomer physicians opments indicate that economic factors pronounced bifurcation in the medical are opting to retire. This has led to smaller now support a valuation indicating that office real estate market. Both large and practitioners’ suites or buildings coming new construction is financially feasible, small facilities are in positive territory, on the market either for sale or for lease. and construction financing is more avail- with larger space outpacing the growth able. This is after many years of valua- in smaller space price appreciation, most Demand has increased for contiguous tions below replacement cost. significantly in the greater Bay Area. spaces over 10,000 square feet, as these About the Author are ideal for development of ambulatory As more physician practices merge into care facilities and group practices, while health systems to take advantage of the Kathryn Sturgis-Bright, MAI, demand for properties near hospitals efficiencies, demand will continue to inMBA is an Associate Director and medical center campuses continues.1 crease for real estate housing that can with Navigant Capital Advi(Please see “Point of View: Medical Of- adapt to these functions. While the marsors, the dedicated corporate fice Building Clusters” elsewhere in this ket moves toward this centralized model issue.) On the other hand, there has been and away from supporting real estate for finance business unit of Navigant Consulting, a moderate trend for small, older tradi- small private practices, the anticipated Inc. (NYSE:NCI), in the Valuation & Financial tional MOB space.2 While one could sur- overall growth in the number of insured Risk Management practice. Ms. Sturgis-Bright mise that many older MOBs sold require patients still provides some positive sup- is based out of the San Francisco office.

•

1. Navigant leveraged June 2014 data from CoStar to calculate trends.

2. Ibid.

3. “San Francisco Office Rents Jump 14 Percent, On Pace to Surpass Manhattan,” San Francisco Business Times, June 26, 2014.

4. Navigant leveraged June 2014 data from CoStar to calculate growth rate.

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THE HEALTH CARE SERVICES MASTER PLAN How does it affect zoning and approval of medical uses such as hospitals and medical office buildings? © 2014 by Claudia Flores, City Planning Department of City and County of San Francisco

The Planning Department and the Department of Public Health (SFDPH), with extensive community involvement, completed the Health Care Services Master Plan (HCSMP) as of December 26, 2013. The HCSMP provides extensive community health data, identifies the current and projected needs for health care services in San Francisco, and makes recommendations on how to achieve and maintain an efficient and equitable distribution of health care services in the city. The HCSMP will also guide land use decisions and inform the location and development of health care–related projects and infrastructure in the city. Medical use projects, such as hospitals, medical office buildings, and clinics will be subject to review against the plan’s standards.

The plan does not effectively restrict or change the zoning designation of individual properties or areas of the city. It merely provides data to inform future projects of where the infrastructure is currently and will be located, where there are areas of need and demand in the city, and how different zoning designations treat different medical uses.

The plan does make recommendations to facilitate access to certain areas of need, such as Guideline 3.1.7: “Complete the rezoning of the Bayview Health Node, as envisioned by community residents in the adopted Bayview Redevelopment Plan.” This rezoning would make zoning in that specific area more permissive for medical uses. The Planning Department and SFDPH are currently working on implementing this and other guidelines and recommendations that fall under their respective purview (others fall on other agencies or individual development projects to implement).

Plan Exhibit 76. Hospitals permitted (green = permitted “as-of right”; blue = conditional use)

The plan also states a rough estimate of need for future space, based on projected employment density in the health care services sector and on population growth by 2035, of approximately 3.5–4.2 million square feet of medical uses, with 2.7 million square feet in the development pipeline.

Projects There are a number of recently completed development projects in San Francisco, some under construction or awaiting final approval, including the following:

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• • •

•

UCSF Medical Center at Mission Bay: to open in 2015 (see “Healing Environment at UCSF Medical Center at Mission Bay” elsewhere in this issue) CMPC Cathedral Hill & St. Luke’s Hospital renovation: approved in 2013 South of Market Health Center: completed and opened in 2011 Nonprofit Northeast Medical Services: opened a number of clinics throughout a few San Francisco neighborhoods such as the Portola, Sunset, and Richmond districts Nonprofit Southeast Health Center renovation: to be completed in 2015 or 2016 Nonprofit

With the adoption of the plan, projects that meet certain thresholds, such as these, now have to be consistent with the HCSMP.

Plan Exhibit 77. Clinics permitted (green = permitted “as-of-right”; blue = conditional use) (Continues on page 12) 9

RESTAURANT

REPORT

“The Pier” at Mission Bay © 2014 by Anna Rowland

To help satiate the growing demand for quality-of-life amenities in the workplace, Alexandria Real Estate Equities, Inc. selected a team to design and implement a variety of appealing amenities to attract tenants to the uniquely positioned 499 Illinois St. development in San Francisco’s Mission Bay. The design team, consisting of DGA (architect), Bon Appétit Management Company (restaurant manager), and EDG (interior designer), collaborated to execute the owner’s vision for an enhancement known as “The Pier,” which centers on reconfiguring the interior of the building in order to connect it to the water, from Illinois St. through to Terry Francois Blvd. The concept entails removing walls to improve flow from the street level of the building to the second floor, allowing movement into a new café/lounge area with an outdoor dining terrace with bay views,

PLAZA

FURNISHINGS

Planter Box

Dining Chair

Dining Table

Picnic Bench

Fire Pit

EDIBLE GARDEN

Lavender ‘Gross’ - 36” Height

Rosemary ‘Blue Spires’

Dwarf Citrus: Meyer Lemons Cara Cara Oranges

Artichokes

Feijoa sellowiana / Pineapple Guava

Limonium perezii

Kumquats

PLAZA

499 ILLINOIS COMMON AREAS

April 14, 2014

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then to a pathway leading into a plaza and recreational areas beyond. The café provides a vital link between the inside and the outside, as well as a collaboration hub for those who are part of the building’s business community.

Once this direct flow from building to bay was established, the stage was set to focus on the design of a café that is bright and expansive, serving as a prime amenity for building tenants and as a neighborhood landmark, drawing clientele from nearby businesses and residences. Both the interior and exterior of the 4,700-square-foot café, Stem Kitchen and Garden, were designed using both natural and Old World textures to create a casual meeting space rather than a formal sit-down restaurant. Banquette seating faces outward while long farm tables in the central dining area invite informal collaboration over coffee and laptops.

Beyond the café’s covered, heated dining terrace with bay views is the edible garden that was carefully planned out with the assistance of Antonio Bava Landscape Architects and Bon Appétit Management Company. The garden adds a farmto-table element to the café, supplying the chef with fresh vegetables and herbs year-round (one planting for the colder season and one for warmer weather), with the menu adapting to the growing cycle of the garden. Diners can enjoy panini on San Francisco sourdough with braised artichokes, English peas, and ricotta; or roasted eggplant soup with marinated shelling beans and coriander, while the grab-and-go customers can take out a satisfying meal such as a salami-and-coppa hoagie with grilled sweet peppers, balsamic onions, mozzarella cheese, and arugula.

Past the chef’s garden is a patio with seating for over 100, fire pits, and a boccie ball court, making it the perfect venue for a happy hour at the bayfront and allowing tenants to take full advantage of the building’s bay location from morning to evening.

Additional tenant amenities include a large meeting room for 150 that opens out onto the main plaza, with the convenience of the café to provide event catering; a 6,430-squarefoot fitness center that opens onto a separate, lower plaza and incorporates a bike tune-up facility, cardio area, yoga studio, weight room, showers, and lockers; and access to the adjoining city park with an outdoor boot camp circuit.

With the design of new features that focus on connection to nature, as well as tenant comfort and convenience, the building is now completely leased, having attracted some of the brightest biotech companies, such as anchor tenant Illumina, Clovis, and Medivation; and UCSF, which has established a state-of-the-art clinical and translational research unit focused on endocrinology. The project is currently under construction and due for completion in September 2014.

About the Author Anna Rowland is a freelance marketer, graphic designer, and photographer specializing in the A/E/C industry. She is also an avid traveler who recounts her wanderings on her travel blog, www. passportandjournal.com.

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(Continued from page 8)

3.5–4.2 MILLION Projected number of medical use facility square feet needed to meet patient and staffing demands by 2035. Much of this need (2.7 million) is likely to be met via existing plans for medical use development.

Consistency of medical use projects with the HCMSP The Planning Department must now issue a “consistency determination” stating whether certain medical use projects align with the plan.

Applications that meet the size thresholds of either 5,000 gross square feet of floor area for a proposed expansion of an existing medical use or 10,000 gross square feet or floor area for a new or change of use to a medical use require such a determination by the Planning Department. SFDPH and the Planning Department worked closely with the health care delivery community to make this process incentive based and aligned with other project review. A project that meets guidelines identified as “eligible for incentives” may receive a “recommended for incentives” designation along with its consistency determination, and therefore priority processing or other appropriate incentives.

Delivering quality health care requires that developers and health care providers work together to plan and execute projects. It also necessitates active coordination with the public sector, in particular throughout the development and construction process, to ensure not only that projects are financial feasible and health care is ultimately delivered but also that they meet the requirements of a local jurisdiction and needs of the community in which they’re located. The HCSMP is a community- and data-driven document that will not only inform and facilitate the siting and development of health care facilities but also guide broader health planning in the city in order to achieve community health and wellness.

The City looks forward to working collaboratively with project sponsors and the larger San Francisco community to implement the plan.

About the Author

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T O D AY

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W W W. C R E W S F. O R G

The Healing Environment of UCSF MEDICAL CENTER AT MISSION BAY

UCSF Medical Center at Mission Bay (Mark Citret)

Interview with Cindy Lima, Mission Bay Hospitals Project Q: There is a lot of buzz around this project. What is the scope?

A: It’s a $1.5-billion, 878,000-gross-square-foot, 289-bed health care complex involving three specialty hospitals: UCSF Benioff Children’s Hospital, UCSF Bakar Cancer Center, and UCSF Betty Irene Moore Women’s Hospital, as well as the Gateway Medical Building, which will house outpatient services for all three programs plus a helipad.

Construction will be completed in a matter of weeks, and the facility targets February 1, 2015, to open. We are on time and under budget.

Q: How is it setting a new standard for patient and familycentered health care?

environment: from the incorporation of nature and art, to the degree to which the entire design is built around supporting patients to heal and doctors and staff to be productive toward that end.

Q: You mentioned the incorporation of nature in the project.

Tell us about that.

A: Yes, it’s pretty extensive. First, the facilities are filled with light, in many areas right in the core of the building. We’ve got 60,000 square feet of rooftop gardens, the majority accessible; another 100,000 square feet of landscaping on the surrounding grounds; and fresh air patios on all patient care floors. The air throughout the hospital will be 100% fresh. There is a meditation garden on the first floor that includes a labyrinth and wooden features. To the extent we could, we’ve used natural products like reclaimed and locally harvested wood and rubber flooring and have carefully selected finishes and furnishings to create a more healthful environment.

There are garden, water, and city views from nearly every patient room.

A: UCSF Health System deeply values and respects the importance of involving and supporting the entire family in the care of our patients.

We designed the facilities to support not only the patient but the entire support system, for example, by making all rooms private, with space to accommodate overnight visitors; providing support spaces for families, such as community and private meditation spaces; and practical One study often cited revealed the support, such as family lounges, washers positive impact that looking at nature and dryers, and an in-house Ronald had on healing time and its beneficial McDonald House.

Q: What does it mean to create a “healing” environment, and why does it matter?

psychological impact compared to looking a concrete wall. That, along with common sense, has really opened up a new thinking for health care environments.

A: The importance of the environment and its effect on healing has come to light in recent decades. If you think back, hospitals used to be large, sterile, white wards with patients lying one next to the other. One study often cited revealed the positive impact that looking at nature had on healing time and its beneficial psychological impact compared to looking a concrete wall. That, along with common sense, has really opened up a new thinking for health care environments. This new complex will, I believe, set a new benchmark for the creation of a healing

Q: It sounds like UCSF has taken art very seriously. How so?

A: One of our guiding principles was to incorporate art into the very fabric of the environment. Following the vision of former Chancellor Bishop, we allocated 1% of the construction cost to art. We established an art advisory board and art committee that included patients, parents, community members, physicians, staff, and artists. Working with the advisory board and an art consultant, we invited renowned artists to hear about our mission of caring, healing, teaching, and discovering; tour our existing facilities; and meet with patients and staff and learn about our vision for Mission Bay. They were invited to see what inspired them, and their creativity has been astonishing.

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Q: What are some examples of the art and artists you’ve commissioned?

A: We’ve got at least 10 commissions completed or almost done with international artists including:

• Spencer Finch, whose colorful, starburst light fixtures are hanging in the Gateway Medical Building’s two-story main lobby; • Jessica Stockholder, who has created an entire experience for the UCSF Benioff Children’s Hospital, including exterior sculptural benches, colorful cutouts of antique glass along the entrance vestibule with an interior three-dimensional frieze, and a 22-foot sculpture and uniquely shaped orange ceiling in the lobby; • Claire Rojas, a local artist who is currently covering an outdoor amphitheater in primary-colored mosaic tile; and • Ranjani Shettar of India, who created an airy, muslin-covered wire mobile that gently dances in the two-story space of the women’s and cancer lobby in the outpatient building.

Q: Are you including others in the development of art?

A: Yes, absolutely. Patient art will be throughout the facilities, most of it generated through art programs offered by our Child Life Department and the Helen Diller Family Comprehensive Cancer Center’s Art For Recovery program. We’ve also commissioned a New York artist, Shinque Smith, who has street-art flair. She has held workshops with patients and will incorporate their writings into her art in the first floor lobby. Another project will integrate hundreds of small canvases painted by patients, families, doctors, and staff on a large, curved wall, and a local school will be creating ceramic tiles for our family patios in the patient care units.

Q: What design elements for children have been incorporated into the UCSF Benioff Children’s Hospital?

A: Probably too much to describe here, but I’ll give you a flavor. From the onset, we set a goal to establish “sophisticated whimsy,” a sense of wonder and delight and discovery, as well as distraction. In other words, not cartoonish or pedestrian art but thoughtful, unique, diverse, and engaging art that was relevant for all ages. We have been creating a place that children know is built for them— the cube-shaped hospital with colorful dichroic glass tips them off from the outside, while inside the changing color is splashed by the sun onto the floors and walls.

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In the children’s hospital lobby, there will be a custom-designed electronic wall that children can interact with and send their creations through social media, as well as a very fun interactive mechanical installation by the Exploratorium through a generous grant by the Salesforce.com Foundation.

There are really a million features for children throughout: from the elevator lobbies’ handcreated discovery murals by Dave Muller, to unique imaging environments resembling Muir Woods and a cable car to help ease children’s anxiety and make procedures like an MRI much easier, to the child-sized door of our gift shop.

Q: Do you feel that being a woman influenced your abilities and what you brought to this project?

A: Well, that’s a tough one. I’ve never really thought about it. I have been aware at times of being the only woman, or one of the only women, in a room. I suppose the ability to multitask, really multitask, which seems to be something women do very well, has been a tremendous help given the complexity and multiple stakeholders involved. I do think women tend to have a strong peopleintuition, communication and facilitation skills, and maybe most important, the ability to see the whole of situations from many perspectives at the same time. I think all in a moment most women are able to quickly identify the real issues, know what’s just noise, see whose ego needs feeding, imagine how to get a win-win, support those who need it, infuse creativity, skip from point A to point D, be the bad cop or good cop, herd and organize the cats, and get the work done. I think this is in the DNA of most women, and they need to trust it.

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View of bay from the colorful child life areas that house a school, teen room, digital arts studio, play room, broadcast booth, and creative arts studio all for hospitalized children and their families. (Mark Citret)

Art by Ranjani Shettar hangs in the outpatient area of the UCSF Betty Irene Moore Women’s Hospital and the UCSF Bakar Cancer Hospital after returning from a long voyage to India. (Mark Citret)

About the Authors Cindy Lima has been the Executive Director of Mission Bay Hospitals Project since 2004. She worked with UCSF Medical Center for over 25 years, joining the center just a few years after graduating with a master’s degree in Business, Health Services Administration from the University of Wisconsin.

Donna Schumacher is the founder and Creative Director of Donna Schumacher Architecture, a boutique architecture firm specializing in one-of-a-kind signature elements for interiors. She has led dozens of successful projects during her 30-year career, including the San Francisco Arts Commission Gallery and SFCameraworks.

View from mediation garden toward the UCSF Betty Irene Moore Women’s Hospital and UCSF Bakar Cancer Hospital.

(Mark Citret)

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