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Medical Providers Fill Vacancies — Heartland Dental

Published on April 5, 2017

As demand grows for health-care services to be more accessible, landlords are trying to attract medical practitioners to their slumping malls and strip centers.

The lure: customizable space that is often close to where clients live and work.

In the past, doctors, dentists and other practitioners preferred to hole up in hospitals and traditional office buildings. But the success of “doc-in-a-box” clinics in strip centers that provide quick fixes for people suffering from minor ailments is prompting them to start identifying themselves as retail tenants, brokers and health-care providers said.

Instead of hiding them in a medical office complex, we’re transitioning to better locations so that the community is more aware of them,” said Jacob Niebrugge, vice president of development at Heartland Dental LLC. “It’s all about exposure for the doctors and their teams.”

PROPERTY REPORT

Heartland Dental, which provides business and practice-management services to dentists, supports 775 clinics across 34 states. It stopped opening new clinics in medical office buildings in 2011, and plans to open 36 this year in retail centers. So far, the organization has opened new dental offices in grocery-anchored shopping centers rather than enclosed malls, as the former draws more daily foot traffic.

Mall landlords worried about rising vacancies as retailers close stores are also trying to woo these newcomers. Vanderbilt University Medical Center, for instance, occupies the entire upper floor of the 100 Oaks Mall in Nashville, Tenn., where patients can get an ultrasound and then shop at TJ Maxx on the ground level.

“If someone comes to see a doctor, it’s likely an upscale consumer who can afford insurance and that’s going to attract a landlord,” said Greg Ferrante, a senior vice president at JLL, a Chicago-based real-estate services company. “These consumers would have more money to spend at the retail property.”

An advertisement to attract tenants at White Marsh Mall in Baltimore said the space is ideal for a medical office. The mall, which has J.C. Penney , Macy’s , Sears and Boscov’s as anchors, is currently in lease negotiations with potential tenants in the medical field, said Mr. Ferrante.

While landlords are eager to bring in health-care providers as tenants, in some cases they would have to renegotiate with existing tenants because previous lease agreements might have clauses banning medical uses, said Melina Cordero, head of retail research at CBRE, a Los Angeles-based property-services firm.

Doctors also are seen as having better credit ratings compared with smaller retailers. The flip side, however, is high build-out costs. Some medical offices require reinforced walls, extra plumbing and enhanced electrical utilities compared with the average retail tenant.

Mr. Niebrugge said when he is in discussions with landlords he tells them the average upfront cost to fit out a Heartland Dental office is around $215 a square foot.

“There’s silence on the other end,” he said. “They think it’s astronomically high.”

Landlords typically provide an allowance averaging $45 a square foot to tenants to retrofit the space, and the tenant is on the hook for the remaining cost, he added. This means health-care tenants are likely to sign longer leases to make it worthwhile. Health-care real-estate landlords, meanwhile, are looking to add retailers to their premises.

Toledo, Ohio-based health-care real-estate investment trust Welltower Inc. is planning a 15-story senior-living center in Midtown Manhattan, with 12,000 square feet of retail space on the ground floor that is slated to open in 2019. Stores could include pharmacies, financial services and food and beverage options focused on wellness.

“We’re looking at how to use retail to enhance the lives of the people living in the building and also how retail could draw people to this community of aging seniors,” said Tom DeRosa, chief executive of Welltower.

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