Setting the Record Straight on the Group Effort in Ventura

In the March 2007 People News section of Southern California Physician, a misquotation attributed to me gave the impression that I alone was responsible for the success that resulted from the medical staff lawsuit against Community Memorial Hospital in Ventura. Nothing could be farther from the truth.

The medical staff's cause was truly a cooperative effort and was a representation of what physicians can do, working together, when they are committed to doing what is right. In addition, the support given by organized medicine was of incalculable value.

No individual physician operates in a vacuum. It is only through unity of purpose as espoused by our local, state and national medical associations, in conjunction with strong, independent medical staffs that we will be able to survive in an evermore repressive and hostile medical environment.

John V. Hill, MD
Orthopedic Surgery
Ventura

Answering Questions About Soaring Lease Costs

If there is any question about medical office leasing rates heading north, our firm's research shows that rates are app-roaching $5-plus per square foot for Class A properties in Beverly Hills and Santa Mon- ica and approaching $3.50-$4 in the San Fernando Valley, Glendale and Pasadena.

As a result of growing demand and relatively little new construction, rents have increased up to 40 percent in the past five years and vacancy rates have dived to 5 percent or less in many areas of Southern California and to about 2 percent in West Los Angeles.

Recognizing that physicians will pay higher rents, developers are slowly getting to the point where they believe it will be possible to add new facilities by passing on high construction costs to the end-user.

However, our research shows that new buildings may be two to three years away. And, as might be expected, rising prices for medical buildings have driven cap rates (the rate of return for the first year of ownership) to new lows in the range of 5 percent to 6.5 percent.

Foremost among the factors pushing up leasing rates and prices for medical buildings are high construction costs and the serious shortage of land--particularly in areas close to hospitals. And this problem will continue.

However, as a result of advances in technology, many physicians have recognized that they can perform numerous procedures on an outpatient basis in their own freestanding medical buildings and that they no longer need to be next door to hospitals.

Another looming opportunity for physicians to increase and diversify revenue streams comes from the rising number of acute hospitals that will be sold as a result of the state's mandated yet costly seismic retrofit requirements.

To capitalize on this situation, physicians, by forming consortiums, can buy such facilities. Century City Hospital and Olympia Medical Center are two examples. But, as in any purchase of an expensive asset, due diligence is mandatory.

Michael Dettling
Director, Ramsey-Shilling Healthcare Real Estate Group
Los Angeles