August 27, 2019
By Dennis Kaiser
There has been a dramatic increase in urgent care and accessible primary care medical services operating as “retailers” in neighborhood centers. Kennedy Wilson’s Kyle Fishburn, who specializes in the leasing of anchored shopping centers in Southern California, shared insights into this convergence of retail and healthcare.
He was recently engaged by American Family Care, a national provider of non-emergency room urgent care, to assist in the company’s California expansion. With over 200 clinics and 600 physicians caring for nearly three million patients annually, American Family Care anticipates opening 500 new clinics nationwide over the next five years. Check out what Fishburn had to say in our latest CRE Q&A.
Q: What key factors do you look for in leasing to healthcare tenants in retail space?
A: The key factor is to find locations in heavily trafficked grocery and drug store- anchored shopping centers that will generate repeat customers multiple times per week. Grocery and drug store-anchored centers provide visibility to healthcare tenants, which boosts brand awareness and name recognition in a community. Convenience and easy access for patients are also very important considerations for healthcare tenants seeking retail space. Healthcare users don’t want to have their customers driving around in circles looking for parking while they’re sick or injured.
Q: How are these deals best structured?
A: The healthcare user deal structure is great for the landlord since these tenants tend to be stable and long-term. In my experience, landlords give urgent care centers and similar concepts around six to nine months of rent abatement as well as a tenant improvement allowance because, in return, the tenants generally commit to 10-year deals. These deal structures make sense for both parties because the spaces are expensive to build out, so the tenant must be invested in the space and the shopping center. Urgent care centers rely on regular clientele, and they cannot easily pick-up and move medical practices. From a landlord perspective, the cost of attracting healthcare users is ultimately worth the long-term benefit, especially if they are a national credit tenant such as American Family Care.
Q: How do you identify an ideal tenant mix for this kind of user?
A: Tenant mix is crucial for the success of any shopping center and its tenants. For healthcare users, a special emphasis must be placed on geographic convenience and synergy with the anchors. Ideally, all tenants – anchors, quick service restaurants, daily needs, etc. – support and build off of each other. For example, an urgent care tenant placed next to a drug store is convenient and symbiotic for the businesses and patients. Patients can be seen by a doctor and then get their prescription filled next door, all in one errand. It promotes both businesses, and benefits the community.
For healthcare users, a mutually-beneficial tenant mix could consist of a grocery store, drug store, physical therapy office, vision/dental service providers and massage center, in addition to quick service restaurants and incidental retail in the center, which complement one another to create an ideal customer experience. Additionally, customers are often referred to other tenants within the same shopping center.
Q: Why does this tenant mix work so well?
A: This mix works well because it’s a symbiotic relationship. All of the tenants are building off of each other’s success, and are effectively sharing a client base to create the ideal customer/patient experience. The customer loves the convenience of going to multiple uses within one center. The healthcare tenant contributes to this partnership model because it not only fills a need and attracts people to the center, but it is a stable tenant whose longevity helps solidify the partnership model. When a healthcare tenant such as an urgent care opens at a shopping center, the center becomes even more of a destination. Notably, tenants like American Family Care have a strategic business plan where instead of doctors owning and running the urgent care, the franchisees are savvy business owners who hire top-notch doctors. This allows experts to work within their specialty, and results in a thriving business. At the end of the day, the partnership model works best when all tenants are successful.
Connect Healthcare is coming up October 2 and 3, 2019 at The Resort at Pelican Hill in Newport Coast. More information about the event and registration details can be found here.
For comments, questions or concerns, please contact Dennis Kaiser