uli healthcare real estate northwest · 26/10/2011 · rising market trend- new development and...

| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011

ULI Healthcare Real Estate Northwest

Kaiser Permanente National Facilities ServicesInnovations in Real Estate Development &Strategic Portfolio Planning

Michael J. HuacoVice PresidentBusiness Strategy & Corporate Real EstateNational Facilities Services

| © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente HospitalsOctober 26, 2011 |

Recognized as one of America’s leading health care providers and not-for-profit health plans

8.8M members

36 hospitals593 medical

offices

9 states and the

District of Columbia

15,129 physicians164,098 employees

$44B operating revenue

Kaiser Foundation Health Plan

Permanente Medical Groups

Kaiser Foundation

Hospitals

Kaiser Permanente is an Integrated Health System


Kaiser Permanente’s Full Spectrum of Access to CareHigh Access

Low Cost High Cost

kp.org

Telemedicine

MobileServices

Employer Clinics

Small Clinics

Primary Care with Ancillaries

with Primary Care

Small Hospitals

Hospital with Hospital based Specialty Care

High Acuity

Specialty Hub


KP 2012 Real Estate ForecastKP’s strategic growth relies in part on managing the 54M square foot, $20B real estate portfolio, which is a strategic enabler that supports Mission Effectiveness, Brand and Access. This forecast is intended to advise on market trends that affect KP’s facilities portfolio highlighting risks and opportunities as the economy improves and the real estate market rebounds.

Total 2012 KP Portfolio is 54M sf MOB’s make up almost 50% of the portfolio. Hospital’s make up 28% of the portfolio. Projected net portfolio growth over next 5

years is 14% or 7.5M sf. MOB’s will comprise 60% of future portfolio

growth.

Portfolio Statistics

14,975,05128%

25,658,22848%

9,214,49817%

2,741,1765%

1,040,6162%

SF by Property TypeHospital MOB Administrative Support Warehouse

KP’s Real Estate Portfolio


Kaiser Permanente Real Estate HoldingsKaiser Permanente occupies 53.6 Million Rentable Square Feet across 9 states and 1,015 Buildings. Kaiser operates 36 Hospitals

program-wide; with 34 in California and 1 each in Hawaii and Oregon. Kaiser also operates over 610 Medical Office Buildings.

Source: CAFM/Lease Admin and REM discussions, October 2011

*Excluding Other Kaiser Sites, Land, Parking and Residential

Northern CaliforniaBuilding Type # of Buildings RSFHospital 22 6,664,917MOB 233 9,923,166Support 46 1,353,718Warehouse 9 424,476Administrative 129 3,969,017Total 439 22,335,295

Southern CaliforniaBuilding Type # of Buildings RSFHospital 14 7,262,479MOB 199 8,601,260Support 17 799,243Warehouse 16 486,520Administrative 77 2,899,238Total 323 20,048,740

Pacific NorthwestBuilding Type # of Buildings RSFHospital 1 574,107MOB 47 1,617,195Support 5 250,923Warehouse 1 16,500Administrative 18 652,306Total 72 3,111,030

HawaiiBuilding Type # of Buildings RSFHospital 1 473,548MOB 21 620,106Support 0 0Warehouse 1 14,839Administrative 8 267,173Total 31 1,375,665

Mid-AtlanticBuilding Type # of Buildings RSFHospital 0 0MOB 40 1,801,946Support 3 113,467Warehouse 1 31,800Administrative 10 432,793Total 54 2,380,007

ColoradoBuilding Type # of Buildings RSFHospital 0 0MOB 28 1,534,494Support 3 201,636Warehouse 1 27,860Administrative 8 548,340Total 40 2,312,331

GeorgiaBuilding Type # of Buildings RSFHospital 0 0MOB 29 856,202Support 0 0Warehouse 0 0Administrative 9 322,263Total 38 1,178,465

OhioBuilding Type # of Buildings RSFHospital 0 0MOB 15 703,858Support 1 22,189Warehouse 1 38,621Administrative 4 123,367Total 21 888,035

Other Kaiser SitesState Property Use Status # of Bldgs. RSFConnecticut Administrative Leased 1 3,420Illinois Administrative Leased 1 8,065New York Administrative Leased 1 7,505Total 3 18,990


Managing KP’s Real Estate Portfolio – Market Cycles The national Real Estate market is entering into an upward cycle from several years of flat

or negative growth. Several key urban markets are recovering and significantly improving faster than the

national market. (San Francisco Bay Area, NY, Los Angeles, Denver) The stock or inventory of distressed assets Office, Retail, Land, has greatly diminished

over the past 24 months, driving projects to green field sites or new development.

KP Real Estate Sales 2006 - 08

KP Building Acquisitions

Distressed Assets

2006 2009 201020082007 2011

New

Cons

truct

ion

Over

Sup

ply

Rising market Incline slowing Falling market Decline Slowing Rising market

US Market Cycle — 2006 to 2013*

2012 2013

Rising Market Trend- New Development and

Construction, Pricing Risk

• 2006-08 NFS Real Estate proactively sold excess real estate generating over $100M in revenue.

• 2009-2011 KP aggressively capitalized on market downturn buying distressed and foreclosed office and retail assets well below replacement cost.

• 2012 – Forward rising prices and scarcity of product will drive KP towards new delivery models, 3rd party developers, bundling contracts, joint ventures, systemized construction, asset swaps.

Pricing Risk

Proactive Portfolio Management Leverages Market Cycles


Repurposing Existing Building For Medical Use –Buying Distressed KP has programmatically undertaken Asset Repurposing as a strategic tool to reduce

capital costs and improve time to market. • Total construction cost benefit ranges from 20% to 30%• Timing benefit from 9 to 12 months shorter construction period

KP has purchased over $1B of distressed assets over the last 36 months, totaling over 3M square feet and delivering capital savings of approximately $180M.

32-36 monthsTiming$705/sf*Total Project$580/sf*Build New$125/sfBuy Land

Traditional KP Delivery Model100,000 SF Medical Office Building

18-24 monthsTiming$590/sf*Total Project

$340/sf*Repurpose Building Medical Use (Improvements)

$250/sfBuy Existing Building / Land

Alternative Delivery Model100,000 SF Medical Office BuildingBenefits

• Capital cost Lower by over $100/sf.• Delivery improved by 12months

Traditional ground up delivery method vs. asset repurposing


Factors Considered for Building Conversion to Clinical UseRepurposing existing buildings combined with adequate front end capital investment resets the lifecycle age to as much as 30+ years.

EXAMPLEPasadena MOB building acquired 2007 completed in 2008

• 60k SF MOB• Building originally built in mid 80’s• *Purchase Price $26.5M 2007• Total TI Capital Spent $22M 2007-08• Useful Life 30+ years

Meets Business Requirements Transportation Access Visibility

Meets Business Requirements Transportation Access Visibility

Medical use zoning and permitteduses


Prefer steel frame building type IIConstruction

Prefer steel frame building type IIConstruction

Prefer floor plate size of 20k to40K SF with a central core

Prefer floor plate size of 20k to40K SF with a central core

Prefer upgraded MechanicalElectrical Infrastructure

Prefer upgraded MechanicalElectrical Infrastructure

Prefer buildings that have been up-graded to modern codes (i.e., asbestos, ADA, Fire/Life safety, etc)

Prefer buildings that have been up-graded to modern codes (i.e., asbestos, ADA, Fire/Life safety, etc)



Either meets or can meet 5 spacesper 1K SF of space

Either meets or can meet 5 spacesper 1K SF of space

Prefer buildings built post 1975 dueto environment and code issues

Prefer buildings built post 1975 dueto environment and code issues

CRITERIA DESCRIPTION

Location

Parking

Zoning

Floor Plate Size

Structural

Mechanical/Electrical

Building CodeUpgrades

Environmental

Age

Existing Building

Initial Investment New KP

Infrastructure

$

Completed Refurbished

Building KP MOB

Plus 30-Yr Life

*Amount of purchase price allocated for MOB

Initial KP Capital Investment Will Reset the Lifecycle Clock


Converting Office Product to Medical - Recent Projects

Location: 859 South 4th Avenue, Brighton, COSize: 27,500 Square FeetOpening Date: August 2011

Brighton, CO

Location: 5855 Copley Drive, San Diego, CASize: 171,684 Square FeetOpening Date: 2011

Copley - Kearny Mesa


Converting Office Product to Medical (Larger MOB’s) – Recent Projects

Location: 8008 Westpark Drive, McLean, VASize: 237,000 Square FeetOpening Date: August, 2012

Germantown, MD

Location: 655 & 675 Watkins Mill Rd, Gaithersburg, MDSize: 200,000 Square FeetOpening Date: March 19, 2012

Tyson’s Corner, VA


Converting Office & Retail Product to Medical SCAL – Recent Projects

Location: 13000 Peyton Drive, Chino Hills, CASize: 133,000 Square FeetOpening Date: 2013

Chino Hills, CA (Retail)

Location: 18600 S. Figueroa, Carson, CASize: 183,362 Square FeetOpening Date: 2013

Carson, Ca


Kaiser – New Gateway Medical Office – LEED Gold PlansThe Kaiser Gateway MOB will utilize an existing 32,000 SF singlestory former Circuit City. Primary Care

To enhance member satisfaction daylight and views will be used throughout the centralized waiting area and central corridor.

To enhance the member experience and improve member satisfaction daylight and views will be used throughout the centralized waiting and the centralcorridor.

Exterior BeforeExterior After

The project is intended to achieve 2009 LEED for Healthcare Gold. • Bike parking, parking will be provided for 5% of all employees at Gateway.• Creating areas of respite for staff and our members. • Concrete will contain fly-ash used to maximize LEED req’s.• Design and install a Variable Refrigerant Flow (VRF) system to achieve LEED

Gold Certification. This system uses air-cooled heat pumps with a condensing gas boiler. Outside air for ventilation will be provided.

• On-site renewable energy (Photovoltaic System).

Interior After


Leveraging the Development Community for Project Delivery

Size: 64,579 Square Foot Building, 41 Providers

Location: Elk Grove, California

Timing: Opened 2011

Structure: Ground Lease with fixed Put in year 5

Benefits: Shorten Time to Market Shorten Programming Time Shift of Delivery Risk Lower Capital Cost


Clinical Pod ConceptMajor Benefits:• Rapid Speed from Design to Delivery• High Quality Precision Materials

• Extremely Energy Efficient• Flexible Design


Kona Medical Office Building Replacement Project Kona Medical Office Building Replacement Project

Smart kit of high precision, prefabricated components. Design integrates best-in-class technology with proven methods to create high performance envelope optimized for indoor air quality (IAQ), thermal comfort, natural light and superior acoustics.

Fast and easy install of the kit reduces on-site time and on-site waste. Simple install increases the accuracy and quality of the product.

Low Tech AssemblyLow Tech AssemblyFast: Improved time to market between 20% to 30% vs. traditional construction.

Better : Improved building quality, healthier, no volatile organic compounds (VOC), high air quality, factory built, premium materials

Affordable: Competitive first costs along with energy savings and lower life cycle costs

Green: Greater energy efficiency, high Leadership in Energy and Environmental Design (LEED) specification, 25% less energy consumption, on-site waste reduction, lower carbon footprint

Smart Construction for a Superior ResultSmart Construction for a Superior Result

StateState--ofof--thethe--Art Medical Facility to Serve Growing Needs in Hawaii Art Medical Facility to Serve Growing Needs in Hawaii

Size: 40,000 square foot MOBLocation: Honokōhau, North KonaTarget Opening Date: June 2014

Hybrid ConstructionHybrid ConstructionHigh Precision High Precision Manufactured ComponentsManufactured Components

• 17 provider offices • 30 Exam rooms• Radiology• Pharmacy and Optical

The proposed Kona Replacement Clinic is a showcase model for how innovative clinical technology and state-of-the-art construction support an integrated healthcare model. KP can bring world class care to rural markets struggling with physician shortages and geographic barriers to care.

uli healthcare real estate northwest · 26/10/2011 · rising market trend- new development and...

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